Trying to sell Office in an era of free Office

As Office 2010 hits retail shelves on Tuesday, it finds itself competing with a host of free rivals, including two from Microsoft itself.

As Office 2010 hits retail shelves on Tuesday, it finds itself competing with a host of free rivals , not the least of which are two new options from Microsoft itself.

Redmond has long had to deal with free alternatives, including everything from OpenOffice to Google Docs. And Microsoft has also battled both piracy and the "good enough" factor that prompts many consumers to stick with older software--sometimes several versions old.

Office 2010 was released to businesses last month, but goes on sale for consumers and small businesses on Tuesday. Microsoft

With Office 2010, though, Microsoft has created a couple of its own new products that could create an opening for those who want Office, but don't want to pay. Most prominent are the free, browser-based products known as the Office Web Apps seen as a response to Google Docs. The software, which includes slimmed down versions of PowerPoint, Word, OneNote and Excel, are all free to consumers, along with 25 gigabytes of online storage via Windows Live. However, the applications only work when the browser is connected to the Internet.

The second free version of Office is Office Starter , a product that is replacing Microsoft Works as the software most consumers will get for free when they buy a new PC. Although it will give users a genuine, if limited version of both Excel and Word, Microsoft Senior Vice President Chris Capossela said that the goal is to make it easier, not harder to sell the full version of Office.

"Consumers have an Office experience right out of the box," Capossela said. Plus, since the bits for the full Office are on the PC, retailers can sell just a simple card with a product code--cards that can be placed not just in the software aisle, but also in other key selling locations, such as near new PCs and by the cash register.

As for the notion that customers will just stick with the starter edition, Capossela said he isn't too worried. He notes that Windows itself has a basic word processor--WordPad, included by default. And while Starter does include a bona fide version of Word and Excel, he said it lacks PowerPoint, OneNote, as well as many key spreadsheet and word-processing features. To drive that point home, Starter also has a small advertisement that rotates different messages reminding users what they are missing.

PC makers that install Office Starter actually pay for the privilege, but only a couple of bucks per machine. But they are also agreeing to put the full Office bits onto the machine (and if they want to pay the least, they also have to include Windows Live Essentials, a Bing toolbar, and set other default settings to Microsoft-owned properties). PC buyers have access only to slimmed-down versions of Word and Excel (Office Starter) unless they pay for an upgrade to either Office Home and Student, Office Home and Business, or Office Professional.

The first machines with Office Starter will start shipping soon, with many expected on retail shelves by the time the back-to-school shopping season gets under way in July and August. Capossela said that Microsoft expects that more than 100 million consumer and small business PCs with Starter and the pre-loaded full version of Office will ship in the next 12 months.

As for the Web Apps, Microsoft is positioning them as a better companion to the desktop edition of Office 2010 than they are a replacement. In addition to not working without an Internet connection, the browser-based versions won't handle advanced features, such as macros.

To convince people that the new Office is worth paying for, Microsoft is teeing up an $80 million ad campaign. The "Make it Great" campaign centers on real people--mostly parents and small-business owners--that have been among the product's 9 million early testers. About 70 percent of that ad push will come online, with the rest spread out among print ads and billboards.

Microsoft's ad campaign has the users saying why Office is worth it to them. Among those who took part in the campaign is Aaress Lawless, editor of Onthebaseline.com, an online magazine covering professional women's tennis.

Lawless said that until trying out Office 2010, she had been mostly working with the Mac version of Office, as well as various free programs. Now, she said, she's a power user of Office using Outlook all day to handle e-mail and the note-taking program OneNote to keep track of various projects.

"If its not in OneNote, I probably don't need to remember it," Lawless said. "It is literally my virtual brain."

Google, meanwhile says it has a better idea than combining Office 2010 with Microsoft's Web Apps. It argues that the combination of one's existing version of Office along with Google Docs offers a cheaper and better alternative .

"Most people find, and they maybe perhaps don't expect it at first, that Google Docs works quite well with Office and in fact it makes Office better," Google Enterprise President Dave Girouard said in an interview last month. "If you think about the world moving into this cloud-computing era, it may well be a very good transitional strategy on some of your desktops or all of your desktops and then have the ability to use a cloud-based application at the same time."

For its part, Capossela says Microsoft knows the turf better than its rivals. "Obviously, we have a long history of competing with free."

Despite the competition from Google, Zoho, and others--as well as that from the new Web Apps and Office Starter--Capossela said that the biggest competition remains the battle to persuade the 1 billion people already using some older version of Office to buy the latest edition.

In the end, analysts say that Microsoft doesn't face an immediate threat to its most profitable add-on software title. Forrester analyst J.P. Gownder notes that Google has managed to grab just a couple of points of share in several years on the market.

He predicts that Microsoft's free options alone, like Google Apps, won't cut it for most users.

"Starter and the Web apps increase consumer convenience and flexibility," he said. "At the end of the day the user will still need to buy the suite."

Longer-term though, Microsoft can expect more competition, and not just on its home turf of the desktop. On Apple's iPad, for example, Microsoft has to decide whether to join the fray or cede that market to Apple's combination of Pages, Numbers, and Keynote, along with other office apps.

 

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