Microsoft Predicts Fastest-Ever Adoption of Office

Photographer: Keyur Khamar/Bloomberg

Microsoft to release Office 2010. Close

Microsoft to release Office 2010.

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Photographer: Keyur Khamar/Bloomberg

Microsoft to release Office 2010.

Microsoft Corp. expects customers to adopt the new version of Office at the fastest pace in the software’s 20-year history, helping reverse a sales slump and fend off competition from Google Inc.’s Web-based programs.

The software has been tested by 8.6 million users, Microsoft said, more than three times as many as any previous version, signaling that adoption will be quick. Users also are likely to upgrade to the new package of business software at the same time they install Windows 7, released last year, said Chris Capossela, a senior vice president in the Office group.

“This version will be the best ever in terms of adoption speed, both because of the interest we are seeing and the Windows 7 adoption curve,” Capossela said in an interview last week. Redmond, Washington-based Microsoft, the world’s largest software maker, held an event in New York today to mark the official release of Office 2010 to businesses.

Microsoft’s $19 billion business division, which gets most of its revenue from Office, could use the boost. Its sales will drop 3 percent in the fiscal year ending in June, UBS AG analyst Brent Thill estimated. While the new software will spur orders in the coming year, the comeback will hinge on whether businesses recommit to technology spending -- something they’ve been slow to do in the wake of the recession.

‘Precarious Recovery’

“It’s still a precarious recovery,” said Sarah Friar, an analyst at Goldman Sachs Group Inc. in San Francisco, who recommends buying Microsoft shares. “We’re in the camp of expecting a more moderate migration. It’s kind of, ‘steady as she goes.’ It’s not a raging rush to upgrade.”

Microsoft said last month that a recovery in corporate spending on personal computers and software was just beginning. Multiyear contracts, which account for 60 percent of the Office unit’s sales, are still taking longer to close because businesses are keeping a lid on expenses.

Home-computer shoppers have fueled the PC industry’s rebound so far, snapping up laptops and netbooks.

“I wish I could predict what business PC adoption is going to be,” Microsoft’s Capossela said. “It’s wonderful to see consumers buying PCs in such numbers. That sets us up for a great consumer uptake. The business uptake will also be excellent, but businesses are certainly slower to start spending money again.”

Microsoft rose 56 cents, or 1.9 percent, to $29.44 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have declined 3.4 percent this year.

Aging Software

More than half of Office customers now use a version of the program that’s at least seven years old, giving Microsoft an opportunity to get them to upgrade, Thill said. For the year starting July 1, the new Office will spur an increase of 12 percent in sales for the business division, he predicts.

General Electric Co. plans to switch about half of its desktop computers, or about 175,000 machines, to Office 2010 this year, Capossela said today. Royal KPN NV and its subsidiary Getronics NV already have put the program on some machines and will roll it out to more than 45,000 this year.

For the first time, Office will include Web-based versions of popular programs like Word and Excel. The company already has 40 million users of Internet-delivered versions of its Exchange e-mail server and SharePoint server programs, which let customers’ employees create internal company websites and collaborate on projects.

Editing Functions

Office 2010 also adds the ability to edit photos and videos in PowerPoint presentations, and co-authoring features let different people work on one file at the same time. Users can select an option to save documents on the Internet, so they can be retrieved when employees are away from the office.

Customers also can broadcast PowerPoint slide shows over the Internet to any user with a Web browser. The Outlook Social Connector turns the e-mail program into a central repository for data from sites like Facebook, MySpace and LinkedIn.

Adding Internet features gives Microsoft fresh ammunition against Google, which has targeted Office customers with its Internet-based Google Apps.

Businesses that already have Office 2007 should just update it with Google Apps to add Internet and collaboration features, Google says. Many workers don’t need a new version of Office, or any version at all, said Chris Vander Mey, a product manager at Mountain View, California-based Google.

“Office is a really good product and every company should have two or three copies,” he said. “But there’s a significant number of employees that don’t need it.”

Google Apps

Google says 3,000 businesses sign up each day for its apps. The company lands a large corporate customer every few weeks, mostly for the Gmail e-mail service, said Andrew Kovacs, a Google spokesman. Recent new customers include packaging company MeadWestvaco Corp. and Air France-KLM Group’s KLM unit, which will have its 11,200 crew members use Gmail.

Capossela said Office programs like Outlook and Word are used by the bulk of workers at Microsoft’s corporate customers. Most employees don’t want to switch to Google, he said. Uploading a file to Google Apps often doesn’t preserve details and formatting, Capossela said.

Microsoft’s push into Web-based programs is motivated more by customer demand than competition with Google, said Friar at Goldman Sachs. Growth in software delivered as an Internet service is going to outpace standard programs by 5-to-1, she said.

“It’s a must for them to have done it -- the world is moving to software as service,” she said. “It’s the biggest shift in the software market.”

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net

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