Don't expect Vijay Sonty to get any Customer of the Year awards from Microsoft Corp. (MFST). The chief information officer for Florida's Broward County school system negotiated to pay only $14 per copy this year to outfit 40,000 employees with the Microsoft Office productivity suite. At retail, the bundle of the Word, Excel, Outlook, and PowerPoint lists at $399. But for Sonty, even a $14 annual subscription is still too expensive. That's why over the next three years he plans on cutting his Office purchases to 5,000. In its place, he's buying IBM (IBM) Workplace, which not only includes Office-like applications for employees but also delivers online learning to the district's 274,000 students. His price: $4 per person per year.
For the vast majority of PC users, there's only one way to produce digital words and numbers—with Microsoft's Office. The ubiquitous suite of software programs has a 95% market share and 400 million copies in use. But now, for the first time in years, Microsoft faces some real competition. With a new version of Office set for release late this year, customers may take the opportunity to consider software that's less expensive and easier to use. Like Sonty, they have several alternatives, including Corel's (CREL) WordPerfect suite, IBM's Workplace, Apple's (AAPL) iWork, and the free OpenOffice program, increasingly popular with governments determined to bring Microsoft to heel. Plus, there's a host of free online offerings such as Google (GOOG) Spreadsheets and ajaxWrite, which appeal to youngsters not already hooked on Microsoft products.
Nobody expects Microsoft to collapse under this assault. Most users will figure it's easier to upgrade than to switch from Office, and the streets of techdom are littered with tattered companies that went up against Office and lost. Still, there's the potential for a flowering of choices for PC users. "People are dissatisfied with the status quo," says analyst Jason Maynard of Credit Suisse (CSR). "Who knows if you can break the monopoly, but if we see some innovation, there could be some big changes."
For years, Office's toughest competition has been, well, older versions of Office. Typically, when Microsoft releases a new version, up to 50% of its customers are still using the version from two generations earlier. The company has tried to encourage adoption by offering businesses multiyear contracts that include upgrade rights. But the results have been none too scintillating. According to an October, 2005, survey by market researcher Gartner Inc. (IT), Office 2003 represented just 45% of the installed base of customers that signed those contracts. And for companies that didn't sign up, it accounted for just 2%. This ho-hum attitude shows why sales of Office and related products are expected by Credit Suisse to grow a sluggish 5% this fiscal year. Such is Microsoft's frustration that last year it risked offending customers with a series of ads portraying those who don't upgrade as dinosaurs.
In an effort to gin up demand for the upcoming release, Microsoft has simplified navigation of the programs and improved the "help" function. If a PC user passes the cursor over an icon in Excel, for instance, it launches a little demonstration of how that feature can be used. "We're doing some amazing reinventions of our product to get people to see that there's a lot of new value we can deliver," says Chris Capossela, a Microsoft corporate vice-president.
For people who don't crave the latest bells and whistles, however, OpenOffice can be good enough. It's a clone of Office—meaning that it works similarly and that documents made with one set of programs can be viewed in the other. In four years the software has been downloaded more than 40 million times. While the main draw is for individuals, some large businesses and government agencies are trying it: Banco do Brasil, one of that country's largest banks, has it loaded on 35,000 PCs.
So far, OpenOffice hasn't put much of a dent in Microsoft's market share. That's partly because while its basic word processor documents and spreadsheets are compatible with Microsoft's, more complex spreadsheets and some slide show presentations created in Office can't be viewed properly in OpenOffice.
But that could change. In May, the International Organization for Standardization approved a new technology standard, the Open Document Format, that's designed to assure that any word processor or spreadsheet application using it can communicate freely with any other. Governments, including Massachusetts' executive branch, have decided to adopt the standard. That means no one company—namely Microsoft—will hold the key to being able to look at all of their documents into perpetuity. So far, the standard has been adopted by OpenOffice, Workplace, and some of the new online software packages. "We don't want to be forced to upgrade, and we want more competition," says Louis Gutierrez, Massachusetts' chief information officer.
Microsoft is fighting back. It has come out with its own new file format, which it pledges to license for free to all comers. Microsoft hopes to get approval from the standards group within 18 months. If it does, there will be two competing document format standards—which, some government officials say, would defeat the purpose of having a standard in the first place.
While governments and businesses face all sorts of hurdles if they want to switch from Office, consumers have little holding them back. To try out the latest online applications, all they need to do is point a Web browser at one of the many Web sites offering them. Take ajaxWrite, the first of a series of applications coming from startup Ajax13 Inc. The company's goal is to take the essential functions of Office to the online world—and add Web collaboration. It is a clear play for younger users. "They're the ones who are familiar with the online world. They don't need a box to hug," says Ajax13 Chief Executive Michael Robertson. Analysts expect Microsoft to create its own online applications if demand emerges.
Over time, the software world is expected to move more to online applications. Gartner considers them a serious threat to Office just because they're so easy to use. "For consumers, I don't think you need to pay the premium to buy Microsoft Office anymore," says Credit Suisse's Maynard.
Further down the road, some techies believe productivity applications as we know them will become much less important. Instead of opening separate word processors and spreadsheets, people may tap into those functions within other applications—much as they now use a word processor within their e-mail programs. If that happens, Microsoft Office, rather than the company's customers, will look like the dinosaur.
By Steve Hamm