Office 2007

January 20th, 2008 at 06:45pm Under Microsoft

Joe WilcoxMicrosoft has got a runaway hit in Office 2007. But as Hollywood directors and music artists well know, big hits are tough acts to follow.

For now, Office 2007 sales are nothing short of spectacular. The newest sales metric comes from NPD, which measured the first 10 months of US retail sales for Office 2003 and Office 2007. NPD measured Office 2007 from time of full availability, Jan. 30, 2007.

“It is important to look at the first 10 full months, because Office 2007 was launched at the tail end of January,” said Chris Swenson, NPD’s director of Software Industry Analysis. “First 10 full months is more apples-to-apples [comparison].”

Between February and November, US retailers sold 2.77 million copies of Office 2007. During the comparable period, November 2003 to August 2004, US retailers sold more than 1.17 million copies of Office 2003.

“For the first 10 full months in the market, Office 2007 had a 137.4 percent increase in unit volume and a 118 percent increase in dollar volume compared to Office 2003,” Swenson said.

Office 2007’s success is much bigger than retail. According to a CDW study published this week, by early November, 24 percent of enterprises had already deployed Office 2004.

Next month, Microsoft will launch Windows Server 2008, which with SharePoint Server 2007 Service Pack 1 could pull more enterprise Office 2007 deployments in what some analysts have described as the “Big Bang” theory. In the last weeks of the year, Microsoft released service packs for Exchange Server, Office 2007 and SharePoint Server 2007, in preparation for Windows Server 2008’s release.

With software, like movies or music, a big hit can be really tough to follow. Office 2007 raises the bar high indeed for Microsoft’s productivity suite. There is a long history of technology products reaching sales growth plateaus. For some products, sales stagnancy is a decades-long process, with TVs being one of the best examples.

When TVs were new, they sold slowly and then faster as prices dropped and programming increased. Color brought another surge of sales. But by the 1970s, when most everyone in the US had a TV, sales growth dramatically slowed and stayed fairly flat until the big-screen and HDTV boom that started in the very late 1990s.

Office already reached a sales plateau of sorts in establish markets like the United States or Europe as early as version 2000. Many enterprises deployed every other Office version, with some of them skipping two versions. For many businesses, Office already was good enough for their needs. So, with Office 2003, Microsoft tried to expand the productivity suite beyond document creation to business processes. The company increased Office integration with server software and feature cross dependence. Many new heavily marketed features, like collaboration, required server software to work.

While the strategy created some sales pull for Office 2003, plenty of enterprises stuck with Office 2000 or Office XP. For example, I published an Office 2007 report for JupiterResearch in October 2006, about a month before the productivity suite’s business launch. Slightly more mid- and large-size businesses used Office XP than Office 2003—68 percent to 63 percent, respectively. Forty-five percent of those same businesses used Office 2000.

Office 2007’s new user interface pushes past the good enough barrier, in part because of the new user interface. Office 2007 looks different from its predecessors, and—in my testing, anyway—there are some real productivity usage gains over Office 2003 or XP. But I really wonder: Is Office 2007 so good that good enough may be too good? Yes, would be my answer.

I don’t see how Microsoft can make Office much better other than offering it either as a hosted service or backed up with lots of supporting hosted services. Already, Microsoft is headed that way with—granted, rough around the edges—Office Live Workspace or forthcoming hosted Exchange 2007 and SharePoint Server 2007 services.

That said, Office 2007 really just needs to be good enough now to get more enterprises onto Software Assurance. Microsoft claims Enterprise Agreement renewal rates between 66 percent and 75 percent. Enterprises that sign up for upgrade protection through EAs, at least, are likely to renew their contracts. For today, if Office 2007 is good enough to push up annuity licensing contracts, the successor product can be less; Microsoft will likely get those enterprise dollars during the next renewal cycle, riding Office 2007’s coattails.

Before Office 2007’s launch, volume licensing accounted for about 40 percent of the productivity suite’s revenue. During Microsoft’s fiscal 2008 first quarter, ended September 30, unearned revenue from annuity licensing contracts grew 15 percent, while above Microsoft guidance. Real volume licensing gains should be apparent when Microsoft announces fiscal second quarter results near the end of January.

The point: From a volume licensing adoption perspective, better enough today is better enough for the future, even if Office 2007’s successor isn’t a much better product. Office 2007’s success now should get Microsoft through at least one more good annuity licensing contract renewal cycle. But if Office 2007 is still the only hit, with there being no box office smash or chart topper to follow, Microsoft is looking at potential problems two release cycles out. Or, so I predict

By admin Add comment