Microsoft's Office 2010 Release, Kinect Unveiling at E3, Marked Week

Microsoft's week centered around two major releases: the consumer rollout of Office 2010, the latest in its long-running line of productivity software, and Kinect, the hands-free gaming controller that the company hopes will appeal to Xbox owners and casual gamers. Microsoft's Office franchise will likely continue to hold a sizable share of the productivity software market, but faces potential longer-term competition from the cloud. Microsoft's Entertainment and Devices division, which produces the Xbox, recently underwent a major shakeup as it prepares for a new wave of product releases.

From a bottom-line perspective, Microsoft's most important announcement this week was its worldwide release of Office 2010, Microsoft Visio 2010 and Microsoft Project 2010. Although the productivity software has been available to businesses since May-and the beta of Office 2010 long before that-this marks the first time that consumers will have access to the product.

Microsoft is doubtlessly hoping for a Windows 7-sized hit. But Office 2010 could potentially be a victim of its previous versions' success; unlike Windows 7, which was seen by many users as a cure-all for the aged-but-stable Windows XP and the generally maligned Windows Vista, Office has a longstanding reputation as a stable and ubiquitous software platform: you can almost see the potential customer leaning back in their chair, wondering, "Do we really need to upgrade, when the current version of Office works just fine?"

Microsoft, obviously, would like the answer to that question to be "Yes." During a May 12 unveiling of the software in New York City, executives touted Office 2010's features supposedly designed to take advantage of an increasingly mobile and home-based workplace. In a bid to further sweeten its appeal-or at least increase its marketplace presence-Office 2010 is also being offered pre-installed on new PCs, either in a free stripped-down version or as a full program unlockable with a special card.

"For the first time, people can purchase a Product Key Card at retail to activate Office 2010 preloaded on new PCs," Stephen Elop, president of Microsoft Business Division, wrote in a June 15 statement. "For those who want to download Office 2010 direct from for an existing PC, the new Click-to-Run technology will have them up and running in a matter of minutes."

Microsoft claimed in a June 15 press release that, based on its own survey, some 75 percent of Office 2010 beta users plan to purchase the retail version of the software within six months. "We predict this will be the biggest consumer release of Office, ever," Elop wrote in the accompanying statement, however predictably.

While Microsoft will likely hold onto its lion's share of the productivity-software market in the short-term, the company also recognizes the potential game-changer presented by cloud-based software such as Google Docs. In an effort to counter-program that trend, Microsoft is offering office Web Apps-stripped-down editions of OneNote, Excel, Word and PowerPoint-free and accessible to Windows Live subscribers via their browser. However, because Microsoft needs Office to remain a profitable franchise, a number of features are restricted to the purchasable, desktop-based version.

But at least one analyst thinks that desktop-based productivity software faces no threat from the cloud-at least, not quite yet.

"On the shoulders of Office 2010 rests nothing less than the defense of packaged software in general," JP Gownder, a Forrester analyst, wrote in a June 14 posting on his eponymous blog. That being said, he added, "the Office versus Google Docs debate doesn't merit a lot of consideration-it's still no competition."

Gownder cited the combination of consumers' "deep, longstanding relationship with Office," the power and convenience of PCs for running desktop-based programs, and the "more limited experience" offered by browser-based applications as reasons behind Office 2010's probably success.

"Invariably, some reviews will compare Google Docs and Office Web Apps ... as if they were meant to be comparable offerings," Gownder added. "This is a mistake. Office Web Apps are a complement to the client program, more of a feature than a stand-alone competitor to Google Docs."

In addition to the productivity-centric Office 2010, Microsoft's other major announcement this week centered on Kinect, its "controller-free gaming device" that allows Xbox players to control their digital avatar by body motion. Unveiled at the Electronic Entertainment Expo in Los Angeles, where the company was rolling out its new Xbox-related products, Kinect is Microsoft's answer to Nintendo's Wii, which sold millions of units based on its unconventional motion-based controller and roster of casual, easygoing games. Kinect uses a three-dimensional video camera to track 48 points of movement on the user's body.

Gaming has evolved into an important element within Microsoft's financial house. The company's Entertainment and Devices division contributed around 11 percent of its $14.5 billion revenue in the first quarter of 2010, up slightly year-over-year. Contrast that to Microsoft Business Division, which dipped slightly.

But while the Division overall has posted healthy numbers, its individual product lines have achieved decidedly more mixed results. Although the Xbox franchise has begun to generate revenue, after years of losses, products such as the Zune portable media player have not attracted the same level of consumer attention. That perhaps underlies the Divisions recent shakeup, in May, which saw the departures of not only unit president Robbie Bach but also J Allard, its senior president of Design and Development.

With that shakeup,Microsoft seems to be clearing the decks for its next wave of releases through the Division, which include not only Kinect but also Windows Phone 7. Microsoft pushed the latter at its recent TechEd conference in New Orleans as the next big smartphone platform for developers, but it will also face substantial competition upon its late-2010 release from Apple's iPhone 4 and the Google Android line of devices. Microsoft also recently launched a pair of Kin phones, aimed at a social-networking-friendly demographic, but has not yet reported sales numbers for that project.

Windows Phone 7, along with Office 2010, will help determine Microsoft's longer-term fortunes in both the consumer and business spaces; their success or failure, particularly with Phone 7, will likely serve as barometers for how well the company can deal with the tech industry's rapid changes.