Microsoft Office is obsolete, or soon will be

This month's Office 2010 retail pricing announcement and ongoing discounts for Office 2007 Home and Student are Microsoft's tacit acknowledgment that the productivity suite isn't as valuable as it once was. Office is tracking a course of unplanned obsolescence and the inevitable end shared by oh-so many other products: Commoditization. Desktop productivity suite commoditization is inevitable, and it is a force that Microsoft can resist but not stop. Additionally, Microsoft faces a fundamental shift in what content people create and where. Commoditization and the emerging mobile device-to-cloud services applications stack are Office killers.

I'll ask upfront: Do you really need Microsoft Office on a daily basis? Is Office vital to your work day? Do you use it at home? If you use it at work, how often? If you use it at home or for college, how often? Please respond in comments.

My answers are easy. I don't use Office at all. The software isn't installed on my laptop. The only scenario I could envision regularly needing Office is legacy business -- where an employer had built up infrastructure around the productivity suite or had bought in Exchange, SharePoint or other Microsoft server products. These products favor the enterprise applications stack and older ways of doing business. But in a Web-connected world, Office's value diminishes. The pressing question: How low can Office's value go how soon?

Microsoft Office Pricing Trends

Four pricing trends show how Microsoft is finally acknowledging Office's declining value:

  • With Office 2010, the removal of retail upgrade SKUs
  • Product key card purchases for Office preloaded on new PCs
  • The enormous retail success of Office Home and Student Edition
  • Microsoft's development of Office Web Apps, which consumers get for free

These four trends share one thing in common: Price cuts on Office. The first two trends are related. To a question about upgrade pricing, I got this response from Microsoft's PR agency:

When it came to upgrade pricing, we looked at how people are using and buying Office and found two things: 1) Not a lot of people were buying the upgrade. 2) When people do buy a new version of Office they do it with the purchase of a new PC. Due to this, the majority of retailers did not sell Office upgrades off their shelves.

Under the new pricing scheme, PC buyers will have the option of purchasing a license key for the pre-installed Office trial version. Office Home and Student 2010 will cost $119, instead of the $149 box retail price. Office Home and Business: $199, instead of $279. Office Professional: $349, instead of $499. PC buyers electronically purchase Office, which is unlocked using a code key. Significant pricing change: Retail copies of Office 2010 Home and Business, Professional and Professional Academic will now come with two licenses, which is a huge discount over the current one-license approach. However, digital activations for pre-installed Office will come with one license. Either way, whether digital or retail pricing, Microsoft is considerably discounting Office.

Office Home and Student is indicative of a longstanding downward pricing trend. As Microsoft's PR e-mail response acknowledged: "We've never offered an upgrade price on Office Home and Student, which is the number one selling version of Office in the retail market." I've written that story several times over the last eight years, most recently August 2009 post: "Office Home and Student accounts for 85% of US Office retail share." Office Home and Student 2007 retails for $149.95 and packs licenses for three use on three PCs. Microsoft regularly discounts the software to around $100 at its online store. Amazon currently offers the software for $100.99. Office Home and Student 2007 was available most everywhere for around $100 on Black Friday. The result, according to a blog post by Rachel Bondi, general manager of Microsoft Office: "Office Home and Student was the number one selling PC software product -- including games! -- at retail in the U.S. during the week of Black Friday 2009."

What then is the value of Office for most consumers or small businesses: As much as $50 per copy. It's interesting that Google Apps is free or $50 a year per user for the Premiere Edition; it's no coincidence. Speaking of Google Apps, there is Microsoft's planned release of Office Web Apps, which will offer lots of productivity applications value for free, for those users willing to put up with ads. Microsoft will charge, too. But I'll save further discussion on Office Web Apps for later in this post.

Microsoft's Commoditization Problem

Some Betanews readers will wonder why the heck I'm not praising Microsoft for all this massive discounting. The reason for the discounting is the answer. For years, Microsoft has kept Office pricing fairly stable, mainly because of monopoly's power. The company has long controlled an applications stack extending from Office to Windows to server software. Since Office vanquished WordPerfect in the mid-1990s, no productivity suite could compete. But competitors emerged after all -- the incorporation of of productivity suite features into other products consumers and small businesses regularly use and the emergence of a new applications stack around different content types.

