A Rehab For Microsoft's Office

The upgrade will improve productivity for employees working in groups

If you're zooming along Interstate 40 outside Raleigh just a little too quickly and a cop pulls you over, you might just have Microsoft Corp. (MSFT ) to blame. For years, North Carolina State Highway Patrol officers have been spending hours each week filling out reports. But these days, the troopers are testing a new software program that lets them fill out the paperwork on computers in their cars and then zip it electronically to their superiors at the station. The highway patrol estimates this capability in Microsoft Office will save 8,000 man-hours a year. That means more cops on the road busting speeders. "It's like having three or four extra people," says Lieutenant Brad Ward.

Office, the most widely used software application in the world, with 400 million users, is getting a much-needed facelift. For most computer users, Office is the familiar suite of word-processing, spreadsheet, and e-mail software that they use every day. It was built to improve the productivity of individual workers. But the new Office, which debuts on Oct. 21, is much more: It's a collection of products called Office System that improves productivity for groups of workers. More than just software that sits on a PC, the new Office includes software for servers, too. The lineup, which Microsoft spent more than $2 billion developing over two years, includes software for managing group projects, setting up Web collaboration sessions on the fly, and making instant-messaging more secure. "It's the biggest Office release since 1995," says Microsoft Chairman William H. Gates III.

The new bells and whistles won't come cheap. The standard package of Office software will cost about the same as before: $399 from a retailer. But a company that wants to take advantage of the new group productivity features could end up writing a big check. The software for Web collaboration, called Office SharePoint Portal Server, will run $5,619 at retail, including licenses for five employees. Office InfoPath, which lets users create electronic forms that make it easier to share and find documents, costs $199 per user.

The new offerings should get Office revenues going again. Office regularly topped 25% growth in the 1990s after Microsoft packaged the programs together, but in 2001, Office's growth dropped back into single digits, and revenues declined 2% two years ago. Analysts think the new Office is compelling enough that it will stimulate demand and help Microsoft reach the goal of doubling Office's $9.2 billion in revenues by 2010. "That's ambitious," but they're taking the right steps, says analyst Rick Sherlund of Goldman, Sachs & Co.

The new Office represents Microsoft's vision for the future of software. It weaves together desktop applications with server software and services -- all to make workers more productive. It's the first in an anticipated wave of Microsoft products where the distinction between applications that run on a desktop, a server, or even the Internet disappears. Then a worker won't be constrained by the information or capabilities of one PC. "You'll just see more and more of that in the years ahead," Gates says.


To get there, Microsoft is trying to expand its influence further into the realm of corporate computing. It faces potent competitors such as IBM (IBM ), corporate-application giants SAP (SAP ), and publishing software leader Adobe Systems (ADBE ), all of which sell collaboration and electronic workflow products. Adobe, for instance, has distributed 500 million copies of its Acrobat reader, which individuals use to view documents. In spite of multiple attempts, Microsoft has not been able to unseat Adobe as the standard-setter in publishing software. "When we stay close to our core competency, we beat them," says Adobe Systems Inc. CEO Bruce R. Chizen.

That's why Microsoft is trying to capitalize on its Office monopoly to gain ground in these newer markets. The company is tightly linking new Office programs with the desktop applications most PC users already have. Microsoft has made it easy, for example, to jump from an Outlook e-mail to an instant messaging conversation using Office Live Communication Server. By piggybacking on Office's 90% market share, Microsoft taps an advantage that rivals can't match. Standard Register Co., a Dayton forms maker, had been developing electronic forms using Adobe technology. Now it's switching to Microsoft. "It's technology that everyone has," says Doug Patterson, vice-president for digital solutions at Standard Register.


Microsoft also has plowed new capabilities for collaboration into Office. Kevin Lloyd, chief technology officer at Barclays PLC, wanted to make it easier for the London bank's execs, who had been e-mailing huge files back and forth, to work together. He's testing SharePoint, which lets employees create Web sites quickly and easily to help them manage projects. This summer, the company set up a SharePoint site to manage quarterly budget planning for technology purchases. Spending proposals were constantly reworked, but instead of sending the latest revisions around and risk losing track of changes, the execs simply posted the latest version on the group's Web site, so that others could review and tweak as necessary.

The new Office System is a downpayment on things to come. Gates expects to release the next major version of Office at the same time as the big overhaul of Windows, code-named Longhorn, which is expected in 2006. With its antitrust case out of the way, the company is freer to link its operating systems and applications. Now, we'll see if its competitors in the world of corporate computing can withstand the seemingly inexorable forces that ground its desktop software foes into dust.

By Jay Greene in Redmond, Wash.

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