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Microsoft Tears Down the Old To Sell the New

Posted on: Wednesday, 22 October 2003, 06:00 CDT

It's a strange situation Microsoft Corp. finds itself in: To convince customers that they need to buy the latest version of its Office business software, the technology giant felt it necessary yesterday to engage in a little trash talk about its chief competitor . . . itself.

The company's previous versions of the software line, which encompasses a suite of e-mail, word-processing, spreadsheet and presentation tools, already dominate 90 percent of the market and bring in $9 billion annually, a third of the company's revenue. Analysts said Microsoft's challenge is to preserve that lucrative franchise by encouraging customers to upgrade to the 2003 edition.

Which explains why Bill Gates, Microsoft co-founder and chief software architect, was heard to complain at a kickoff for the new software yesterday that "it's too hard to find things in e-mail" in the just-replaced version of Outlook, the name of Office's e-mail program. Gates also described early versions of the Word text-processing program as "clunky."

"With each version of Office it gets harder for Microsoft to move customers up," said Michael A. Silver, vice president and research director at the research and advisory firm Gartner Inc. Silver said that the 2000 release of Office didn't start to catch on until the release of a subsequent version of the program, Office XP, was released a year later.

In addition to a $500 million marketing campaign, one technique Microsoft is employing to nudge the transition this time around is by discontinuing support of an older version of the software suite, Office 97. Evidently, some customers think this six-year-old version of the Office suite is good enough; Silver said he knows of "plenty" of corporations that still use it.

Whether they install the newest version of Office or not, many of Microsoft's largest customers have already paid for the new version; last year the company announced a plan under which customers would pay Microsoft annually for new releases and bug-fixing "service packs" for Office. Though it was a controversial move at the time, about two-thirds of the largest companies on Microsoft's customer list opted in.

Microsoft is also trying to use the release of the latest edition of the Office software to drive sales for other products where the company is less ubiquitous.

The new version of Office, for example, touts features that let multiple users within a company or organization read and edit the same documents. The new software also enhances the e-mail program, giving users, for instance, the power to decide whether their e-mails can be forwarded or not. But such features will not be fully functional without the support of software from Microsoft used to run an office's back-end computer hardware, Windows Server 2003.

"There are a lot of changes under the hood that customers will find useful," said Joe Wilcox, senior analyst with Jupiter Research. "The most attractive features could require buying another piece of software to get the full value."

Despite the availability of lower-cost alternatives, analysts said they don't expect to see a rush of high-level defections from Office to products such as WordPerfect, OpenOffice.org, a free office software suite, or StarOffice, from Sun Microsystems.

"The bottom line is, Office has huge market share and a lot of companies are really dependent on the file formats," Wilcox said. "I don't see Office market share just suddenly eroding. Office is here for a long time."

For smaller and medium-size businesses that did not opt for Microsoft's subscription plan, the new release isn't necessarily welcome news. With a price tag of $399 for a copy of the "Standard Edition" of Office System 2003, some potential corporate buyers did not look forward to making the investment in new software.

"Great, that's just what I need," said John Capozzi, vice president of Crossroads Consulting, a technical recruiting firm in Washington, when informed of the new release.

Capozzi said his firm would probably upgrade within weeks in order to stay cutting edge. "Once one person gets it, it looks like everyone has to get it," he said. "It's a domino effect."

But the need to upgrade to the latest version of Office is a lower priority for customers who don't need to be seen as having the latest technology.

"I don't see anyone running out to buy it," said Cindy Solomon, general manager of SCD Information Technology, a technology integration firm based in Ellicott City, Md.

"Certainly nobody's calling us to pay $400 for a new Office package when their current one works fine," she said. "Microsoft Office is an expensive office package even if you're just paying for upgrades."

Reported By TechNews.com, http://www.TechNews.com

(20031022/WIRES /)

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