• Sidebar: The Bundling Boogie

Microsoft’s Office application suite is suffering from success. Estimated to control about 95% of the market for business productivity applications, the suite has few desktops left to conquer. Its feature set was so complete even four years ago, with Office 97, that most Office users have not bothered to upgrade further. Such comfortable users spell trouble for Microsoft because they generate no revenue. The company’s response is multipronged, covering changes in volume licensing, broadening the Office brand to cover more applications, encouraging developers to make more use of the Office "development platform," and, most important, positioning Office as the preferred desktop client for the Web services that will be unleashed by Microsoft’s .NET vision.

Ultimately this strategy aims to maintain the importance of the Microsoft-dominated desktop PC in the face of a serious threat partly of Microsoft’s making: the ubiquitous Web browser, a thin, commodity client that is increasingly used to access applications running on Web servers. Available for every popular hardware platform, the hypertext browser is agnostic about not only the operating system it runs on but also the operating system of the server it accesses. The browser could give IBM, Oracle, Sun, and other competitors the last laugh at Microsoft’s expense: if market power moves to the server, where competitors dominate, Microsoft’s desktop will increasingly be relegated to a mere window on the Internet.

Microsoft’s responses can be categorized under two main headings:

• Marketing initiatives such as extensions of the Office brand and new licensing measures that will lead most volume customers to upgrade to the latest version of Office.
• Integrating the Windows desktop with server and Internet applications to create end-to-end solutions not easily duplicated by commodity browsers.

Promoting the Office Brand

The Office brand was originally applied only to products that were part of an Office bundle, but Microsoft has begun applying the term Office, and variations thereof, to all of its business desktop products, and even to server products.

Developers are being brought into the Office picture as never before, because Office applications can be scripted and programmed to interact with Web services in ways that commodity browsers cannot. And for those who still resist Office’s allure, changes in volume licensing will make upgrades to Office XP a necessity for large customers.

The Office Brand Umbrella

The Office Family is a new name that serves as an umbrella for both the Office bundle and numerous other products that bear an Office logo even though they are not part of any Office bundle (e.g., Visio and Project). Microsoft’s marketing literature applies another term, Office-centric, to an even broader range of applications, including unbundled Office programs (FrontPage, MapPoint, Publisher), add-ons (Outlook Mobile Manager, which works with Outlook and mobile devices), and even server products (SharePoint Portal Server) that work extensively with Office documents and applications.

The broadening of the Office brand is primarily marketing-speak, but it also reveals that Microsoft is moving away from the integrated bundles that have traditionally made up Office. (See the sidebar "The Bundling Boogie".) The bundling strategy, once crucial to Microsoft’s success, is losing its appeal to the company because the most obvious way to increase excitement around Office—adding yet more applications to the Office bundle—increases its complexity, may still fail to get contented Office users to upgrade, and may generate less money than selling "unbundled" applications. For example, Office XP Standard is US$479, and Office XP Professional, which differs from Standard only in its inclusion of Access, is US$579. But Access 2000 has an estimated retail price of US$339 by itself. Thus, gross revenues from a copy of Access in the Office bundle are US$100, but are US$339 outside of a bundle.

By promoting the Office Family rather than the traditional Office bundles, Microsoft increases the visibility of related products, such as MapPoint, Project, and Visio, without paying the financial penalty of bundling them.

Unbundled products are not only more profitable per unit, but offer Microsoft greater flexibility. Individual applications can be upgraded independently of other products in a bundle, ensuring that release of an entire bundle is not held up by delays in one product.

The Office Platform

Another way to create buzz around Office is to encourage developers to build useful solutions with it that will encourage users to use their old applications in new ways. Microsoft has given developers much to work with: the most significant changes between Office 97 and Office XP are server extensions and developer-oriented additions, such as Smart Tags, that can be leveraged to provide better integration between Office and applications running on the desktop or server. (For more information, see "Office XP Becomes a Stronger Development Platform".)

