Microsoft Office Guerrilla Warfare

The Stalwart submits: Microsoft (NSDQ:MSFT) has recently moved to offer basic versions of MS Office online for free, in a direct strike on recent free web-based office "sniper" products such as Google's Writely (NSDQ:GOOG) and Sun's Open Office (NSDQ:SUNW). From BBC News:

Microsoft is planning free web-based versions of its word processing and spreadsheet programs. The online versions of the programs will lack many of the features found in the full versions found in Microsoft's Office suite of applications.

Although the programs will be free to use, Microsoft is planning to fund them via advertising. ...

No date has been set for when the free programs will show up on the net but the software giant told the Reuters news agency that it was "considering" new distribution and payment models for its software.

Pyrrhic victory ahead? While free MS Office products might start to make competitor products look rather quaint, this could be a sign that MSFT risks losing a war of attrition. This online tactic could very well cannibalize more profitable full-blown MS Office software sales.

For Microsoft, its shocking how a quaint little writing product from Google, which we guess didn't cost that much to develop since it had only 4 people in the company when Google acquired it, now forces MSFT to risk shooting itself in the foot by putting one of its best revenue streams at risk. These could be interesting times. MSFT will have to prove that an advanced version of MS Office is worth the price tag if they themselves have a cut-down free product online. From Linux Insider:

Microsoft has plenty of reason to think twice about giving away Office products, regardless of the potential for driving ad revenue. Office makes up as much as a quarter of Microsoft's annual licensing revenues, with much of that coming in massive license sales to enterprises with hundreds or thousands of Office users.

Works is often sold for as little as $50. An updated version of Office is due out early in 2007. Microsoft has yet to announce pricing for that suite, but the standard version of Office 2003 is currently for sale on Microsoft's Web site for $399 and the Professional edition is available for $499.

Each missed sale of those suites -- they are sold at a discount to PC makers when bundled with new machines -- would need to be replaced with significant advertising sales in order for Microsoft to avoid a drop in revenue over time. The company may also worry that users would be less loyal to a Web-based program than packaged or pre-installed software already loaded onto their computer.

The earlier versions of Writely and the follow-on efforts to use Google Calendar to challenge Outlook and to produce an inexpensive spreadsheet to challenge Excel likely don't amount to enough to prompt Microsoft to change its overall strategy, according to JupiterResearch analyst Michael Gartnenberg.

He and other analysts have wondered why Google would challenge Microsoft at its core strength of productivity programs anyway, where the chances of building a superior product to unseat Office are slim.

While Google and other free online office suites will have a hard time beating the MSFT-franchise when its offered for free, they could force the software giant into a war of attrition. For office software, Microsoft can probably keep Google and others at bay, but it might get costly. Is the beginning of upstart competitors forcibly unbundling our dominant MSFT operating system? Or can MSFT prove that bundling has value and deserves its price tag?

Disclosure: The author owns shares in MSFT.

Comment on this article