Suite Returns: MS Office Survey Lacks ROI

Microsoft set out to quantify the productivity gains from upgrading to Office 2003. The big question: Can you get the same results? (Baseline)

The Microsoft Office 2003 launch on Oct. 21 included plenty of proclamations from chairman and chief software architect Bill Gates and other honchos about how the new suite of word-processing, mail and presentation software can enhance productivity.

But the most interesting item may be a white paper by Microsoft that tries to measure (and market) the financial benefits of the latest version of Office.

According to that white paper, also released Oct. 21, "organizations that deploy Microsoft Office system solutions achieve both dramatic cost reductions and high returns by generating work process improvements."

So what kinds of returns is Microsoft promising? Try a median internal rate of return of 142 percent (range: 46 to 460 percent), a median payback of 8 months (range: 3 to 19 months) and a median net present value per user of $4,000 (range: $280 to $65,000) according to the white paper. Office 2003 is also supposed to allow individuals to reclaim two hours of their week through fewer keystrokes and faster document creation.

Sounds impressive, but there are caveats. For starters, those metrics were derived from a Microsoft-funded study by Navigant Consulting based on a small sample of 14 companies. Meanwhile, if you really want Office to "light up" with its eXtensible Markup Language (XML) capabilities, it helps to have Windows Server 2003, says Will Golding, director of marketing and communications for Microsofts information worker product management group.


In fact, a true calculation of Office 2003s benefits should include the price, training and installation costs of an upgrade to Windows Server 2003, analysts say. Of the 14 companies in the white paper, most had the most recent server software such as Microsoft Office Infopath 2003 and Microsoft Office Sharepoint Portal Server 2003 riding shotgun with Office.


Navigant standardized software and hardware costs to reflect a baseline for purchasing new equipment and software. For each customer in the study, fixed software costs were used even if the software was already owned or upgraded without cost. For the financial calculations, Navigant assumed a three-year project life and a 15 percent cost of capital.

For its part, Microsoft notes its white paper is for informational purposes only and "makes no warranties, expressed or implied."

Golding says Microsoft decided against using metrics such as return on investment (ROI) and total cost of ownership (TCO) in order to focus on measurements used by executives whose job it is to approve an upgrade.

Analysts say its possible Microsoft may have avoided acronyms like ROI and TCO for other reasons. "I wonder if [its] because they are wary of the results they would get," says AMR Research analyst Jim Murphy.

As for the sample size, Golding says the 14 companies are representative of whats possible with Office 2003.

Murphy says Microsoft had to deal with what was available—there were only so many companies testing the latest version of Office.

Murphy has another beef, though. He says the biggest gotcha in Microsofts findings is that the subjects in the white paper probably were a top priority for the software giant. If there were any installation problems, its highly likely that the company was ready to resolve them.

"When you deploy [Office], youre not going to have the full attention of Microsoft," says Murphy.

Murphy doesnt expect Microsofts findings to cause a big rush to upgrade to Office 2003. He suspects itll take about 18 months before the number of upgrades become significant. Indeed, a recent survey by Credit Suisse First Boston found that only 1.5 percent of CIOs polled view an Office upgrade as a top-three priority.

The main reason for the delay: Corporations are likely to upgrade Windows server software first.

That may be part of Microsofts overall plan. By pitching Office as a platform including Windows-based servers, Microsoft hopes to distinguish itself from cheaper rivals such as Sun Microsystems StarOffice and boost sales of server software.

But "Microsoft faces a difficult juggling act," says Brent Williams, an analyst with McDonald Investments. "It must deliver enough new features to make many customers want to upgrade, while not introducing so many incompatibilities or incidental costs to the upgrade process."

No matter what the motives, analysts—and even Iyer Venkatesan, product line manager for Sun Microsystems StarOffice—give Microsoft some credit for trying to measure productivity.

Says AMRs Murphy: "The metrics are imperfect, but few have looked at the returns from productivity software, so any metrics are good," he says. "The big question is whether the productivity from Office turns into profitability. Does that additional two hours saved a week make you money?"

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