Gates Talks Up The Next Version Of Office

It's hard to get excited about Microsoft's 20-year-old Office desktop applications, which seem to get less interesting with every nifty new Web alternative. Alongside Google Search, AOL Instant Messenger, and Apple iTunes, Office seems like the stodgy chaperone on a field trip to software's future.

Microsoft must transform its cash cow--Office is second only to Windows in profits generated for the company--to stay relevant in this day of Ajax-developed light and friendly apps. Office must become more things to some people--it lacks blogging tools, for example--but less to those who want the flexibility of browser access to software services.

Bill Gates this week will explain Microsoft's plan to do both of those things. At the annual Office developer's conference at Microsoft's Redmond, Wash., campus, Gates will make his pitch for Office 2007, the first big upgrade to the line in three years, due to ship in the second half of this year. Microsoft already has sketched out Office 2007's new features and packaging options. Next comes the harder part: getting developers to work with the software, IT managers to buy it, and workers to actually use the stuff.

Microsoft's chairman will use the developer gathering to tout Office 2007 as a full-fledged applications environment that surpasses any alternatives in the areas of comprehensiveness, scale, and search. Despite all the buzz around Internet-based apps, Gates will make no apologies for the fact that Microsoft still offers Office in the old client-server model with 15 refreshed desktop applications--Excel, Outlook, Word, and the rest--and five new and updated servers. "There are a lot of reasons why people run applications inside their corporations--in terms of resource management and security and integration," Gates said in an interview last week in his Redmond office.Microsoft promises to fill some gaping holes in Office. The omnipresent Excel will be offered for the first time in a server version that brings central control to all those spreadsheets zapping around the workplace, a must in this era of tighter financial controls. "There's been a lot of demand for server-based Excel," Gates said, shrugging off a question about why it took Microsoft so long to deliver.

Microsoft also will offer blogging and wiki tools for the first time. They'll be built into Windows SharePoint Services, a middleware layer within the Windows Server 2003 operating system and, when available next year, Longhorn Server. Microsoft's blogware will come with access controls that make it possible, for example, to block outsiders from internal blogs or invite them to participate, Gates said.

The revitalization of Office hinges not just on the client applications running on 400 million PCs worldwide, but on a handful of revamped servers that inject added functionality. There's a server for central management of electronic forms, one for managing business projects, and another based on Groove collaboration software. The vari- ous pieces add up to what Microsoft officials call a "system" of products designed to work together; it's the kind of tight integration that has been known to get Microsoft into anti-competitive trouble when it comes at the expense of products from other companies.

Collaboration Imperative

If one product stands out in the upcoming server-software lineup, it's Office SharePoint Server 2007. Microsoft has sold more than 70 million licenses since introducing Office SharePoint Portal Server five years ago. SharePoint Server 2007 expands into content management, business intelligence, and business process automation; Microsoft is dropping the "portal" moniker to reflect the broader role. SharePoint can do for group collaboration what Office did for personal productivity--become the standard way things get done, Gates says.

FMC Corp. is "knee deep" in Office planning, says director of advanced technology and architecture Richard Powers. The chemical company plans to begin using Microsoft's collaboration products--including Exchange, SharePoint Server, and Live Communications Server--this year, in lieu of Lotus Notes in some parts of the business. It's also considering SharePoint Server for content management. The first beta of SharePoint Server 2007 had most, but not all, of the functionality FMC needs, Powers says. The company will take another look when beta two comes out in a few months, with an eye on document management and reten-tion and enforcing document management policies.All the collaboration kicked up by SharePoint, Outlook, Excel, and other Office applications leads to terabytes of structured and unstructured data. SharePoint also features a Business Data Catalog that connects to ERP applications. That, theoretically, leaves Microsoft in a strong position to help users find what they're looking for, and Office 2007 will come with improved enterprise search. "What people want for business search is not just a subset of public Web search," Gates said.

Costs Add Up

There's a lot to Office 2007, but it won't come cheap. Office Professional 2007 lists for a whopping $499 per user, or about half the price of a decent PC. License fees for Office servers add to that. Server-based Excel will be an attractive option for many customers but far from a giveaway.

All those licensing fees are lining Microsoft's pockets. During its second quarter ended Dec. 31, Office and other information-worker products contributed a fourth of the company's $11.8 billion in revenue and 45% of operating profits.

Microsoft hasn't disclosed the price of the two top-end editions of Office 2007, Professional Plus and Enterprise, which will be available only through volume license agreements. But Forrester Research analyst Julie Giera says Microsoft charges customers that buy software under enterprise agreements up to 30% more for each step up they make in the Office line. Microsoft tries to entice them by adding new apps at each level; the top-end Office Enterprise 2007 edition, for example, is the only business suite to come with Office Groove 2007 and Office OneNote 2007.As many as 60% of Microsoft's business customers could upgrade to the Professional Plus edition within six years, Giera predicts, especially for document management and other collaborative tools. The new top-end Enterprise edition will likely be used by "intellectual property heavy" companies, those willing to pay a premium for collaborative tools to manage worldwide research labs or large groups of product developers working remotely, Giera adds.

To take advantage of many of the server-side capabilities in Office, customers also need client-access licenses for each PC, which can range from $75 to $100 annually. With Office 2007, Microsoft will introduce licenses that discount access to a bundle of servers, including Live Communications Server, Windows Rights Management services, and SharePoint Server. Companies need to decide whether to upgrade to Windows Vista about the same time. Businesses can use Office 2007 with Windows Vista, also due later this year, but they don't have to. In a new survey by InformationWeek Research, only 14% of 650 IT professionals say the release of Office 2007 is very important to their Windows Vista purchasing plans.

Microsoft CEO Steve Ballmer, speaking in New York last week, tied Office 2007 and SharePoint Server 2007 to a new $500 million marketing push around the idea of creating "people-ready" businesses. "Software lets you find information that you need to gain insight, to take action," Ballmer said. "It enables process excellence. And in this day and age, increasingly it helps people work more flexibly anywhere and any time."

What Alternative?

Microsoft has fiddled with the look of its familiar desktop applications, so much so that regular users may need training when it's time to upgrade. "If you were used to the old menu system, you are going to have to relearn where things are," says Rob Helm, an analyst with Directions On Microsoft.Microsoft needed to make the changes to simplify the user interface of its desk-top applications while simultaneously packing more capabilities into them. A new "ribbon" at the top of the application displays common combinations of menu options.

What about alternatives? There aren't many. Corel's WordPerfect suite is one, and the OpenOffice open source tools another. Neither, however, has close to all the movable parts of Microsoft Office with the expanding line of servers or the close integration to Windows.

A more reasonable option for many companies will be to stay on the version of Office they now use. That, Helm says, "is viable for many people." Microsoft must make Office compelling enough that that's an unappealing choice.

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