To provide a technical umbrella for developer-oriented features, Microsoft is promoting the concept of an "Office Platform," which helps to integrate Office-related products and gives them the common look and feel of a bundle.

Microsoft defines the Office Platform as both Office-specific features—Digital Dashboards, Smart Tags, and Visual Basic for Applications (VBA)—and compatibility features, such as XML and Web Parts. Together, they make Office much more than an end-user application suite. It becomes a solution-builder’s toolkit that can be integrated with next-generation .NET applications, using the XML capabilities in particular.

Introduced in Office XP, many of these features have been propagated beyond the Office bundles. Visio 2002 users will find Visio’s interface substantially altered by efforts to make it more Office XP-like—so much so that Microsoft has given users the option to go back to the traditional Visio interface. (For more details, see "Visio 2002: Out of Office".)

In other cases, however, the Office Platform is only a thin veneer. MapPoint 2002, for example, adds functions that let Smart Tag–enabled Office programs insert a map from MapPoint into another Office document, but it does not display Smart Tags of its own and cannot be programmed with VBA (although it exposes an object model that can be programmed through Visual Basic).

Volume Licensing Vise

Branding and the "platform" campaign are unlikely to have a dramatic impact on Office sales, however, and starting in 2002, Microsoft will make volume licensing customers an offer most will be unable to refuse. It will cut off the upgrade path for volume users that have not upgraded to Office XP and have not already purchased upgrade rights for older versions. The only remaining upgrade path, Microsoft’s new Software Assurance program, replaces all previous upgrade programs and can only be purchased for Office XP. Users of older software who have not purchased upgrade licenses by Feb. 28, 2002, will not be able to upgrade, but will have to purchase full product licenses.

This policy is driven primarily by revenue considerations, but it is also crucial as a way to promulgate wider use of new technologies and XML support built into Office XP, and to provide a large installed base for future Office-server integration that Microsoft wants to promote as an alternative to the browser.

(The licensing changes are described in detail in "Major Makeover for Volume Licensing" on page 22 of the June 2001 Update. As a result of feedback from customers, Microsoft has changed some of the licensing deadlines, as described in "Licensing Deadline Extended".)

Increasing Integration

In the big picture, Microsoft is positioning Office applications as the interface or the client for many of its server applications or services hosted on the Web. Ultimately, when the .NET vision is more fully realized and XML-based Web services begin to appear, Microsoft will emphasize Office, rather than a browser, as the better front end to these services.

However, some of the technologies built into .NET by Microsoft itself will muddy this picture: they will give the browser at least some of the power that Office now has.

Integration with Server and Web Applications

As the Office Platform branding suggests, Microsoft is promoting Office as a development platform because Office clients, unlike browsers, can be programmed (through VBA) to respond to network events or to perform actions in response to changes in the data stored on servers, either on the corporate network or on the Internet. For example, an Excel spreadsheet can be a "live" template capable of sending and receiving XML when a user makes choices from a drop-down list, enters data in a cell, or clicks on an action button.

Another advantage of Office is that it exposes a huge library of desktop-oriented functions, allowing programmers to create powerful collaboration applications or to transform data into applications or documents that are easy for desktop users to understand.

One of the best examples of the utility of an Office program when combined with a Microsoft server application is use of the Visio graphics engine for visual "orchestration" of processes in BizTalk Server. Such processes require definition and development by business analysts, who can easily grasp and manipulate a workflow schedule in a graphical Visio rendering. The BizTalk Orchestration Server can then translate the Visio diagram into a process that can be tweaked by a programmer familiar with the XLANG scheduling that BizTalk requires.

