With an already commanding share of the desktop market, Microsoft these days is trying to transform Office into a tool that is deeply tied into a company's core business processes. In Microsoft's ideal world, Office serves as the friendly, familiar interface for the massive databases that hold a company's customer and other information.
The server effort--which Microsoft is talking up this week at its first-ever Office System Developer Conference--helps the company in two ways. First, it helps boost sales of Office and other Microsoft server software, such as Exchange and SharePoint. But perhaps more importantly, once a company integrates Office into its practices, competitors will face a really tough sell.
What's new:
With its Office software, Microsoft more or less owns the market for word processing programs, spreadsheets and other such desktop productivity applications. Now it wants to see Office deeply tied into companies' core business processes.
Bottom line:
If it can get Office into the work flow, Microsoft will boost sales not only of the productivity software but also of other Microsoft server programs, such as Exchange and SharePoint. To do that, though, it will need lots of developers churning out applications that use Office as a key component. A conference this week in Redmond assembles just the folks the company is courting.
"The chances you are going to switch out are pretty well nil," said Directions on Microsoft analyst Paul DeGroot. "You have way too much money invested."
Although Office has the majority of the productivity-software market, the company has continued to see encroachment from OpenOffice.org and other low-cost competitors--particularly in the public sector.
The first step in the effort was building XML tools into Office 2003 that let companies easily move data in and out of Excel, Word and PowerPoint. But for the effort really to take root, Microsoft needs developers to buy in to the idea and create applications that build on Office.
"It's not valuable until someone does something with it," Microsoft corporate VP Richard McAniff said of XML. "When someone builds a solution, it becomes really valuable."
Microsoft says it has made great progress, noting that the company itself has trained 70,000 partners to develop programs that sit on top of Office. Plus, a new study claims that more than 1 million people have done some software work that ties in with Office 2003, with a third using XML to do so.
But DeGroot said the company still has a ways to go if it wants to make Office a primary tool for business process integration.
"I don't know that Office is people's first option when they look at automating things," DeGroot said. Although Microsoft has a capable set of tools, including Visual Basic for Office, DeGroot said developers tend to stick with what they know. And he said the software giant still faces the dual tasks of convincing companies to automate business efforts and of selling them on a role for Office.
Topping off the bottom line
How much this effort has increased sales is unclear. Microsoft has given little information on how Office 2003 is doing, other than to say that it has outpaced sales of the prior version, Office XP. After seeing a jump in sales when the software debuted, Microsoft has watched revenue in its information worker unit level off some. Last quarter, the division had $2.78 billion in revenue, down from $2.86 billion a year earlier.
Gartner analyst Michael Silver said there is reason for optimism. Attendees at a Gartner conference in October said that on average about 8.5 percent of their machines were running Office 2003, with 50.6 percent planned by the end of 2005.
"It looks like Office XP peaked at under 30 percent, so a projection from these folks of over 50 percent is good news for Microsoft," Silver said, adding that such projections often prove overly optimistic. "Even if they get into the forties by the end of next year, that's really good."
Europeans polled at a conference in November indicated slightly lower growth, with Office 2003 representing 5 percent of the market and projected to be at 33 percent by the end of this year.
Silver said that business process integration is not at the top of the list for customers that are moving to Office 2003. The top reason companies move workers is because their machines are running copies of Office that are several versions old and it's just time. The No. 2 reason, Silver said, is that companies have already paid for Office 2003 through a volume license and want to get their money's worth.
Still, Silver said, many companies are using Office 2003 in their business processes, even if that was not a major factor in the decision to upgrade.
Show and tell
This week's conference is an effort to help create more enticing options for companies. Earlier in the week, Salesforce.com announced an initiative to get Office developers to write applications that tap into data stored in Salesforce.com's hosted sales applications.
Meanwhile, Microsoft has followed its own advice, with Project Elixir, an internal effort that uses Outlook as a front end for customer-relationship information from Microsoft's Siebel Systems database. Microsoft is in the process of trying to take what it did and transform it into a broader set of tools that others can use to turn Outlook into a gateway for many different types of enterprise software.
There are tons of examples of ways that data can move in and out of Office, says Microsoft's McAniff. He points to the North Carolina Highway Patrol, which is using Office's InfoPath component to replace some 500 forms that officers had been filling out in various ways, including by hand. Not only is the form-filling process electronic, he said, but the information can automatically be grabbed by the agency's back-end software.
"I think the product (Office 2003) is really starting to pull this together," he said. "You start to look at this and say 'Aha, there is tremendous opportunity.'"
It's hard to tell how successful Microsoft has been. Clearly, many companies use Office 2003 in the same way they have used prior versions--for word processing and spreadsheets.
DeGroot said he thinks it will be slow going. "It's partly a business inertia issue," he said. "Are businesses going to automate their processes at the same speed as they adopted Office itself? I think the answer is no."
Even if Microsoft is relatively successful, DeGroot said it may not show up in the Office sales numbers, since most businesses already use Office. Rather, he said, companies that rely on Office for a broader role may find themselves buying more things like Exchange, Project and SharePoint services.
"The success of the Office System strategy will be reflected largely in the sale of server software," DeGroot said.
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