Analysts: Office XP Launch Lacks Buzz

The latest debate surrounding Microsoft's planned launch of Office XP this week has little to do with new features in the desktop software suite. Instead, analysts and users are embroiled in heated discussions over the way the company plans to sell future upgrades and licenses.

The lackluster response to the latest desktop software package may be because, other than the death of Clippy (the company removed the annoying paper clip help icon from the default settings), only a handful of new functions appear in the package, analysts say.

"I think its got some interesting features to it," says Brendan Barnicle, an analyst with Pacific Crest Securities. But he notes, "I'm not sure that any of those are going to be things that force people to run out and upgrade."

Microsoft's major improvements to Office XP include new collaboration tools, voice and handwriting recognition functions, improved reliability, an improved user interface, and a variety of functions that let Office applications link to the Internet.

While those additions improve on earlier versions of Office, few corporate and home users are expected to buy into the latest version for its new technology, analysts say.

Microsoft says it will sell the standard version of Office XP to new users for $479; it will sell upgrades to owners of earlier versions of Office for $239. The company plans to sell the full version of Office XP Professional for $579; it will offer upgrades to Office 97 or Office 2000 owners for $329.

Although some analysts suggest the new features aren't worth the price, what is likely to boost sales in Office XP is Microsoft's new way of selling licenses to customers already running versions of the software package.

New Licensing Program Angers Some

By October 1, Microsoft says, it will do away with the sale of version upgrades, pushing instead a variety of non-perpetual licensing agreements, or limited-use contracts. The company says this method--which will likely include downloadable upgrades sometime in the future--will help to keep users running the latest versions of its software.

Critics call the plan Microsoft's simple measure to keep its revenue model afloat. Changes in the way Microsoft licenses the product to corporate customers could cost those customers an additional 30 percent to 70 percent each year, says Chris Le Tocq, principal analyst with Guernsey Research.

Not surprisingly, some customers have expressed disdain for the new program. Others have voiced concerns about the software's new copy-protection technology, which the company designed to make casual copying more difficult.

Pacific Crest's Barnicle notes that while 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?" he says.

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.

Office: Microsoft's Cash Cow

Microsoft's desktop applications are the top contributor to its revenue. In the company's 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, roughly 10 percent of Microsoft's Office customers still run Office 95, the first major release of the desktop productivity suite. 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, according to Gartner, only about 15 percent of Microsoft Office users upgrade to new versions of the Office suite each year.

And analyst Le Tocq says that with XP's newest features likely to appeal to only a small segment of users, upgrades could be a tough sell for Microsoft.

"When you look at the new version, it adds interesting features for people who work in a highly collaborative environment," he says. "Overall, if collaboration is not the focus of how you work, the features are fairly incremental."

Introducing SharePoint, Smart Tags, and Voice Recognition

Microsoft's most advanced addition to the Office suite, he says, is its integration of SharePoint Team Services, which makes it easier for users to share documents and information on the Internet.

Office XP is also the first product suite to offer Microsoft's Smart Tags, a function that recognizes information when it is typed into a document and aggregates related information from other applications. 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 the 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.

Office XP is also the first version 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.