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Back to school for Office XP

Microsoft's aggressive pricing policy has made the academic version of Office XP a big seller among students and teachers--and increasingly popular among nonstudents. But isn't that piracy?

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A deal to offer students a cheaper version of Microsoft's Office XP software may be part of a larger plan for the software maker: Increasing sales of the productivity suite to consumers by slashing prices.

Microsoft's aggressive pricing of the academic version of Office XP has made the software one of the biggest sellers with students and teachers--and it's becoming increasingly popular among nonstudents, who are technically ineligible for the discount. In some cases, the software is priced $330 less than the same nonacademic version of Office XP.

In October, Redmond, Wash.-based Microsoft started what was announced as a limited-time discount offer on Office XP Standard for Teachers and Students: The company reduced the price of the software to $149 from $199. The deal continues 10 months later, and Microsoft has not indicated when or if the promotion will end.

Retail sales data indicates many nonstudents are buying the academic version in droves. Microsoft won't comment on whether that's a goal of the promotion. Analysts say it's hard to see any other reason for the deal.

"It's pretty clear Microsoft wants more penetration in the consumer market, which is one reason they took the product out of the traditional educational reseller market," said Steve Koenig, an analyst at market research firm NPDTechworld. "It could very well be they were very dissatisfied with sales through traditional channels, so they kicked this deal out to the whole (sales) channel and see what happens," he continued. "It obviously has been very successful."

Simon Marks, Office XP product manager, did not address whether Microsoft planned the promotion as a way to broaden the expansion of the software package into the consumer market.

Nonstudents buying or using Office are "not a major concern" for Microsoft, he said. "We are aware that within the educational market...price is a significant issue for that market, so we priced it low."

Retailers have sold 300,000 copies of the academic version of Office XP since October, taking in about $43 million in revenue, according to NPDTechworld. By comparison, the full standard version has racked up 121,000 retail sales and the standard upgrade version has sold 100,000 since Office XP's release in May 2001.

In an unusual move for software sold to schools, Microsoft also made the Office XP academic version more widely available, expanding outlets beyond the typical educational dealer or college bookstore to Costco, Staples, Target, Wal-Mart and other major retailers.

The discount has turned the academic version of Office XP into one of the best bargains of the back-to-school buying season. Costco sells it for $128, while charging $399 for the same nonacademic Office XP Standard. Staples sells academic Office XP for $130, but with a $20 instant rebate, reducing the cost to $110. By comparison, the office supply retailer sells the nonacademic version for $440.

It's unclear whether Microsoft is undertaking the move--which amounts to a price cut--in response to competition from alternative office suites such as Sun Microsystems' StarOffice. That software carries a manufacturer's suggested retail price of $75.95. A version for the education market is essentially free, with users paying only for shipping and distribution costs.

The academic version of Office XP is not an upgrade but the full-blown standard suite, which includes Excel, Outlook, PowerPoint and Word applications. The academic version of Office XP is identical to the standard package, which sells for as much as $330 more, with one exception: The academic version cannot be upgraded to the nonacademic version. But analysts say many consumers--unlike business consumers--tend to stick with one version of Office for years without upgrading.

Any student, including those in kindergarten through grade 12 or those being home schooled, technically qualify for the discount. Higher-education students and faculty also are eligible to buy the software.

Technically, nonstudents such as parents of students are prohibited from using the product other than to help their children do school work. To enforce that rule, school bookstores and other academic resellers typically ask for student identification. Now, with the expanded number of retail outlets for the academic version of Office XP, "I would wonder how Microsoft could conceivably enforce that," said Gartner analyst Michael Silver.

At retailers, there are no checks in place to prevent unauthorized users from buying the software. Microsoft effectively removed any system to enforce that by offering the software in major retail stores. In fact, CompUSA, Costco, Staples and other retailers prominently display the academic and nonacademic versions side by side, making it easy for nonstudents to pick up a copy. The stores don't necessarily check student IDs the way an educational dealer or college bookstore would.

"Clearly the sales indicate that more than teachers and students are taking advantage of this promotion, given the fact the Student and Teacher edition has sold about three times as much as the regular Standard edition or the upgrade," NPDTechworld's Koenig said. "It's pretty certain nonstudents are buying this if retailers aren't checking up on student IDs."

In a casual survey of five stores on Tuesday and Wednesday, CNET News.com found none that required student IDs or proof that parents had a student living in the household.

ARS analyst Toni Duboise laughed at the idea Microsoft could conceivably keep nonstudents from buying or using academic Office XP. "That's certainly not going to happen," she said.

Koenig said the deal is too good for consumers to resist. "It's a no-brainer. They see the two products together and say, 'I have a 10-year-old' and pay less.'"

The discount should boost Microsoft's overall sales of Office XP. Duboise noted that consumers are more likely to get Office Small Business Edition bundled on a new PC, or not buy the software at all, rather than spend $400 or more on the retail version of the suite. "You have to admit, Microsoft is offering a pretty good deal that is going to look very attractive to some consumers."

What the promotion does not appear to be doing is taking sales from other Office XP markets.

"We certainly haven't seen any significant cannibalization of our other markets," Marks said. The special pricing is "something we did to address that (educational) market, rather than be concerned we would lose our share to something else."

Duboise agreed. "I don't see this promotion cannibalizing other Office sales," she said. While some small businesses buying at retail might pick up the academic edition, the greater risk they run of having their software licenses audited by Microsoft "would limit cannibalization there," she added.

Who's a pirate?
A separate issue is whether sales of the discounted academic version to nonstudents constitutes software piracy, analysts said.

According to Microsoft's piracy Web site, it is illegal for someone to use software licensed for a purpose other than that for which it was intended. On a page titled "Piracy Basics," the company warns of "piracy at a store near you."

Academic software is supposed to be "offered at reduced prices only to qualifying education customers," the page warns. "When the software is purchased, the buyer must provide proof of their education affiliation." Microsoft also considers "illegal channeling" or "mischanneling" as piracy. That is where "software is redistributed to other resellers or users who do not qualify for these licenses," according to Microsoft.

Microsoft's largest domestic problem with software piracy has been casual copying--people sharing software within a family or with friends. This casual copying is one of the main reasons Microsoft introduced product activation with Office XP. Through product activation, Microsoft is able to lock the software, so to speak, to the computer's hardware configuration.

The company estimates that about half the 300 million copies of Office in use are pirated. Office XP accounts for about 80 million of the 150 million legal copies, Microsoft said.

Despite Microsoft's posted policy, Marks said he did not view the use of the software by nonstudents as piracy. It's "not the same thing as piracy. Certainly there may be concerns about licensing, but that's not piracy."