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Microsoft to delay Office debut

The software maker is preparing a new test release of its upcoming Office 2003 desktop software, which will delay the debut until later this year.

    Microsoft is preparing a new test version of its upcoming Office 2003 desktop software, which will delay the final release until later this year.

    Microsoft on Thursday confirmed that it is preparing the unexpected Office beta release, which could debut in June. A company representative said the release is intended to give customers a chance to try out changes made to the software as a result of testing. The release will not be a completely new test version. Instead, Microsoft said it will issue a "refresh" to the existing second beta test release.

    The Redmond, Wash.-based software maker said more than 600,000 people are testing the software, more than double the number of testers for any previous version.

    Delivery of the new test version would not give Microsoft enough time to adequately test the software in time for its planned summer delivery, the company said. Now, Microsoft says Office 2003 will ship "later in the summer," which is also subject to change. "Microsoft's first commitment is to quality and doing right by our customers, and if that means adjusting our (shipment) targets, then that's what we'll do," said a company representative via email.

    Analysts interpret the new test release to mean that the product, developed under the code name Office 11, might not ship until October or November.

    Gartner analyst Michael Silver believes it's likely that Microsoft won't deliver Office 2003 until the fall. "It's safe to say (it won't ship until the) second half (of the year) and maybe even into the fourth quarter," said Silver.

    A slip in the schedule will likely have little direct impact on many customers, since most businesses test for a year or longer before moving to a new version of Office. But delivery after Oct. 31 could potentially cause problems for the minority of customers who signed up for Microsoft's controversial Licensing 6 software-licensing program. Their contracts expire on that day, making them ineligible to receive the upgrade to Office 2003 on which they might have been planning.

    Also, any delay in shipment of Office 2003 could potentially hurt Microsoft's revenue in the long term. Office is Microsoft's cash cow, generating roughly a quarter of the company's product revenue.

    Beta by the numbers
    Moving from a second test release to a shipping product appears to have required more time than Microsoft needed in order to adequately complete testing and production. Microsoft sent the first beta version in October to about 12,000 testers, half within the company, and released beta version 2 in March to another half-million testers.

    Analysts use Office XP's release schedule as a guideline to estimate when Microsoft might realistically ship Office 2003. Microsoft released the first beta of Office XP in August 2000, followed by a second beta to about 10,000 testers near the end of that year. On Feb. 28, 2001, the company released a Corporate Preview beta to about 500,000 testers. Microsoft officially launched Office XP on May 31, 2001.

    It took about nine months for Office XP to move from beta to launch. But Office 2003 is further behind than was Office XP at the same juncture in the release schedule. Mapping the two schedules together works out to be a more realistic August release of gold code, with Office 2003 appearing on new PCs and store shelves in October or November, analysts said.

    At the same time, Microsoft has the challenge of testing and launching new Office products InfoPath and OneNote, adding new Extensible Markup Language (XML) features to the productivity suite and coordinating adjacent testing and release of Exchange Server 2003.

    More importantly, Microsoft has added new Office features that rely on other products that are further behind the testing process. For example, Microsoft is adding a new rights management feature that works with Windows Server 2003, which made its official debut Thursday.

    "Who would want to lock down the code for the client while the server client is still testing?" asked Paul DeGroot, an analyst with market researcher Directions on Microsoft. Windows Rights Management Services entered its second beta in April, with release of final code expected in the third quarter. Such timing would be consistent with the revised Office delivery schedule.

    Microsoft's increased integration of features between the client and server makes the company more vulnerable to multiple product delays. Problems with one could have a cascade effect, potentially holding back two or three other products, DeGroot said.

    If Office 2003 ships late, then Exchange Server 2003--also known as Titanium--could miss its projected ship date, too, said Silver.

    "My understanding is that Microsoft is planning everything concurrently," he said. "I think there are some people out there who skipped Exchange 2000 whose destination is Titanium. If it slips, this is going to create headaches for them."

    The delay's cost
    If Office 2003 is delayed too long, it could have significant long-term impact for Microsoft, particularly if the earliest Licensing 6 adopters miss out on upgrades. In May 2001, Microsoft announced the new licensing program, for which customers would have to pay up front, typically under two-year contracts. This "Software Assurance" program guarantees them access to the latest Microsoft technology when it becomes available.

    Customers have largely resisted Licensing 6. According to a survey of 1,000 technology managers conducted by Yankee Group and integrator Sunbelt Software, 72 percent of Microsoft customers refused to sign up for the program. It should be noted that 42 percent of that number did renew contracts under the older and cheaper Licensing 5 program.

    If the leading edge of Licensing 6 customers miss out on Office 2003, they and other licensing subscribers might be more resistant to renewing their contracts.

    "Certainly some people might think twice about Software Assurance renewals if Microsoft missed the date," DeGroot said.

    Those renewals could have a significant impact on Microsoft's bottom line. In the company's 2003 fiscal third quarter, unearned revenue--the bulk of it from licensing--accounted for 26 percent of Microsoft's total revenue. During the quarter, Microsoft's Information Worker division, which is largely made up of Office software, accounted for $2.33 billion of Microsoft's $7.84 billion in revenue.

    But Silver noted that there is nothing implicit in the contracts that guarantees Licensing 6 customers will receive Office 2003. "They don't necessarily guarantee people will get an upgrade, but most people expect it," he said. "I think Microsoft would do something to make it right.

    Microsoft was not immediately available to comment on this matter.

    Even if Microsoft "grandfathers" in upgrades for contracts expiring on Oct. 31, customers planning to move to Office 2003 would have to push back upgrades. The Yankee Group and integrator Sunbelt Software study found that 32 percent of existing Office users plan to upgrade in the first 12 months after version 2003 ships. About 5 percent of earlier adopters run Office 95 and 44 percent use version 97, according to the study. Those two groups of users are the most likely to make a quick move to Office 2003.