Word processing reached commodity status years ago, as more applications incorporated the basic formatting features most people use more than 90 percent of the time. No external wordprocessing program is required to blog, e-mail, instant message, tweet or post to social networks like Facebook. Be honest, how much of the writing you regularly do requires a dedicated wordprocessor?

Word is the default editor for Outlook, but how important is the e-mail program anyway? As previously mentioned, Office Home and Student is the top-selling version of the commodity suite at U.S. retail, and it doesn't include Outlook! Sure many businesses with Exchange Servers demand Outlook, but Outlook Web Access demonstrates how little or much of the features most workers really need. Looked at differently, when blogging services like Posterous allow people to blog by e-mail -- meaning the formatting capabilities are enough -- how necessary then is the wordprocessor?

What is Excel or any spreadsheet really necessary for? Sure, lots of business people use spreadsheets for data analysis, but what is the need for consumers or even small business owners? Many financial products or services, like Quicken or Quickbooks, put a friendly face on spreadsheets; that's a different but still relevant kind of commoditization. Most banks or investment establishments offer desktop software -- or more often cloud services -- for tracking finances and investments. My bank offers granular details in pie charts about where and on how much I spent my money. The Web service eliminates any need for managing finances with Excel.

What about PowerPoint, then? For most consumers and small businesses, photo slide shows are presentation program enough. For many enterprises, collaboration applications are subsuming PowerPoint capabilities.

Among mid-size businesses and enterprises, commoditization follows two different tracks: Adoption of Web services and using Office versions for longer periods. Based on combined analyst reports and my own conversations with IT professionals, enterprises typically wait four or more years between Office upgrades. Microsoft had a good run with Office 2007, which user interface exposed many features hidden to business users. In a January 2008 Microsoft Watch blog post I asked if Office 2007 would be a one-hit wonder? Reasoning: With the Ribbon interface, v2007 will be good enough for most businesses to skip next Office version or the one after.

Microsoft has been trying to keep Office relevant to businesses by integrating more features with server software and thus extending capabilities beyond core functionality into areas like business intelligence. Meanwhile, the aforementioned Office Web Apps will be yet another effort at extending Office's utility to cloud services, but presumably for lower cost than what many businesses pay today.

Microsoft's aforementioned pricing changes are evidence enough of Office's declining value. As a typical product commoditizes, pricing usually drops. Office is the longtime exception because of Microsoft's twin monopolies. But commoditization is finally taking its toll, along with the shifting applications stack.

New Applications Stack Reaches Higher

The new applications stack, which is outside of Microsoft monopolies, is mobile device to cloud service. This application stack also is more in sync with the kind of content most popularly produced outside of large corporations: Blogs, photos, videos, tweets and social network postings, among others. These content types have little or nothing to do with wordprocessing, spreadsheet or presentation applications.

As significantly, mobile applications usurp the need for productivity applications, by extending their utility to specific needs such as Facebook sharing, entertainment, mobile finance, search or personal communications. No Office is required. The people who download applications from Apple, BlackBerry, Google, Nokia, Palm or even Microsoft mobile app stores don't need Office -- or Windows, for that matter. These applications are lightweight and many are Web connected.

According to combined analyst reports, there are 4.6 billion cell phone subscribers worldwide, with about 1.3 billion new mobile phones shipped every year. By comparison, the entire PC install base is just over 1 billion. The mobile handset market dwarfs the PC market by 4.6 times. Granted, IDC asserts that the mobile Internet is only 450 million users, which is expected to top 1 billion by 2013. PEW Internet predicts that by the end of the decade cell phones will replace PCs as primary Internet devices.

Then there are new devices, like Apple's over-hyped, rumored tablet or ebook readers like Amazon Kindle, Barnes and Noble Nook or Sony Reader. As the mobile Internet install base increases, natural user interfaces will further supplant productivity suite functionality. For example, Google's Android 2.1 mobile operating system has a voice-to-text feature that works remarkably well. On the Google Nexus One, I can easily dictate e-mails, text messages and even blog posts. No keyboard or wordprocessor is required.

For me, Microsoft Office already is obsolete. The question remains: When will Office be obsolete for you?

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