Microsoft Office under fire

A host of internet-based rivals are aiming at Office, Microsoft's biggest cash cow. Can the world's largest software group strike back?

The tanks on Microsoft’s lawn are growing in number and firepower.

Never mind the brutal verdict handed out against Microsoft by Europe's competition regulator on Monday. This week three rivals – IBM, Google and Yahoo! – gave notice of their intentions to compete head-on with Microsoft Office, recently the software giant’s biggest earner by far. The stalwart suite of office tools, which includes Word and Excel, accounted for revenues of $4.6 billion – a third of Microsoft total sales – in the company’s most recently reported quarter.

Gallingly for Microsoft, given its dependence on Office licence fees, much of the threat comes from software given away gratis over the internet – a dramatic departure from its licence-based model, in which software is hosted on a user's desktop machine.

IBM this week unveiled Lotus Symphony, a suite of free desktop applications that includes document, spreadsheet and presentation software.
Hours earlier, the newly acquisitive Yahoo! announced that it had bought Zimbra, a start-up that specialises in online e-mail tools similar to Microsoft Exchange and Outlook – key parts of the Office family – for $350 million (£174 million).

At the same time, on the paid-for-software front, Google, the search giant widely regarded as the chief threat to Microsoft’s dominance, unveiled Google Presentations, an online version of PowerPoint, the Microsoft presentations tool known to millions of executives around the globe.

Microsoft is in danger of loosing the Office licence fees it has milked for nearly two decades, some suggest, as customers opt for alternative subscription-based services that are hosted by providers. Its business model – built around the PC – will not survive the internet age, they argue.

"Recent moves from Google and Yahoo! prove that the Internet is the only way forward for business,” said Lindsey Armstrong, co-president of Salesforce.com in Europe, one of the leaders of a new generation of internet-enabled “software as a service” (SaaS) companies.

“Companies don't want to buy and maintain the stack of software that the likes of Microsoft force on them.

“They want innovation, not infrastructure – why bother with costly implementations when you can subscribe to business applications in the same way that you do for other utilities like water and electricity? It’s the end of software – the tides are changing and Microsoft is losing its hold.”

Those sniping at Microsoft may have a point. Google’s new tool, for instance, will be wrapped into Google’s Premier Apps, a bundle of Office-type applications that already includes an online word processor, spreadsheet and e-mail, which compete with Microsoft Word, Excel and Outlook, respectively.

“This constitutes a real threat to Microsoft’s business model,” Tom Austin, of Gartner, the technology analysts, told The Times ahead of the Premier Apps launch earlier this year. “Eventually, it will have to switch from limited-use licences to software as a service. That will require a fundamental re-engineering.”
Kyle Mcnabb, the Forrester analyst, said: “Microsoft will have to move away from licences, but not overnight. The new players still have to earn trust and there are questions over whether new [SaaS services] will work with the way people work.”

Microsoft’s competitors are slowly gaining traction. Underscoring its ambitions, Google last week forged a tie-up with Capgemini, the IT outsourcer, which will make its Apps products available on one million corporate desktops.

But Google needed a boost. It says that Premier Apps, which users access over the internet and which costs $50 (£25) a year per user, has been signing up more than 1,000 small businesses a day and has been adopted by more than 100,000 firms.

Microsoft, meanwhile, can point an estimated 500 million users of Office. The latest version, Office 2007 – launched, somewhat confusingly, in November 2006 – has outpaced Office 2003 in terms of initial sales, the company claims. Since April, it has sold 71 million Office 2007 licences.
Microsoft is not ignoring the shifting environment. But it isn’t buying into the “end of software” line either.

“We think the future is going to be software plus services,” Darren Strange, senior product manager for Microsoft Office, said. “There are some things which thick client [Microsoft’s favoured model, where PCs are linked to a central server but can operate independently] is better at than [web-based services] – offline use being a big one.

“You also can’t create the richness of an application like Word through a thin client [where a user's PC is effectively a dumb terminal and the processing of data is done elsewhere]”.

Mr Mcnabb said that the software plus services model “is credible”. Companies such as Google “are yet to really understand what big businesses need,” he added, though web-based services do offer firms the ability to include more employees – factory floor workers, for instance – under their “IT umbrellas” because of their flexibility and ease of deployment.

Microsoft executives also point to the strategic direction for their company envisaged by Ray Ozzie, the group’s chief software architect – Bill Gates’s old job title. Tellingly, Mr Ozzie, the inventor of Lotus Notes, was brought to Microsoft when the software giant acquired his company, Groove Networks, which specialises in “collaboration software for ad-hoc workgroups”, in 2005.

Microsoft wasted no time in stressing that Groove's "virtual office" software would be incorporated into its own Office line.

“Ray shapes the way we go,” Mr Strange said. “Our smartest people are looking at mash-ups [where several online tools are fused together to create new ones] and web 2.0-type applications [which focus on online tools that allow users to collaborate and share information]”.

Analysts agree that Mr Ozzie is key to Microsoft's future, but warn against anybody underestimating the task before him. Mr Mcnabb said: “Ray Ozzie is instrumental, but he has a tough job. Microsoft is a behemoth and he has to get all the arms pointing in one direction.”

Mr Strange also concedes that Microsoft is not about to turn on a sixpence – and greater agility is one of the capabilities often cited by pure SaaS players such as Salesforce.com. “When you have 500 million customers using a product you have to look hard at how you introduce change,” he says.


http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article2495951.ece

 

They will loose market share every year. The cost are high and updates take longer and longer.

 

Can you please explain more?

 

I was of this opinion as well. However, MS Office may be saved by its Outlook application. It is a good application and has improved greatly with many corporations having it as their de-facto mail client.

Let's look at large corporations for the time being - I know many are migrating mail systems to Microsoft Exchange. I will be involved in a few projects in the next 12-18 months migrating some very large corporations mail infrastructure to Microsoft Exchange from Lotus Notes and Groupwise.
Again, Outlook becomes the default client as it hooks in with MS Exchange so well. Outlook purchasing leads to MS Office being gotton as well (package deal basically).

Just based on the above, I am wondering how the market share will actually be impacted.

There is also the mindset of senior staff and management to get around as well. When working for a startup some years back, I suggested we use Open Office rather than spend money on MS Office and was told it was not an option by the CEO.

Small businesses may be the place where other office suites do take off. Whether they move onwards to larger businesses remains to be seen.