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Microsoft is exploring new business models for Office in the emerging world, which includes expanding its pay-as-you-go pricing for Office 2003 in South Africa and Romania.
The Redmond, Wash., software maker announced July 17 a new offering, known as Microsoft Office Prepaid, for Office 2007 in those two developing countries. It will be priced at $28.54 for a three-month subscription for Microsoft Office 2007, while first-time users will get an extra three months free, Reuters reported.
A Microsoft spokesperson said the program was not an indication that the software giant was laying the groundwork for the rollout of Office as a service under Microsofts software-plus-services vision. Still, the spokesperson did not rule out the 2007 Office Prepaid pilot as a forerunner to an Office service.
Microsoft, which is also testing other pay-as-you-go programs, is “always looking at new ways to deliver productivity solutions and services to enable economic opportunity in emerging markets,” the spokesperson said. “2007 Office Prepaid is currently being piloted in South Africa and Romania. However, we have nothing to announce at this time regarding Office as a service.”
Office Prepaid uses the product activation technology found in many other Microsoft products. Users must first buy a new “Office ready” PC with Office 2007 installed. They will find a 25-character code on the back of the prepaid starter kit provided by their retailer that is used to activate the software over the Internet, enabling them to use the software for six months.
Users can then renew the subscription with a three-month prepaid renewal card, or they can convert it to an unlimited version with a traditional Office product. If they decide to let the subscription expire, they can continue to view and print existing documents and data but cannot modify or create new documents or data, a company spokesperson told eWEEK.
This move is part of the broader Unlimited Potential initiative by Microsoft to make its software more affordable in developing countries and to bring access to computing to another billion people by 2015, according to the spokesperson.
“Microsoft Office Prepaid represents Microsofts effort to explore new business models for Office. We are continually evaluating our business models for the developing world and will use our learnings from programs in South Africa, Romania and other markets to inform our long-term strategy for emerging markets,” the spokesperson said.
Rob Helm, an analyst at research company Directions on Microsoft, said he has not been briefed on this latest Office initiative, but he told eWEEK that the move was clearly designed to help generate more revenue from emerging markets as Microsofts developed markets slow.
“Microsoft has been trying to find new licensing models that will shake loose more money from emerging markets, and this is simply a trial of new ways to sell the classic Office product to emerging markets,” Helm said.
It is not a small-scale testing ground for a possible rollout of Office as a service, Helm said. “If you want an idea [of] what Office as a service might look like, take a look at SharePoint Server 2007, a product that already delivers a Web-based spreadsheet [Excel Services] and a forms data entry system [Forms Services, based on InfoPath],” he said. “SharePoint Server will probably be the vehicle for a future Office Server, which will also form the basis of an online productivity service. In fact, SharePoint Server—but not Excel Services—is already the platform for Microsofts Office Live service for small businesses.”
While Microsoft has been running pilot pay-as-you-go schemes for Office 2003 in South Africa and Romania since last year, this is the first time the company has included Office 2007, which was released to consumers in January.
This is also not the only pay-as-you-go program that Microsoft has been running: It has been testing a program for Windows, known as FlexGo, since May 2006 in a small number of developing countries, where both the PC hardware and software are leased.
Under FlexGo, users can buy computer usage time using prepaid cards, such as those sold by cell phone makers, from Microsoft and its partners, which include Transmeta, Advanced Micro Devices, HSBC Bank Brasil, Intel and Lenovo.
Microsoft is also believed to be considering adding Office to its FlexGo pilot program so that customers will be able to lease a single bundle of the hardware, Windows and Office.
But the spokesperson pointed out that Office has not been made available as part of the FlexGo program. “Its important to note that Office Prepaid is not reliant on FlexGo technology,” she said.
Next Page: Threats from competitors.
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Helm said Microsoft started with Windows because those sales are tightly tied to the overall PC sales rate. “However, Office is such a huge part of Microsofts business that its the logical next product to try new models on,” he said. “Having had a couple of years of experience with Windows, Microsoft has now made the leap to the next product.”
Microsoft is also aware of the many threats posed to its business by competitors such as open-source software and Google, and many of these initiatives are designed to make its products as pervasive as possible in the potential growth markets of the future.
Asked about the threats to Microsofts business from companies like Google, with its hosted applications, as well as from open-source software and products available under subscription, Chris Capossela, corporate vice president of Microsofts business division, said the company takes all of these seriously.
“A couple of years ago, we were faced with the threat of a free product, a free clone of Office, and that was and still is a huge threat. Now, it was only free because the license was free. There are also so many hosted Web productivity applications that it is hard to keep track of them all, but they are all competitors,” he told eWEEK in a recent interview.
Having software accessible on the Web is a different value proposition, so these are all interesting things that Microsoft is keeping track of, Capossela said.
“We have to look at them and determine if we have a better value proposition to business customers, governments and educators, but that does not change the fact that our biggest challenge is upgrading older versions of Office,” Capossela said.
However, he added, Microsoft is always looking at what else it needs to do to be innovative and to best meet customer needs.
“We absolutely look at offering Office in every flavor and shape and size—you name the distribution and usage vehicle. Were constantly monitoring and assessing whether it makes a lot of sense,” he said, pointing to Outlook local, Outlook Web Access and Outlook voice access as the model in this regard.
“That is the best example and we will look to do that same type of stuff with every application that we have. We have already done a lot of this with Office through SharePoint and were constantly looking at what we should be building. But we dont think its about just having every delivery mechanism covered. There has to be a value proposition, and where there is a customer problem that a competitor is solving that we havent, that needs to be solved,” Capossela said.
This is also not the first time Microsoft has sold Office under a subscription model. In May 2001, the company launched the Office subscription program for the professional and small business packages of Office XP as a pilot in Australia, Brazil and New Zealand.
Office XP subscribers basically rented Office for a specified period of time, during which they also received automatic updates as part of their licensing terms.
In a June 2002 eWEEK interview with Steven Sinofsky, then senior vice president of Office at Microsoft, he said the company was always experimenting with different ways companies could acquire its software, with different product variants, different levels of functionality and different mechanisms of purchase.
“We tried this in countries like Mexico, Brazil, New Zealand, Australia, Peru and Italy. There was a desire for a low cost of entry for the product but with all the features. We have thus tried some pilots around subscriptions, which gives a low cost of entry and you pay for it over time. Were still in the midst of learning from that as you have to … go through at least one renewal cycle, which is coming up this summer, when we will learn more and decide if this is a model we want to expand on and move forward with,” Sinofsky said at the time.
But Microsoft did not like what it learned. In September 2002, the company decided that the world was not ready for buying Office via subscription, based on customer feedback that found subscriptions a less-than-optimal method for buying Office.
Microsoft stopped the program, and those companies participating in the subscription pilot received a replacement copy of Office XP.
If that subscription pilot had been successful, Microsoft was slated to make Office available worldwide on a subscription basis.