Microsoft quietly offering ad-funded Works

A top Office executive says the "sponsored edition" of Works is just a pilot, not a major new source of revenue. However, the response thus far has been positive, especially to the price: free.

Updated 4:15 p.m. with details on the countries in which Works SE is being offered.

After years of exploring the matter, Microsoft has finally started offering an ad-funded version of Microsoft Works in some countries.

Users who run the software see a small ad as they are writing their document or editing their spreadsheet. Although the program has the ability to update its set of ads online, today it runs mostly ads for Microsoft and a few partners, all of which ship with the product itself.

Works SE (which stands for Sponsored Edition) is free to PC makers, though they don't get a cut of the ad revenue. Large computer makers typically only pay a buck or two for the low-end version of Works, though.

The ad-funded Works falls into a category of several products the company is exploring, rather than a significant new source of revenue, said Microsoft Vice President Chris Capossela.

"This is a trial," he said. "This is a pilot. This is a 'Can we build software that will do this?' "

Microsoft has been considering such a product for some time, with many inside the company arguing that Microsoft could make significantly more money for Works by selling advertising than it gets in revenue from computer makers for the product.

Capossela said the early response to the free product has been positive. "People have liked the price," he said with a laugh, adding that it has also not been perceived as that intrusive, something Microsoft had worried about.

Last August, Microsoft said that it , but the company gave few details on where or how the product would be offered.

Microsoft remains cagey on the details of where you can find Works SE. The company has been testing Works SE in 5 countries: The United States, France, Canada, Poland and the United Kingdom. It is available only through select computer makers and Microsoft won't say which computer makers those are.

According to its Web site, Packard Bell offers the software on some of its models in the United Kingdom. Using the same sleuthing technique (a search engine), it appears Sony is one of those offering it in the U.S.

Capossela put Works SE in the same category as several other new approaches, including the Albany subscription service that Microsoft detailed this week. Also in that camp would be the prepaid Office cards that Microsoft has been selling in some countries for more than a year now.

Response to that last product, which sells Office in six-month increments for around $20, has been mixed. The cards were a hit in South Africa, but bombed in Mexico.

None of these areas are significant new channels as yet.

"There's no business here yet," he said. "These are all experiments."

The one area where Capossela said Microsoft has seen significant sales is the download and purchase of Office over the Web. Customers either download a trial version of Office directly from Microsoft or get it with a new PC. After 60 days of use, they are prompted to buy a full version from Microsoft or a partner (partners typically sell the product cheaper than Microsoft).

Microsoft was not quick to seize on selling directly over the Web, Capossela said.

"We're late," he said. "If you look at Symantec and Intuit, they have huge businesses here."

Capossela also stressed that Microsoft is focusing its efforts on new ways of selling Office and creating online products that complement Office, not replicating the suite on the Web. He said that Microsoft still doesn't see much competition from Google Apps.

"We haven't seen them yet," he said. "We've seen a love affair in the press. We haven't seen customers embracing Google Apps."

As for Albany, Capossela said the main idea is to try and have a product that can be pitched by the Geek Squads of the world when people buy a new PC at retail. Tech benches, as these services are known generically, have become an important avenue for consumer software sales.

"This is designed for a certain sales motion and if that sales motion didn't exist, this product probably wouldn't exist," he said.

That said, Microsoft has yet to sell the product to those retailers or determine how much it will charge for the subscription product, which combines Office 2007 Home and Student Edition, Windows Live OneCare security, and other free Windows Live services.

Have you seen the ad-based Works on a PC? If so, drop me a note at ina dot fried at CNET dot com and let me know which model.

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