Online Works might be in the works

Although preloaded on many PCs and still sold at retail, many people never even notice the software, which includes word-processing, spreadsheet and database software.

Increasingly, though, Microsoft sees Works as an overlooked gem. The company is looking to Works as part of a future in which much packaged software is delivered online, and in many cases, free to those willing to view ads.

With the next version, Microsoft is looking beyond the traditional ways it has sold the software in the past to explore both online distribution and ad-funded options, a Microsoft executive told CNET News.com on Thursday.

"What we are trying to do is make Works fresh," said Alan Yates, general manager of business strategy for the Microsoft Business Division, which includes the information worker unit.

Roughly two years ago, Microsoft decided to give Works a new focus. The product's management was moved out of the home products unit and into Microsoft's information worker division, the group responsible for Office and reporting to that unit's vice president Chris Caposella.

The Works team was given the task of exploring whether future versions of Works should be online, or continue to run from the PC itself. It was also asked to look into whether Works should be funded by ads, or whether it made more sense to have PC makers continue to pay a small number of dollars to include it on new computers.

Microsoft still hasn't made any final decision on how it will market the next Works, which is slated to arrive some time after Office 2007. The new Office package is expected to be broadly available early next year.

Companywide, Microsoft has been trying to grapple with the reality that its historic way of selling software, particularly to consumers, is seeing difficulties. As reported last year, the company has been struggling internally with whether to offer free, ad-backed versions of its desktop software.

"The outlook for the packaged consumer retail software market is poor," MSN workers said last year, in an internal strategy paper seen by CNET News.com. "The size of the market is shrinking, and consumers appear less willing than ever to buy software applications off the shelf."

With Works, the paper's authors said that Microsoft gets $2 per copy from PC makers, on average. Figuring that the average person keeps Works for about three years, the authors said that Microsoft could make more money giving away the software, assuming it could generate more than 67 cents per user per year.

But, Yates said, advertising is also "kind of a double-edged sword."

"On the one hand, consumers are quite reluctant to be bombarded with ads," he said. "The introduction of advertising with productivity software has to be pretty elegant. Some consumers don't like it at all."

One of the other challenges is that an ad-free version of Works is pretty standard on consumer PCs. "It looks pretty free to you," Yates said. "It's kind of a necessity to be shipped with a PC. What we are trying to look at very hard is whether there are other distribution options for that entry-level user or not."

Microsoft has seen opportunities in adding online components--and advertising--to other consumer products such as its Money personal finance program and Encarta encyclopedia. "Advertising can complicate things, but it can perhaps open up some really new, fun, exciting things as well," Yates said.

No matter what, Yates said it is unlikely that the new Works will be online-only. "It's pretty rare that we wind up closing down options," he said. "There are plenty of places around the world where online distribution isn't very mature."

BusinessWeek reported earlier on Thursday that Microsoft is looking at both free and subscription options for an online version of Works, which it said could come under the Office Live moniker. Today, Microsoft Web offers free and subscription services for small businesses under that banner, things like Web hosting and customer management software.

The kind of debate over what to do with Works is being replicated throughout the company--and not just with consumer software. The company has also been trying to add "Live" services components to its small business and enterprise software.

"As we do our product planning for each subsequent version, we don't just think about the features," Yates said. "We think about the distribution options and the payment options and the service options all together."