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'Office 2.0' start-ups knock on business doors

Start-ups try to chip away at the Microsoft Office franchise via lower costs and Web-based collaboration.

Attempts to unseat Microsoft Office look more likely to come from an army of ants than from one giant foe.

Several start-ups are developing online services that handle tasks people typically carry out with desktop applications like those in the popular productivity suite. And at the Office 2.0 Conference, set to start in San Francisco on Wednesday, many of those companies will show off their latest crop of products.

One company, SmartSheet.com, is launching an upgrade to its online collaboration software, which is built around a hosted spreadsheet and e-mail. Instead of just mimicking Excel in online form, the company is using familiar tools to make project management better, SmartSheet's president said.

"We're trying to create a combination between the paradigms we all know (with e-mail and spreadsheets) and, where we get the benefits of Web 2.0 collaboration and improved processes," said Mark Mader, president of SmartSheet, which is based in Microsoft's home turf of Seattle. "We're not falling into the camp of simply replicating what there is today online, which doesn't improve things all that much."

Workplace use of Web 2.0--the use of wikis, Internet delivery of applications, and Web-enabled collaboration--is the key way these upstarts hope to distinguish their products, as they try to chip away at Microsoft's franchise. Another benefit they tout is that using hosted services, rather than buying applications, can work out cheaper for customers--or at less expensive up front.

In perhaps as significant a differentiator, many Office 2.0-style companies are steering clear of the traditional sales route used by Microsoft Office. Instead of trying to sell directly to IT managers within corporations, many of these smaller companies, which admittedly have limited resources, are looking to spark grassroots adoption by pitching their products directly at the worker who will be using them.

SmartSheet.com

In a model shown to be successful by Salesforce.com, many hosted productivity applications aimed at businesses are cheap enough to be purchased using a credit card by individuals within a company department.

Paul McNamara, CEO of online services start-up Coghead, says that it's not just the viral marketing aspect of the backdoor sales approach that appeals to him. One of the ideas behind Coghead's approach is to let technically savvy end-users gain more control.

"There is a real groundswell for do-it-yourself Web applications, empowering people closest to the business problem to build the solutions," he said. "A lot of people see the Web delivery model and Web 2.0 as a key enabler to end users."

On Wednesday, Coghead plans to launch an open beta, or test version, of its service, which lets technically savvy people build their own workflow applications. It intends to launch its service in the first quarter of next year and to charge a monthly subscription fee.

Service providers as power brokers
SmartSheet's Mader previously worked at Onyx Software, a provider of customer-relationship management applications, where he saw firsthand how individual business users can have an impact on corporate decisions.

In one situation, Onyx was ready to close a large deal endorsed by the customer's IT department. But that decision was derailed at the last moment by people who were going to use the application.

"Teams will make decisions--if they see value, they will move. We had a wonderful plan, and business (people) overrode it, because they were bringing in the business," Mader said.

SmartSheet charges a monthly per-user fee, with a basic service starting at five users and 50 viewers. The viewers can see common documents and update them, but not author new documents.

Being quick and easy-to-use encourages people to try a new Web application. At the same time, however, it makes it relatively simple for them to try an alternative.

That's why, ultimately, many Office 2.0 start-ups will have to form partnerships with telecommunications companies or Internet service providers, said Ismael Ghalimi, the organizer of the San Francisco conference. Those partners can sell the online service to corporate customers and offer unified billing. Generally, business customers will not want to use ad-supported software, which is common in consumer applications. They would rather have a well-organized purchasing process, he said.

"Even if the Web lowers the barrier to entry, it doesn't mean that customers will come to you in droves. You still have to do marketing and build your channels," he said. "Most of the innovation comes from the smaller players, but they don't have the channel. Even if I'm Google, it's difficult to get people to give me their credit card."

Ghalimi noted that several Office 2.0 companies are selling both to large enterprises and to small and medium-sized businesses, which is a break from the traditional enterprise software business.

"Distribution is everything," said Frank Zamani, CEO of Caspio, an online database company. "With large companies, we could go after them ourselves, but reaching hundreds or thousands or millions of small and medium-sized businesses directly is not practical."

Zamani said that Caspio is seeing more large-scale use of its database application within businesses. He added that the company is looking to form distribution relationships with Internet service providers.

Finding niches
From a product-design point of view, many Office 2.0 companies are starting fresh. They are focusing on the benefits of hosted software, such as mobility, collaboration and easier installation.

SmartSheet is trying to address the management of team projects, a job that is often handled with spreadsheets. The problem is that versions of the spreadsheet get out of sync when people rely on e-mail, and it's difficult to audit the history of changes to jointly authored documents, said John Creason, the company's chief technology officer.

With SmartSheet's service, people can dole out tasks to others and store relevant product information in a single place. Notifications can be sent out via e-mail, which can be significant when people are working with others outside the company.

Rather than expecting an outside contractor to check a Web site, an e-mail-based form is sent to that person, which automatically updates common documents stored at SmartSheet.com.

Rather than overtake Office, Ghalimi predicted that many Office 2.0 services will continue to complement Microsoft's software. Over the next few years, businesses may use them more and more at the expense of installed versions of Office, as they experiment and find good uses for alternatives.

"The biggest impact these services might have on Microsoft is that it will make it significantly harder to justify the upgrade to Windows Vista and Office 2007," he said.

"What will happen is what we've already seen with e-mail clients like Gmail and Hotmail, which are very good," Ghalimi said. "They will creep in on an application per application basis."

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