The company will modify the licensing terms for its teacher and student productivity suite when Office 2003 ships this summer. This is an apparent attempt to lower the cost of Office for consumers without actually repricing it and thus could spur greater adoption in the consumer market, say analysts.
Theadopted with the 2001 release of Office XP Standard for Teachers and Students. In October of that year, Microsoft dropped the price of the product to $149, but some retailers offered the suite for as low as $110--or about $330 less than the otherwise identical version for people who are not students or teachers.
But there was a catch. Technically, only students or teachers were licensed to use the product. Microsoft did not license the software for other members of the household or people who were not faculty or students. That technicality apparently meant little to consumers looking for a good deal. Consumers snatched up 300,000 copies of Office XP Standard for Teachers and Students versus 121,000 for Office XP Standard during the academic product's first 10 months on store shelves, according to market research company NPDTechworld.
In fact, Office XP Standard for Teachers and Students continues to outsell the standard version by a huge margin. For boxed productivity software sold at retail, the student and teacher version has 34.4 percent market share versus 4.7 percent for Office Standard, according to NPDTechworld.
Under the new licensing scheme, anyone in a household with a qualifying teacher and student will be able to use the forthcoming version, Office Student and Teacher Edition 2003. Microsoft also plans to extend the license so that the product can be installed on up to three computers. In a third change, the license would not expire after a college student graduates. Finally, Office Student and Teacher Edition 2003 would be upgradeable later to another version of the suite. Consumers who bought the earlier version were not eligible to buy upgrades.
The changes indicate Microsoft has recognized the huge success of this lower-cost alternative to the standard version of Office and sees an opportunity to increase adoption among consumers, a market segment more fickle over pricing than are businesses, say analysts.
"If you're selling something for music or video, there's interest there in the consumer market," said ARS analyst Toni Duboise. "That's a driving force in the PC market." But productivity suites don't sell well to consumers, in part because of the high price.
"There's no doubt Microsoft needs something to boost those productivity sales without jeopardizing their bottom-line premium for those products," Duboise said. "If they were to lower prices, they would never be able to raise them again. This is kind of a clever way of doing that."
Office Product Manager Simon Marks declined to comment specifically on whether Microsoft was trying to use the student and teacher version as way to lower the price without jeopardizing the pricing structure of the productivity suite. But, he acknowledged, "Price is particularly important for that part of the market."
On Wednesday,. "We're trying to deliver the right value to the right people," Marks said of the different Office 2003 versions.
He described the student and teacher Office version as part of a strategy of "providing different choices for different people to make sure they get what they need."
Changing the rules
Typically, software companies sell products intended for use by teachers or students through academic retailers and college bookstores. In theory, this helps prevent unauthorized use of software that is identical to a standard retail version but deeply discounted. School bookstores and other academic resellers typically require student identification before purchase.
But with Office XP Standard for Teachers and Students, no check is required to verify whether the buyer is qualified for the product. In fact, many retailers sell this version alongside the more expensive Office Standard, making it easy for anyone to pick up a copy. The same policy will apply to the new version, according to Microsoft.
Duboise believes Microsoft's unwillingness to "card" buyers, so to speak, is a clear indication the company hopes to use the student and teacher version as a way of seeding the consumer market with a lower-cost Office product.
The forthcoming student and teacher version of Office XP or 2003 is not an upgrade but the full-blown standard suite, which comprise Excel, Outlook, PowerPoint and Word applications. Microsoft has not revealed pricing for the Office 2003 bundles. But if the company holds true to past behavior, the new versions will be priced about the same as the old ones. Microsoft still offers Office XP Standard for Teachers and Students at the discount price of $149--more typically $129 at retail--or about $300 less than the comparable Standard version.
Any student--including those in kindergarten through grade 12 and those being home schooled--technically qualify for the discount. Higher-education students and faculty also are eligible to buy the software.
NPDTechworld analyst Steve Koenig said the huge price gap between the student and teacher version and Office Standard makes Microsoft's strategy pretty clear.
"Office has tremendous mindshare," he said. "This is about price. When you see the two (products) on the shelf it's a no-brainer which one to buy."
Microsoft apparently sees a teacher and student version as appropriate for a lot of people.
"At least 52 percent of households in the U.S. have children under the age of 18," Marks said. "That does not include households with college students or teachers."
Apparently, Microsoft viewed the first Office student and teacher version as an experiment, which has moved from the trial stage to permanent product. The company extended the license to three PCs because "30 percent of households own multiple PCs," Marks said.
"In the trial we had that strange licensing, where only the person licensed to use (the student and teacher version) could use it in the household," Marks said. Market research determined this approach simply wasn't sensible in practice.
While other people in the home would be able to use the new version, some restrictions would remain. The license is for "noncommercial use," Marks said. "So, if the mother or father uses it for work, they should get their own (standard) version."
Duboise did not see the low-cost Office 2003 as cannibalizing sales to larger markets, such as businesses. In fact, Microsoft could be counting on the student and teacher version to help to drive future upgrades, as graduates used to using Office in the classroom move into the workplace.Koening agreed, noting that while the Office XP Standard for Teachers and Students lead the market category, licensing sales to businesses remain strong. In fact, licensing sales of Office Professional outsell boxed copies of the standard version at retail.