Microsoft casts .Net into upcoming Office

Many of the features once planned as part of Microsoft's .Net My Services initiative--a consumer-focused Web services strategy--may now find their way into Office, sources said.

Microsoft has not set a release date for the next version of the business software, which has been referred to internally as Office.Net or Next Generation Office. Microsoft shipped Office XP, the current version of the software package, one year ago this month. New versions typically follow the current release by 18 to 24 months.

News of the next version comes as rival Sun Microsystems announces a new version of its StarOffice package, which is an alternative to Microsoft Office. Sun on Tuesday said it will begin selling the software May 21, priced at $75.95.

Among companies, "what's most interesting is the sudden increase in interest in StarOffice," said Gartner analyst David Smith. "We're not seeing much deployment of it, but (there is) tremendous interest, and companies (are) setting up testing labs."

Though StarOffice interest may be on the rise, Microsoft still controls more than 95 percent of the desktop business software market, according to Gartner.

Microsoft isn't standing still. For the next version of Office, the company is considering an optional subscription version tied to Web services based on Extensible Markup Language (XML). Those services, which could include some of the online calendaring and collaboration features envisioned for .Net My Services, would also be available separately for Office copies sold at retail or on new PCs, sources said.

.Net My Services, announced more than a year ago, was originally envisioned as a "digital safe-deposit box" for hosting and delivering personal information while providing an array of services, ranging from commerce to communications, in partnership with Web retailers such as eBay.

Microsoft had hoped that consumers would pay fees that would cover the bulk of the expense to run these one-stop services, which would manage passwords, calendars and other personal information.

Instead, the plan has been the source of continual confusion among potential customers, has encountered a series of problems with its underlying technology, and has faced internal frustration that sources say even led to its top executive being reassigned.

In court last week testifying as part of Microsoft's antitrust trial, Jim Allchin, the company's senior vice president responsible for Windows, described .Net My Services as being "in a little bit of disarray."

Microsoft has said it plans to retool .Net My Services for corporate customers, so that they can more easily share information over local area networks (LANs).

Now, Microsoft appears to be linking .Net My Services to Office--its cash cow--in the hope of garnering more interest in paid services. That plan would put access to Microsoft's Web services within the reach of millions of Office users. This week, Microsoft said that customers had purchased the right to install 60 million copies of Office XP.

One new Web service being considered by Microsoft would provide customers with Web-based e-mail capable of connecting to multiple services and linking to Outlook. Another service would take a similar approach to calendaring and online collaboration. The service would, for instance, allow online calendars to be updated and linked to a wireless handheld. Another service would provide online data storage for documents.

Embracing XML
Overall, XML-based services, either delivered directly through Office or available as a Web adjunct, will be one of the biggest areas of change to the business software, sources said.

Under one scenario being considered by Microsoft, people could either buy Office and pay for the Web components separately on a subscription basis, or license both pieces for an annual fee. The latter option would give subscribers ongoing access to any product or online enhancements, but they would have to stop using Office if they failed to renew the software or if they bought it outright, said sources familiar with the product strategy.

The move to subscriptions, which would target consumers, would be a big shift for Microsoft as it rethinks its Web services strategy, though sources warned that the plan is not ironclad.

Microsoft pulled back from subscriptions once before. The company had planned to offer a subscription version of Office XP but abruptly retreated from the idea. Microsoft sold an optional subscription version of Office XP in Australia and New Zealand, but nowhere else.

Overall, Microsoft is exploring a number of changes to Office that may appear in the next version or the one after that, sources said. The software giant will shift away from just bulking up features to adapting existing applications to users whose work and home styles are changing--particularly as the two areas continue to merge. This change also plays into increased emphasis on services.

Outlook--Office's calendaring, contact and e-mail application--would get a makeover with emphasis on delivering information anytime, anywhere. Microsoft also plans to introduce tools for accessing Outlook files from multiple devices.

The company plans to beef up Office's support for SharePoint Team Services, its online collaboration service. The change would make SharePoint "the underlying infrastructure for collaboration," said one source familiar with the product strategy. Enhanced SharePoint, which would include new management tools, would likely appear in the next version of Office.

Also on tap: new tools for capturing information. The Redmond, Wash.-based company plans to deliver a downloadable enhancement that will bolster Office XP's existing handwriting features for Tablet PC. Microsoft is working on a version of Windows XP exclusively for portable tablets that can capture handwritten text input by a stylus.

Microsoft plans to deliver Windows XP for Tablet PC as early as late summer, around the same time as Windows XP Service Pack 1; the collection of bug fixes is expected to begin beta testing later this month. The Office XP enhancement for Tablet PC would be available around the same time as the service pack, sources said.

Besides introducing tools for capturing handwritten notes, Microsoft wants to make finding handwritten notes in Word documents easier, for example. People would eventually be able to search those notes, too, similar to how they can search for typewritten text today.

As part of Microsoft's "Trustworthy Computing" initiative, Office will get improved security and privacy features, sources said. Microsoft will shift the focus away from security in Outlook, which has been the carrier of some of the worst recent virus outbreaks, to other applications. The company plans to introduce new tools for better securing Word and other Office documents, as well as to work with companies on how they manage the security of their documents.

Your Office or mine?
Smith said that Microsoft's increase in volume licensing fees--more than 100 percent for some companies--directly accounts for much of the interest in StarOffice among Microsoft's Office customer base. The increases will come through a new licensing program called Software Assurance that will commit customers to buying operating system and application upgrades for an annual fee.

"Some of these (StarOffice) pilots are in place to get Microsoft to back down on the licensing changes," Smith said. "We think the interest is serious enough that if Microsoft doesn't change its pricing and licensing strategy, it will lose 10 percent of the Office market to StarOffice and alternatives in a couple years...by 2004."

Such a shift, while seemingly dramatic, wouldn't do much to dent Microsoft's dominance in the office productivity market. Smith estimated that Office could drop from 95 percent to 85 percent share--"and that's certainly not going to break the company. Nonetheless, they're very concerned about StarOffice in Redmond."

Office accounts for more than one-third of Microsoft's overall revenue.

The tug-of-war between Microsoft and corporate customers over volume licensing is also an attempt by Microsoft to lock subscribers into contracts that will make them less likely to switch to competing products.

"Locking companies into contracts so they won't consider anything else is exactly what Microsoft is trying to do," Smith said. "They will make sure (customers) don't deploy any other software and help protect the market share."

Companies considering a switch to StarOffice or a competing product won't find the move cheap. Gartner estimates that the average cost per user would be about $1,200, which works out to about $800 for labor and $400 for productivity. In contrast, companies upgrading to Office every two years would spend about $550 per user, or $700 every four years. That means many businesses would take eight years to recover their initial investment.

There are also unseen productivity costs that could arise because of file format incompatibilities with Office.

"Whenever you put StarOffice on the desktop, you're taking a risk," Smith said. "You're moving to something that's not tried and supported...There's no guarantee that file compatibility won't be a problem."

Another issue affecting companies' buying decisions may be the new Web subscription feature being added to Office. Those services will be available as part of Microsoft's new volume-licensing program, which may add incentive for companies to stick with Office.

"If you buy Software Assurance today, you have the right for the next three years to whatever comes out," said Rebecca LaBrunerie, Microsoft's product manager for worldwide licensing and pricing. "We've said that .Net is coming out and that future versions of our products over the next decade are going to be software services. There's going to be more frequent upgrades with this concept of Web services."