Tech Industry

Microsoft gives up some ground

HP chooses Corel's WordPerfect over Microsoft's Works and Office for its low-end Pavilion PCs. It's not alone in the search for low-cost alternatives to Microsoft products.

Hewlett-Packard is booting a Microsoft software package from its Pavilion line of consumer PCs in favor of software from Corel, as more PC makers consider cheaper alternatives to Microsoft software.

Read more about Corel and Microsoft
The deal, announced Monday, marks a significant win for the scrappy Canadian software maker. HP is currently the largest manufacturer of PCs in the world and commands more than half the U.S. retail market.

Under the deal, all Pavilion desktop PCs sold in North America will ship with Corel's WordPerfect Productivity Pack starting in October. That "productivity suite," similar to Microsoft's Office, includes the WordPerfect word-processing application and the Quattro Pro spreadsheet program. Currently, Pavilion PCs come with Works, Microsoft's stripped-down productivity suite for consumers. Customers can order Office XP for an extra charge.

Corel is discussing possible expansion of the deal with HP, said Steve Houck, executive vice president of strategic relations for Corel. One option is to add WordPerfect to the Presario line of consumer PCs that HP picked up in its acquisition of Compaq Computer.

HP's shift underscores a drive by PC makers to cut costs from their software budgets. In recent years, prices for processors, hard drives, memory and other components have declined to historical lows, but the cost of Office has remained high.

Emachines' T1221 computer, for example, sells for $475--that is, $4 less than the standard home version of Office XP.

HP's move, one analysts said, is a sign of intense competition at the low end of the PC market.

"I don't think it's as much a slap at Microsoft as just the reality of today's PC market," said Toni Duboise, an analyst for research firm ARS. "Anything that's going to allow (HP) to lower their cost and the end price for the consumer, even in the slightest, will be a benefit for them in today's market."

Houck said price was the main factor for HP. "I think it was just the economic environment and some of the issues there with Microsoft," he said.

An HP representative confirmed the move was based on cost, although the company declined to quantify the savings. "Corel offered a more economically competitive package, and we're able to pass those savings along to HP's consumers," the representative said.

Stephen Baker, an analyst for research firm NPDTechworld, said the HP move fits with a trend among PC makers to minimize the software they load on consumer PCs.

"You don't see too many PCs anymore that give you all sorts of finance and educational software and games," Baker said. "That's been one place that's been identified as not providing any value to the consumer but adding to the cost" for the PC maker.

HP can promote the WordPerfect package as a better deal, Baker added, because the vast majority of consumer PCs ship with Works, which doesn't include the Excel spreadsheet progam or other common Microsoft applications.

"You've never really been able to get a full-featured office suite standard on a consumer PC," he said. "They can position this as providing full-featured software at no extra cost."

Microsoft didn't appear to be worried about the deal.

"With over 300 million users worldwide, Microsoft Office has become the choice of individuals who need to be more productive and organizations who need a reliable set of tools to run their businesses," a Microsoft representative said in response to the HP announcement.

Getting by without Office
Consumers are also showing increasing acceptance of non-Microsoft suites, although Microsoft still outsells its competitors. Sony, the fastest-growing PC manufacturer in the world, features the WordPerfect suite on a number of high-end and budget PCs. Swapping in Office XP would add $470 to the total price of the system.

Toshiba, which reclaimed the top spot in worldwide notebook shipments in the first quarter, incorporates the Lotus SmartSuite from IBM on a variety of its models.

Dell Computer has also used Corel in its budget SmartStep PCs (recently replaced with an equivalent Dimension machine) since October 2001.

Possibly to combat this trend, Microsoft has been selling the academic version of Office XP, once typically only found in campus bookstores and educational outlets, in Target, WalMart and other large stores, according to analysts. Although it can't be upgraded, the academic version contains the same applications as the regular version of the software, but costs $330 less.

Meanwhile, several foreign governments have begun to experiment with Linux-based desktops, while some U.S. corporations have been less than pleased over Microsoft's new licensing terms.

Houck said he expects the HP deal to give Corel an additional 3 million WordPerfect users over the next year--although some may still choose to buy and install Office. All together, the recent deals could more than double WordPerfect's user base over the next year and boost its position in a market long dominated by Microsoft.

"I think we have an opportunity to pick up a couple of points of market share in the next year," Houck said.

The deal came after several years of negotiations with HP, Houck said, which became more serious as pressure increased on PC makers to trim costs and drive down retail prices.

Corel is also hoping to capitalize on frustration among business software buyers over new Microsoft licensing plans that lock them into expensive upgrades. Similar complaints about changes in original equipment manufacturer (OEM) licensing have led PC makers to look for alternatives, Houck said.

NPDTechworld's Baker said preliminary findings in Microsoft's long-running antitrust case may be encouraging PC makers to seek out other software providers. The proposed settlement of the case includes restrictions on the contracts Microsoft signs with OEMs.

"Given that the Justice Department has pushed Microsoft to be a little more liberal in how they deal with PC makers, this gives HP a chance to experiment," Baker said.

Houck said he couldn't estimate Corel's price advantage over Microsoft because he isn't privy to Microsoft's licensing terms. The retail version of the WordPerfect suite sells for about $100 less than Office XP, however, while a consumer-oriented WordPerfect package is $30 less than Microsoft's Works.

Houck said there's nothing contradictory about Corel competing vigorously with Microsoft, despite Microsoft's $135 million investment in Corel, which gave Microsoft a 24.6 percent nonvoting interest in the company.

"Microsoft takes up so much space, you're going to compete at the same time as you cooperate with them," Houck said. "It's happened with Apple, it's happened with other people."

WordPerfect is also a familiar Microsoft antagonist. As an independent company, WordPerfect competed against Microsoft for years before being bought by Novell in the mid-90s. Novell then sold the program to Corel in 1996. Corel has experimented with touting the suite for network computers and as a Java alternative.'s Michael Kanellos contributed to this report.