Microsoft takes a risk with Office revamp

Microsoft this week plans to deliver the first test release of a new version of its Office software intended to rejuvenate sales and stave off competitors.

The new version of Microsoft's cash cow - code-named Office 11 - comes as sales of the desktop software have begun to plateau, analysts said. While Office still controls more than 90 per cent of the desktop office market, customers say they see fewer new features that would compel them to upgrade to the latest versions.

Although a new licensing plan will help keep customers in the Microsoft fold, any slump in sales could make a big impact on the software maker's balance sheet. Office contributes nearly one third of Microsoft's overall revenue.

With Office 11, Microsoft's new strategy is to focus more on features targeted at businesses, as the company tries to expand its reach into larger customer relationship management (CRM) and enterprise resource planning (ERP) applications.

Office 11 "will be more oriented to the enterprise customer," said Gytis Barzdukas, director of Office product management at Microsoft. Overall, the company is aiming to make Office "a partner with the rest of Microsoft technology - the whole .Net area," he said, by streamlining how Office connects to data stored in back-end systems.

To make that happen, Microsoft is turning to what some analysts say is a risky strategy. The company is adopting Extensible Markup Language (XML) as a second file format in all Office applications, to enable better data exchange between the productivity suite and back-end software, such as databases. This "opening up" of Office could end Microsoft's lock on document file formats that have boosted Office sales in years past and made the software the de facto standard for desktop productivity.

The main reason for the move is to battle competitors - such as Sun Microsystems' StarOffice - which have gained strength against Office in the past year, analysts said.

Microsoft needs "to make Office less of a commodity," said Gartner analyst Michael Silver. "People think they can come in with StarOffice and replace Office because all they're getting is commodity word processing and a spreadsheet (through Office)."

With the greater use of XML in Office 11, customers may benefit from being able to generate XML documents that can be used with their own applications or those from other software developers. Microsoft could gain from XML services hooked to other products - such as .Net Server - that would extend Office's reach beyond the desktop.

Adoption of XML means that for the first time, companies would have the option of bypassing proprietary Office file formats used for more than a decade.

"It's a big risk for them," said Forrester Research analyst Ted Schadler. "They open up the file format, open up the data feed, open up the template format, and somebody can make a cheaper Office or a better Office. They're going to lose that lock on the file format they've had for 15 years."

Microsoft counters that argument by pointing out that the greater use of XML in Office will make the software more flexible and able to read the growing number of business documents generated in XML format. Office 11 supports what Barzdukas described as "arbitrary XML support." Companies that already have deployed web services would find that their existing schemas - or XML vocabularies - would work with Office 11.

"We'll be able to read their XML in applications like Word and Excel," Barzdukas said. "Therefore, they won't have to rework their XML schemas.

For details of Office 11's new features - and to find out what it's missing - see http://www.silicon.com/a56043