The latest buzz surrounding Microsoft's planned debut of Office XP this week has had little to do with new features in the desktop software suite. Instead, analysts and users have been embroiled in debate over the way the software maker plans to sell upgrades and licenses for its products.
The lackluster response to the latest desktop software package may be because, other than the death of Clippy -- Microsoft's annoying paper clip help icon, which has been booted from Office XP's default settings -- Office XP will include only minimal new functions, analyst have noted.
"I think it's got some interesting features to it," said Brendan Barnicle, an analyst with Pacific Crest Securities. "I'm not sure that any of those are going to be things that force people to run out and upgrade."
The major improvements to Office XP include new collaboration tools, voice and handwriting recognition functions, improved reliability, a cleaned-up user interface, and a variety of functions that link Office applications to the Internet. While those additions improve on earlier versions of Office -- which includes the Word, Excel, Outlook, and PowerPoint applications -- few corporate and home users are expected to buy into the latest version for its new technology.
Microsoft said it will sell the standard version of Office XP to new users for US$479, with a price tag of $239 for those upgrading from an earlier version. Office XP Professional will be priced at $579 for the full version and $329 for upgrades from Office 97 or Office 2000. Although some analysts said the new features aren't worth the price, what is likely to boost interest in Office XP is Microsoft's new way of selling licenses to customers already running versions of the software package.
By Oct. 1, Microsoft said it will do away with the sale of version upgrades, pushing instead a variety of non-perpetual licensing agreements -- or limited-use contracts -- which the company said are intended to keep users running the latest versions of its software. Critics have called it a measure to keep Microsoft's revenue model afloat.
Changes in the way Microsoft licenses the product to corporate customers are expected to cost them an additional 30 percent to 70 percent each year, according to Chris Le Tocq, principal analyst with Guernsey Research. Already, some customers have expressed disdain for the new program. Although perpetual license models will still be available to customers that don't sign up for continued upgrades, those users could run into trouble down the road.
"The question is, at what point will Microsoft no longer support the product under which you have a perpetual license?" Barnicle said.
Microsoft has already stopped supporting Office 95, isolating users who have failed to upgrade from that version. In addition, Office 95 users cannot upgrade to Office XP without paying the full new-user price.
Microsoft's desktop applications are the top contributor to its revenue. In its fiscal third quarter, sales of Office products and licensing fees accounted for 37 percent of its $6.46 billion in revenue. But as the desktop PC market veers toward saturation, the company's revenue growth in that sector has slipped in the last year to the low single digits.
Based on research from Gartner Group Inc., roughly 10 percent of Microsoft's Office customers still run Office 95, the first major release of the desktop productivity suit. Another 55 percent run Office 97, and only about 35 percent run Office 2000. By Microsoft's account, 40 percent of its customers use Office 2000. However, only about 15 percent of Microsoft Office users upgrade to new versions of the Office suite each year, according to the Stamford, Connecticut-based research company, and analysts now note that there are few compelling features in Office XP to keep users upgrading to more recent versions.
The few features that are worth the upgrade target only a limited audience, Le Tocq said.
"When you look at the new version, it adds interesting features for people who work in a highly collaborative environment," he said. "Overall, if collaboration is not the focus of how you work, the features are fairly incremental."
The most advanced additions to the Office suite, he said, are its integration with Microsoft SharePoint Team Services, which makes it easier for users to share documents and information on the Internet. The other additions aren't likely to drive people to upgrade, he said.
Office XP is the first product suite to integrate Microsoft's Smart Tags, a function that recognizes information when it is typed into a document and aggregates related information from other applications, an intranet, or the Internet. For instance, the Smart Tags feature can link to data on a company stock when a ticker symbol is written in a document. In another example, when a user begins typing an address into a Word document, the Smart Tags feature will complete the entry by pulling information from a user's Outlook address book.
Other Web-enabled functions include a set of Internet tools that users can access from within a document, such as direct access to online postage services from Stamps.com and other Web services. [See, "Microsoft Office users get more Web help," May 14.] Office XP is also the first version of the desktop software suite to incorporate voice-recognition technology. Users will be able to open and close files, save documents, and perform other common tasks through voice commands, as long as they have a PC with a microphone.
"This is a good incremental upgrade," said Michael Silver, research director at Gartner. "The question is what here is enough to make folks move."
Demonstrations of the new desktop software package, scheduled to take place in hundreds of locations around the world Thursday, should make that more clear.