In the earlier articles in this series, Microsoft Death Watch and Microsoft Death Watch – Confirmation From Dave, one of the main points that I mentioned is that most of Microsoft’s profits come from what they call their ‘Microsoft Business Division.’ Microsoft Business Division includes several products, the most important of which is Microsoft Office.
I usually use Canadian dollars, but for this article I’m going to be using American dollars. Microsoft offers three versions of Office, and they’ve very nicely produced a graph to compare them.
Currently the cheapest version of Office, the Home and Student version retails between $104.99 and $149.99. The middle version, Home and Business, retails between $213.99 and $279.99. The premium ‘Professional’ version retails for between $408.99 and $499.99.
In my opinion Office is Microsoft’s best product, far better than Windows. Oh, it has it’s kinks. Formatting a large Word document can be an exercise in frustration. But Office overall is a damned good product.
Microsoft’s big problem is basic economics. Their competition may not be able to match Office in all of the details, but each has it’s own specialties, and none of them are anywhere near as expensive. Let’s look at some of the major competitors.
Google Docs, while it has some limitations is free, and it’s collaboration features are far better than what Microsoft offers. One major problem is that you have to be online to use it, but it also is Operating System independent. As long as you have a modern web browser, you could use Google Docs on any computer, or for that matter, on your smart phone.
Word Perfect Office has formatting capabilities in it’s word processor that Microsoft has never been able to match. Many law offices use it, because it has formatting that is designed specifically for the legal profession. It is also less expensive than Microsoft Office. Word Perfect Office is Windows only, so in effect Corel has tied their future to that of their main competitor. Is this wise?
OpenOfficeOrg is free! Not only is Microsoft incapable of matching the price, OOO has a plug in system that allows programmers to customize it, something that Microsoft Office lacks. Oh, and versions of it are available for most operating systems. You could be using a Windows PC at work, and a Mac at home, but have the same office suite installed on both. Professional writers often use OOO. In many ways it’s the most reliable office suite on the market.
KOffice is another freebie. While it does offer Windows and Mac versions, they often lag behind the Linux version, which is the important one, and it offers a wide list of features that Office doesn’t have.
IWork is Apple’s Office Suite. As with OS X, the Apple operating system, there’s only one version of IWork. Apple has apparently decided that rather than attempt to offer several versions of it’s two main software packages with artificial distinctions, it would offer one, and give it all of the features of competitor’s ‘Professional’ versions. As a result IWork matches Microsoft Office on features. Oh, and it’s far less expensive.
Basic economic theory indicates that the price of a product should:
- Be competitive.
- Be based on the materials used.
Microsoft’s price isn’t competitive. While Microsoft tries to claim Office is far superior to all of the competition, it isn’t. It has some abilities that it’s competitors don’t have, but they have abilities it doesn’t have either. Admittedly Microsoft has a bigger advertising budget, which does give it some advantages, but competitive pressures are going to force Microsoft to reduce the price of Office, sooner rather than later.
Also Microsoft’s price isn’t based on the materials used. The other night I bought a copy of ‘The Rocky Horror Picture Show‘ on DVD for $20.00. If you were to buy a copy yourself, and compare it to the materials in a boxed set of Microsoft Office, there would be very little difference, definitely not enough difference in packaging to make up an $80.00 dollar difference (to the most basic version of Office).
So economic pressures should force Microsoft to reduce the price of Office. One option, and one that they should seriously consider, is killing the ‘Student’ version, making the ‘Home’ version the new ‘Student’ version, and making the ‘Professional’ version into a ‘Home-Professional Ultimate’ version. If they priced the new ‘Student’ version for the same price as the old ‘Student’ version, and the new ‘Home-Professional Ultimate’ at the same price as the old ‘Home’ version, they would probably be able to sell more copies, in the short run.
But in the long run, they have serious problems. According to Steve Jobs in Apple’s last quarterly report, Apple has now gained 20% market share on new computers in North America. While Microsoft does make a version of Office for the Mac, it’s limited compared to Office for Windows, and it faces competition from IWork, which is a fifth of the price.
And the OpenOfficeOrg project has forked. OpenOfficeOrg has always been a corporate project, and while Sun did a decent job with it, it was a sideline. When Oracle purchased Sun, Oracle didn’t seem to know what to do with OpenOffice and several of the other projects that it now controlled. This caused a lot of frustration among the contributors. A group of them decided to fork the project, so that they could control their own destiny, and The Document Foundation was born. The Document Foundation fork will be known as Libre Office, and if the Foundation is able to follow through on their initial plans, it appears that Libre Office could be a game changer. In fact if they can do half of what they want to do, they will end up with a product that will cause a huge upset in the market. Open Office’s target was always Microsoft Office, and the features that Sun needed for their own internal use. Libre Office’s target isn’t Microsoft Office. Libre Office’s target is the Libre Office of a hundred years in the future. This change in focus should allow the Libre Office team to leapfrog the competing Office Suites. It’s going to be interesting to watch where it goes over the next two years.
Any change in sales of Microsoft Office will have a huge effect on Microsoft’s profitability, and the corporation’s ability to develop new products. Remember my prediction that Microsoft would be in Chapter 11 Bankruptcy Protection within five years? A large part of that prediction was based on the growth in market share of IWork, OpenOfficeOrg, and Google Docs, and the economic pressures on end users of the recession.
What does a company with a thousand seats (installations) of Microsoft Office do when money runs low, and it’s not possible to renew the licenses? At this point OpenOfficeOrg looks like a great deal. Sure, it’s not completely compatible with Microsoft Office, but the cost factor can’t be ignored.
Or for that matter what do you do personally, if you’ve been laid off, and your new job doesn’t pay as well? Yes, you could keep using that old copy of Microsoft Office, assuming that the installation CD/DVD still works. Or you could go for something free, and use the money you’ve saved for gorceries.
And that’s Microsoft’s problem. Office has always been overpriced. The company used it’s monopoly position to damage competitors, and for a while, with little or no competition, they could charge what they wanted. Now they have competition, and the competition is charging less, in several cases giving the product away. So the margins that the company has depended upon for years are no longer sustainable, and if they don’t react soon, there will be a full scale stampede to the competition. But if they do react, they still take a hit on their margins. They are in a lose, lose situation. It should be interesting seeing what their response is.
Sunday October 31, 2010