NEW YORK -- Customers will obtain Office 2003's advances at what might be a steep cost: one analyst estimates businesses will see their Microsoft licensing fees rise 10 to 40 percent if they want to take full advantage of the suite's new features.
As it touts Office 2003, which was formally launched Tuesday, Microsoft is also shifting from positioning Office as an applications suite toward packaging it as a system. The company is highlighting the applications' integration with Microsoft server products such as SharePoint Portal Server, Live Communication Server (formerly the Real Time Communication Server), and the forthcoming Rights Management Services.
While Microsoft has kept Office 2003's price tag similar to that of Office XP, businesses that want to use some of the collaboration and rights-management features need to run the latest version of Microsoft's corresponding server software.
More Tools, More Cost
"We're seeing now much more of a focus on vertical integration between the client and the server," says Joe Wilcox, an analyst with Jupiter Research, who studied the hidden cost of Office upgrades. "Microsoft is trying to position Office as the front end to a lot of back-end processes. They have a huge presence on the desktop, so they want to leverage that into all these back-end server products."
While integration traditionally lowers software costs, Microsoft's move to deepen its products' interdependency has the opposite effect. It increases the number of products customers need to license to take full advantage of their features, Wilcox says.
"Microsoft will argue that, long-term, this integration will cut down maintenance and operating costs and provide customers better [return on investment]," Wilcox says. "To be honest, that remains to be seen. We won't know until customers actually start putting all the pieces together and see how much it actually saves."
The significantly enhanced spam-filtering tools in Outlook and Microsoft's new OneNote note-taking application have convinced the Honolulu law firm Damon Key Leong Kupchak Hastert to upgrade soon, says Ben Schorr, the firm's IT manager and a beta tester. The firm skipped the Office XP upgrade cycle and is still running Office 2000 Professional for its 60 users, he says.
Microsoft's Office 2003-integrated Rights Management Services, which remains under development and was not part of Tuesday's launch, could also pique interest, Schorr says. However, so far clients have not shown much interest in digital rights management tools. "Since 1996, we've offered free encryption to our clients. There's been zero interest," he says.
Digital Rights Toss-Up
Most of Office 2003's functionality improvements are aimed at enterprise users. However, a Microsoft messaging consultancy executive who attended the launch says she thinks Office 2003 offers enough enhancements, most notably in Outlook, to justify the upgrade investment for small businesses. Diane Poremsky, chief executive officer of Johnson City, Tennessee-based CDOLive LLC, says she'll upgrade her three employees to Office 2003 Professional.
"Outlook is the real selling point," she says. "The spam filters work really well, you can find messages easily, and I really like the Calendar interface."
Many of CDOLive's clients still run older versions of Office, having skipped upgrading to Office XP. That presents them with higher upgrade costs but also greater opportunities for return as they evaluate the Office applications' advances in the years since their last upgrade, she says.
The Rights Management Services could encourage some upgrades, Poremsky said. Her company is seeing high interest from customers, but none are yet ready to commit to using the fledgling technology.
