Updated May 2 2017. This article originally compared Office 2013 to Office 365. It applies to newer versions of Office as well.

I see a lot of confusion and misinformation floating around about Office 365 and even though I deal mostly with Outlook, it’s time to write more about the different flavors of Office 365.

There are two sides to Office 365: the original hosted services targeted to businesses – Exchange, SharePoint (website), and Lync (online meetings and messaging service) – and Office 2016. If it’s not confusing enough to use one name for two distinct products, there are two flavors of Office 2016: Home Premium and ProPlus. They are basically the same suites, containing the core Office applications - Word, Excel, PowerPoint, Outlook, Access, Publisher - but ProPlus includes Lync and other features used in corporate settings.

I’m going to start with the consumer product, because this is what most people who are the "decision maker" buy. If you are using Office 365 at work, it's likely your administrator or someone else made the decision (and paid for it).

Office 365 Home Premium

Office 365 Home Premium is available for home use (hence the name “Home”) and includes the full suite of Office products: Word, Excel, PowerPoint, Outlook, Publisher, OneNote, Access (the "Premium" part). The suite is $9.99 a month (or $100/year) and includes 5 licenses (and a few additional perks, including 20 GB of SkyDrive space and 60 Skype minutes a month). This is great for multi-computer families and the licenses include Office 2016 for Mac for mixed-platform families. The license also includes the right to use the Mobile Office version for Android and iPhones, on up to 5 devices. (Windows Phone comes with its own Mobile Office license.)

Home Premium is “rented”. You get to use it as long as you keep your subscription paid up. When the subscription expires, it drops to a read-only state – you can read documents and email but cannot create new. Office will need internet access approximately every 30 days to verify the license. If the license can’t be verified, it drops to read-only.

It’s easy to move the license to a new computer – log into your Office account online and click a link to delete the license assigned to the old computer. The Office suite on the old computer drops to read-only and you can use the freed-up license on a new computer. (If the screen shown in this screenshot is not shown when you log in, click the Install Office link on the upper right, not shown in the screenshot.)

Home Premium is licensed for non-commercial use. Business are in violation of the license if they use it on company computers or for commercial work. (An Office-only subscription is available for businesses or subscribe to a plan that includes Office 2016 and Exchange email.)

Special pricing is available for college students and companies with volume licenses may participate in a “Home use” program, where their employees can install Office on their personal home computers. Your college or company will have more information on these programs.

There are non-subscription versions of Office 2016 available that have a semi-perpetual license (not rented), however they include a license for one pc only (not one pc + one portable, the common licensing used in older Office suites) and can be transferred only to one new computer. Only the most expensive suite, Office Professional 2016, includes Outlook, Access, and Publisher. These suites do not include Office on Demand.

In most cases, if you have more than 3 computers, the yearly subscription is cost effective over the long term. If you frequently upgrade your computer, it can be a lot less expensive to rent vs buy.

Note: there is no difference between the Office suites, whether you download or buy a boxed copy. All Office 2013/2016 suites available to consumers and small businesses are "click to run". All addins and macros should work with Office 2016, however, some older addins may need to be updated and some macros may include Objects, Methods, Events, or Properties no longer supported.

For more information about Office 365 for consumers and current pricing, see Compare Office Products

Office 365 for Business

The business side has a few more options and include hosted services (Exchange, SharePoint and Lync) with or without Office software.

The lowest cost Office 365 Business plan is targeted to users or organizations that own Office software (currently supporting Office 2010 and newer, Office 2007 support ends October 31 2017) but want to use hosted Exchange email. This is an affordable plan for consumers or small businesses who own their own domain and want to access their email, calendar, and contacts on multiple computers or mobile devices. A slightly more expensive plan includes Lync and SharePoint along with Exchange. (All plans include an onmicrosoft.com email address if you don’t own your own domain, but I highly recommend investing in your own domain name – it’s well worth the current price of approximately $15/year.)

There are small business and enterprise plans available that include Office 2016. These plans include 5 commercial use licenses for one person (unlike Home Premium which is for 5 household computers). Along with the usual Office applications - Word, Excel, PowerPoint, Outlook, Access, OneNote, and Publisher - Lync is included. (InfoPath is included in some subscriptions.) Some business plans include Office on Demand (described above, accessible in SharePoint).

Both the small business and enterprise plans are available to any size business (or consumer), there is no minimum user requirement. I usually recommend the E1 (no Office) or E3 (includes Office) plans for most businesses because of the additional Exchange and SharePoint features (managed mailboxes, mailboxes support secondary SMTP addresses for receiving email, and more). The plans can mix-and-match within one Office 365 tenant.

An Office-only subscription is available for businesses, however the cost is the same as the Small Business Premium plan, which includes Exchange email.

If you need just Exchange email (and the other services), this is a short list of the companies offering hosted Exchange services.