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The Scary Anatomy of a Microsoft License Fraud

This post was most recently updated on January 7th, 2019.

Tis the season for gifts, and lots of y’all might be thinking about giving out a digital gift. Maybe some of the more practical ones think about gifting someone a subscription of Office 365 – and why not, it’s a pretty useful present, right?

However, you might want to think about where you get that subscription from. Don’t get the bootleg option – you might end up regretting it!

I’ve stumbled upon a few online retailers, that sell Microsoft Office 365 (Microsoft’s subscription-based Office offering) on a one-time-fee basis. Their value proposition is that you only pay them a small fee once, and you get a subscription-based service from Microsoft forever. Compared with continuous payments, a lot of people prefer perpetual license modes, but like the pros of a cloud offering like Office 365.

Does this sound too good to be true? Well, probably because it is. Generally, that’s the rule after all!

Let’s take a closer look, and review one of these companies – this one is called DigitalUpgradeStudios. I find their offering a great example of a combined invasion of privacy and a license fraud – a beautiful scam, all-in-all.

I generally don’t care about people wasting their money, but this case actually has some shady and pretty scary implications, so I thought I’d dig in a bit.

Is DigitalUpgradeStudio a scam or not?

For the most part, yes. They do bait you in, though.

(Don’t want to read the whole thing? Jump to the bottom line!)

That means, that they give you what they promise – Microsoft Office 365 for a lifetime for a price that’s cheaper than anywhere else. It’s just a shame, that they’re not talking about the lifetime of the user, or the service – but about their company. Which is most likely going to only be about 6 more months or so.

Why would you berate an honest businessman like this? Aren’t they allowed to make some money and offer competing services?

Devil’s advocate

Sure they are! I just wished they didn’t commit license infringement, probably intellectual property theft, privacy invasion and finally fraud in the process.

In short, license brokers like DigitalUpgradeStudio are mostly frauds. Why? Let me explain!

The company hasn’t been around for a long time, and they admit this themselves. They even play the “you just haven’t heard from us because we are new and awesome”-card.

A challenger appears! Can the underdog beat a behemot like Microsoft? Everyone is surely on the underdog's side, especially if they help us save money!
A challenger appears! Can the underdog beat a behemot like Microsoft? Everyone is surely on the underdog’s side, especially if they help us save money!

Taking a look into the whois records of their webshop, that has only existed since September, although they launched their Facebook-page already in August.

Whois record for digitalupgradestudios.com (you can check it out yourself at http://whois.domaintools.com/digitalupgradestudios.com)
Whois record for digitalupgradestudios.com (you can check it out yourself at http://whois.domaintools.com/digitalupgradestudios.com)

And the archive.org doesn’t find the site until in October! https://web.archive.org/web/20181027014332/https://digitalupgradestudios.com/

Okay – so they’re new. But that doesn’t mean they aren’t legit! They’re just reselling licenses, what’s wrong with that?

Devil’s advocate

What these retailers are doing, is not actually selling licenses, and especially not selling licenses for a lifetime. Instead, they’re customers of Microsoft themselves – and for a fee, they’re admitting you as a user into their organization, and purchasing you a license from Microsoft. This happens, naturally, only after you pay the said one-time-fee, and your “licenses” are solely based on the existence of their existing customer relationship with Microsoft. Additionally, the definition of said “lifetime” is solely at their discretion.

The lifetime, hence, does not mean your lifetime or the lifetime or “Microsoft Office suite”, or anything like that. It’s the lifetime of the broker’s business relationship with Microsoft.

Some of the reviewers actually note this – and the seller doesn’t really even dispute the risk, but agrees that there are “restrictions”, because “otherwise how would you get such a good deal”.

Right..

The Scary Anatomy of a Microsoft License Fraud

This has some scary implications, but let’s not jump into them quite yet.

Does the business model make any sense?

Since these companies offer a subscription-based product on a one-time-fee, that means that each customer is at their most profitable right after paying the one-time fee. After this, their value dwindles quickly – and starts making a loss after about 6 months.

This means, that they’ll need to either get more and more customers to pay for the new and existing licenses, or get some other value out of the users.

In the graph below, I approximate how their business model will work. For each month of operation (X-axis), I’m approximating the revenue (new users * price of the product), the cost to maintain the licenses (total count of users * price of license per month) and calculate the profit (revenue – cost to maintain the licenses).

I’m approximating the spreading knowledge of the product and raising brand awareness to cause an increase on new monthly customers – e.g., each month, the company gets a bit more new customers than last it did the last month. This causes the revenue to grow pretty cuickly.

The costs associated with the licenses follow a different kind of a curve. They need to be paid for each user – whether they are an old or a new one – each month. This means that the expenses associated with the licenses (the company only gets paid for once) will run as long as the license is active – e.g., forever.

