The company also said it will provide free technical support to businesses that receive software upgrades under the company's controversial Software Assurance licensing program.
The drop in Office XP pricing comes as Microsoft is readying its newest version, Microsoft Office System 2003, for release later this year.
The price reductions range from about $80 to $110, depending on the retailer and whether one buys the full software suite or a separate application, such as the word-processing or spreadsheet programs, said Dan Leach, lead product manager for Office. Leach said the pricing move is targeted mostly at consumers and small businesses.
Microsoft also said it is offering support and training to businesses that have signed multiyear contracts for software upgrades.
The program, called Software Assurance, required businesses to sign up for the contracts to receive automatic upgrades--or potentially face big price increases when they do seek upgrades. The move angered many businesses and government agencies and spurred some to consider switching to Microsoft competitors.
As part of the changes, Microsoft is allowing those with contracts for Office software to let workers install the software on a home computer for business and personal use.
The changes take effect in September.