A Sweet Deal In Suite Software

Startup SimDesk is starting to nibble at Microsoft's Office franchise

Simdesk Technologies Inc. is a strange little operation, even for an Internet company. Its chief executive, Louis A. Waters, is not a techie but the retired head of onetime sanitation giant Browning-Ferris Industries Inc. And while it's little known, the 100-person Houston firm has a gargantuan ego. Having won a few deals over Microsoft Corp. (MSFT ), executives are convinced the Redmond (Wash.) giant is obsessed with squishing them before they get too powerful. Among other fears, SimDesk founder Ray C. Davis believes Microsoft may have tapped his cell phone and worries that it has planted a spy in his staff. "I think they'll go to any limits to squelch us," says Davis.

But here's the strangest part: Microsoft should be a tad nervous. That's because SimDesk may be closing in on one of tech's Holy Grails: anytime, anywhere computing on the cheap.

For years, Microsoft, IBM (IBM ), and others have painted visions of a future in which people could easily tap into their programs and information from whichever computer they happen to be using. But SimDesk is the first company to provide that promise in an ultra-affordable way. Individuals can log on to the SimDesk Web site, use basic programs, including word processing, e-mail, and spreadsheet packages, and store their stuff on the company's computers -- all for just a few dollars per person per year. There's no need to spend $399 to buy Microsoft's Office suite of applications.

Microsoft dismisses SimDesk as little more than a gnat in its soup. "They're just another competitor," says Dan Leach, group product manager for Microsoft Office Systems. And the company denies that it has resorted to any dirty tricks to compete with SimDesk.

Yet SimDesk can't be shrugged off. Thanks mostly to a $5 million deal struck in 2001 with the city of Houston, around 200,000 residents have signed up for SimDesk's service. "I love it," says Kathy Hill, an administrative assistant in Houston's North Forest Independent School District. When she visited her father in the hospital recently, she says she was able to log on and continue working on the same document -- "and my boss thought I was still at work!"

More users are on the way. By late 2005, as many as 400,000 Chicago public school students will have access. And on June 24, the state of Indiana was to announce it would make SimDesk available to its 6 million residents. "Anyone who has Internet access now also has free access to a full suite of office software," says Indiana Lieutenant Governor Kathy Davis. "I think this is the real deal. It's one of the things Microsoft is going to have to watch."

To be sure, Microsoft's William H. Gates III need not lose any sleep just yet. SimDesk is not yet profitable, and only now is it cranking up its marketing efforts. Any progress will take time. The new SimIndiana program will at first be rolled out only to a few grade schools and job retraining centers. Indeed, SimDesk's technology -- which is supposedly capable of serving 20 million individual accounts from one server -- hasn't yet been put through its paces on a massive scale. Only about 5,000 Houstonians log on each day, says Davis.


What's more, SimDesk isn't for everyone. While its applications are compatible with Microsoft's ubiquitous Word and Excel, they lack some of the bells and whistles -- including so-called pivot-tables used by spreadsheet mavens to crunch data. More important, people who are used to instant response from PC software may have to wait seconds as even the simplest commands travel to SimDesk's servers in Houston and back. "Most people want the instantaneous response that comes from having programs on the desktop, not some faraway server," says Stephen Baker, analyst at market researcher NPD Group Inc.

Still, SimDesk is creating a buzz with customers, particularly in state and local governments. The company is in talks with public agencies in 31 states, as well as Japan, China, and Germany, for a variety of projects. Many see it as a way to cut their technology costs. By giving SimDesk to government workers who don't need Microsoft's full-blown Office, they can avoid those licensing fees and outsource some of their existing server operations to SimDesk. The city of Houston, for example, has begun shifting 13,000 employees to SimDesk, some via cheap disk-drive-less terminals rather than PCs. Such contracts attracted the attention of computer giant Hewlett-Packard Co., which may supply the hardware for the Indiana project, says one Indiana insider.

Other government agencies see SimDesk as a way to bring their PC-less masses into the Digital Age. Rather than pour money into PC buying programs, they can pay far less to sign up for SimDesk, and then provide access by setting up PCs at libraries, schools, and community centers. That way, even people who don't own a PC can communicate electronically for free, type up résumés, and do homework. Since all the programs and data are stored on SimDesk's own servers, it's no muss and no fuss for government tech managers.

So will SimDesk ever be important enough to truly make it Microsoft's Enemy Numero Uno? Doubtful. The company hasn't garnered the attention of tech industry analysts yet. One well-publicized snafu -- say, lost files or privacy breaches -- could quickly obliterate its credibility with governments. And it must still prove it can earn money when there aren't grants or taxpayer dollars to pay its bills.

Even success will be hazardous. If SimDesk's approach takes off, far more powerful players will likely get in on the game. Given their ability to satisfy the Web-surfing and e-mail needs of millions, there's nothing to stop Yahoo! (YHOO ), America Online (TWX ), or Google from adding SimDesk-style capabilities to their offerings -- and overwhelming the tiny company with brand marketing. Maybe more likely, SimDesk could be purchased. That was Davis' original plan when he founded the company. "My goal was to flip it to AOL or Yahoo, but then the Net bubble burst," he recalls.

He survived, but now that entails taking on mighty Microsoft. If millions of people start using the service and decide they like it, this quirky little outfit could emerge as a significant factor in the computing world. If not, you may hear one more little bubble pop.

By Peter Burrows in San Mateo, Calif.

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