The graph below describes this – even with continuously growing stream of new customers (and their money), profit is dwindling and actually falls below 0 for the 12. month after starting.

The graph shows the dwindling profitability of selling subscription-based products with one-time fee.
The graph shows the dwindling profitability of selling subscription-based products with one-time fee.

The data (shown in the table below) shows the profitability of each operating month. Even with growing user base (I’ve used “100” as the starting point – but you can use 1 000, 10 000 or 1 000 000 as the first number, it doesn’t change the trend), profits will quite simply dry up.

This is not a problem for the company, however. When the balance sheet shows red, they just pull the plug, take the money, and shut down the service.See, you’re not buying anything from Microsoft in this case. You’re renting a lifetime subscription from DigitalUpgradeStudio’s Office 365 subscription – and that lifetime only lasts as long as DigitalUpgradeStudio pays Microsoft for the licenses – e.g., 11 months according to this estimation.

Table of profitability estimates, when your whole business model is about brokering subscription-based services for a one-time fee. It's not profitable for very long.
Table of profitability estimates, when your whole business model is about brokering subscription-based services for a one-time fee. It’s not profitable for very long.

What’s going to happen after that? Well for one, you won’t have your Microsoft Office or OneDrive anymore, since Microsoft is not getting paid for them anymore.

What other value do the companies get from their customers?

Okay – so it’s hardly viable financially. But if they’ve found other revenue streams, they can surely keep this going for a long enough time for the customers to get a good value for their “lifetime” subscriptions, right?

Devil’s advocate

Ah – now comes the juicy part!

You’re essentially paying a company to be allowed to send all of your data to them. They have a free reign over it. You don’t know them. They are probably Russian, or possibly Moldavian. And now they have your files.

Even if you remove your files, they still stay in their recycle bin, and they can restore them. And they probably will.

Effectively, they’ll get your money, they’ll get your files, and once the profit dwindles enough, they’ll shut down the service. Afterwards, they have plenty of time to lay on the beach sipping margaritas and shuffling through your files to see something they can steal, or possibly blackmail you with. 

I just hope nobody associated their phones Camera Roll with the subscription they got from these guys…

This is libel and you should be sued. Delete this article right now!

Devil’s advocate

Hey, I could be wrong. I’d love to be wrong, because I’d hate for someone’s nude selfies (that they upload to OneDrive) end up used in a blackmailing campaign. In the best possible case, maybe the brokers are NOT accessing their customers’ data (even though they certainly can), and maybe they can achieve such explosive and sustainable growth, that they can keep the lights on for years. In that case, users would get discounted licenses for a few years, Microsoft would get their license money, and the broker will probably get a good living out of that.

But I’m not very hopeful.

So it’s almost legit! Just don’t upload anything sensitive or valuable. But is it worth it?

Okay – you’re not worried about giving away your data to be hosted by some random internet people, you’re not worried about license infringements, and don’t care about possibly losing your data. The only thing you’re after, is value – and you want to know, is this a value deal? Let’s calculate!

After all, it’s a lifetime subscription, and lifetime subscriptions for a small fee are awesome! But long do you have for your “lifetime subscription”, if you buy now?

Let’s see… If the business is viable for 11 months, and they started in September – you should be good until next July-August. So if you buy RIGHT NOW, you still have almost 8 months with that $75. That’s about $9 per month.

Or, alternatively, you could just buy a full year for $99 from Microsoft, and not let some internet weirdos steal all of your data. Also, that’s just $8 per month.

Lastly, while DigitalUpgradesStudios is a good example of such license broker, they’re certainly not the only one. You’ll find these same scams also on eBay and other marketplaces. The sellers tend to disappear after a while, though. I wonder why…

TLDR -version

Long story short: It’s a scam – you’ll get Office 365 for a few months only, and you’re sending your precious data to crooks.

Don’t do it.

Tis the season for joy, happiness and giving your loved ones all sorts of ifts – but please buy them something other than shady Office 365 licenses! Merry Christmas!

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Antti K. Koskela

Solutions Architect / Escalations Engineer at Koskila / Norppandalotti Software / Valo Solutions
Antti Koskela is a proud digital native nomadic millenial full stack developer (is that enough funny buzzwords? That's definitely enough funny buzzwords!), who works as a Solutions Architect for Valo Intranet, the product that will make you fall in love with your intranet. Working with the global partner network, he's responsible for the success of Valo deployments happening all around the world. He's been a developer from 2004 (starting with PHP and Java), and he's been bending and twisting SharePoint into different shapes since MOSS. Nowadays he's not only working on SharePoint, but also on .NET projects, Azure, Office 365 and a lot of other stuff. This is his personal professional (e.g. professional, but definitely personal) blog.

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