Microsoft Plays Defense With Office 2003 Pricing

The vendor hopes to convince businesses that its suite is the best client for back-end server-based software and protect itself from lower-cost rivals.
By reducing the price of the upcoming Office 2003, Microsoft is trying to convince businesses that the bundle is the best client for its back-end server-based software, and insulating itself from open-source and low-cost competitors, an analyst said Friday.

Microsoft released Office 2003 to manufacturing on Tuesday, opening the door for computer makers to soon begin offering it on new machines. At the same time, the company disclosed pricing for all retail versions of its market-leading application suite.

"They're trying to get Office in the hands of everyone who could conceivably use it," said Rob Helm, director of research at Directions on Microsoft, a firm that tracks the vendor's moves. "Especially at the low end, Microsoft is beginning to feel a little competition."

Compared to Office 2003's predecessors--Office 97, 2000, and Office XP--the new suite, which will release to retail on Oct. 21 and show up on some new systems from PC manufacturers as early as next month, comes with a lower-than-ever price tag, according to another analyst, Joe Wilcox at Jupiter Research's Microsoft Monitor.

While earlier incarnations of Office generally debuted with prices in the $579 to $599 range for Office Professional, and $479 to $499 for Office Standard, Office 2003's prices will be $499 for Professional and $399 for Standard. In May, Microsoft dropped the price of its current Office XP; the pricing for Office 2003 will follow that exactly.

"The maintained lower pricing is the most significant change in the cost of Office in about eight years," Wilcox said on his online Weblog.

Directions on Microsoft's Helm doesn't necessarily disagree, but he said the real test for large companies will be on Sept. 1, when Microsoft releases its volume pricing plans for the suite.

"The weird thing right now is that the licensing prices are almost the same as retail," Helm said. "That will get fixed, I think, when the volume prices are brought back in line in September." He expects that volume costs will also be lowered.

Microsoft's strategy with Office 2003--and it's at least partially demonstrated this with the pricing announced this week--is twofold, said Helm.

"The company is clearly trying to get Office in the hands of more consumers," he said. He pointed to the pricing to equipment makers, also lower than usual, and the continued $149 price of Office Student and Teacher Edition. "Microsoft's removed some of the red tape involved in Student and Teacher. That, and the OEM deals could give them a leg up on the consumer side, where Corel has made a few inroads."

Microsoft doesn't demand proof that consumers who buy a copy of the Student and Teacher Edition--which is identical in composition to the more expensive Standard Edition--are actually teachers or have a student-aged child in the household. Student and Teacher also allows installation on as many as three different PCs.

The other prong of the Office 2003 strategy, said Helm, is to push the suite as the client to its enterprise-oriented products, such as SharePoint and the collaborative messaging server, Live Communication Server 2003.

"It's telling companies that it's not about Office anymore," he said. Instead, Microsoft is pitching its server-based products and Office as an integrated solution, with Office's applications serving as the front end for users.

"There are some interesting hooks in Office 2003, for instance, that will let users send instant messages from inside Outlook, and that displays a pane inside Office to show you who is online," Helm said.

But companies shouldn't jump on Office just because Microsoft tells them to. "Enterprises should look carefully at Office as a client for these new server products," he said. Instant messaging, for example, can be done with no-cost clients such as MSN Messenger, and portals--where Microsoft is stressing the Office-SharePoint connection--can be accessed with a basic browser.

"Each company should ask whether the Office user interface would really make their employees more productive, or if it's a more effective use of their [technology] investment," he said.

Bottom line, Office 2003's prices are a way for Microsoft to insulate against future competition. The company not only can afford to think long term, but it's in its best interest to do so. "The next version of Office, the one Microsoft says will take advantage of Longhorn, won't be out until 2006," Helm said. "They really need to think about defending their base for the next three years."