Other prominent ways in which Office is integrated with Microsoft server products include the following:

• SharePoint Portal Server 2001 (an indexing and content portal that was code-named Tahoe) is described as an "Office Family productivity solution" because it indexes documents created with any Office application, and because Office users can easily check in and check out documents stored on it.
• SharePoint Team Services, which comes with FrontPage and some versions of Office, quickly builds an intranet site on which Office documents can be stored, labeled, and shared for easy retrieval and comment by others in a workgroup or team. These functions are not entirely new (Office 2000 works easily with SharePoint Team Services, for example), but they are easier than ever before and were a major focus of the Office XP development team.
• Users can automatically transfer data between a server-based Great Plains application and Office applications such as Word and Excel, where users can chart, analyze, and merge it with data from other sources. Excel users can also develop budgets in Excel on their PCs, then integrate the results directly into their server-based financial management systems.
• FrontPage can now be used to manage a company’s bCentral presence.
• Files from any Office application can be stored on, and shared from, a personal site at MSN (available to anyone with a Passport ID, not just subscribers to Microsoft’s ISP service).

Integration with .NET

Microsoft's .NET platform is both a threat and an opportunity for the Office team.

The threat is that .NET’s ambitions go well beyond the desktop PC where Office reigns. .NET encompasses many other computing devices on which Office is not available, and which are expected to use browsers to access services and display data. In addition, many corporate developers are using browsers as a "universal client." Found on every recent Windows (and Linux and Macintosh) machine worldwide, the browser is free, platform agnostic, ubiquitous, and conforms (mostly) to international standards.

The opportunity is that by enhancing and promoting Office as a superior client, Microsoft reduces the appeal of the commodity browser in favor of a client that generates revenue for Microsoft and helps it sell servers, server applications, and Web services that have been specifically designed to complement the Office client.

As XML-based Web services for businesses gain popularity, client software that can suck data over the Internet onto the desktop for further analysis, display, or reporting will be a necessity. Sophisticated re-use of Internet data on the local PC (e.g., creating a live spreadsheet or pivot table from data on a Web site) is difficult or impossible for standard Web browsers, and Microsoft is positioning the Office Family as the logical client for such value-added tasks. In a presentation at the CEO Summit, Chief Software Architect Bill Gates demonstrated the use of Excel templates to order supplies from a vendor over the Internet and simultaneously record the order in a company’s accounting system—without using a browser.

An Office-based PC also works efficiently with locally stored data, requiring less network bandwidth, improving application response times, and allowing users to work while disconnected from the network (e.g., using a portable while traveling). PCs can also store and manipulate large data sets, graphics, and multimedia without using server processor cycles. Locally stored data can be more secure and private than data transmitted over the Internet and stored on a shared Web server. Smart Tags, another part of the Office Platform, offer similar opportunities to leverage the .NET platform. Small pop-up menus that appear in response to certain types of data in a document, Smart Tags can link to Web services to look up directions to an address, an individual’s telephone number, a company’s stock price, or other data that might not be available on the user’s PC.

By spreading XML integration and Smart Tag capabilities throughout the Office Family, Microsoft will promote Office as a powerful front-end to .NET applications.

The Browser Lives

The only cloud on this horizon is work that Microsoft’s own .NET team is doing that will give browsers (at least Microsoft’s browser) a significant role in accessing Web services.

ASP.NET, the successor to the current Active Server Pages technology, allows developers to create Web Forms, server-based forms that will, among other things, host controls that let users read and write from server-based databases. Using the code-behind-forms capabilities of ASP.NET will encourage the development of much more sophisticated browser forms than have heretofore been typical of Web applications.

On the client side, .NET’s WinForms library gives developers Visual Basic–like forms that can run inside a browser. Similar to, but safer than ActiveX controls, WinForms offer the benefits of client-side computing, such as the ability to operate when disconnected from the network, but do not require the presence of Office. ADO.NET, another part of .NET, allows clients to work on network data while disconnected and to synchronize their changes when they reconnect.

In short, the battle for the desktop is not over, and Microsoft’s internal imperatives—maintaining the value of Office, versus creating new functionality and flexibility with .NET—may determine the outcome.

Resources

The Microsoft Office Family is described at www.microsoft.com/partner/products/officefamily/.

A white paper and other information about the Office XP Platform are available at www.microsoft.com/office/developer/platform.

For information about .NET, see the July 2001 "Understanding .NET"  Research Report.