When Microsoft Corp. announced earlier this month that it would eliminate upgrade versions of Office 2010, the early reaction was: Uh-oh, the application suite just got a lot more expensive.
The picture is more complex, especially in light of the increasing heat put on Microsoft's super-profitable suite by its competition -- OpenOffice.org, IBM Lotus Symphony, Zoho Office and Google Docs. So the matter of who wins and who loses with Microsoft's Office 2010 pricing scheme isn't necessarily clear.
Here's a compilation of potential winners and losers:
Loser: Cash-strapped enterprises. Amy Konary, IDC's software pricing whiz, says that two words explain Microsoft's decision to eliminate upgrade pricing -- Software Assurance, or SA. Some companies were saving coin by avoiding Microsoft's pricey software maintenance contract and buying lower-level Open or Select licenses for Microsoft Office. Neither Open nor Select licenses require companies to buy SA, which grants upgrade rights but nearly doubles the cost for volume licensing customers. Eliminating upgrades makes SA a near-requirement for companies that don't want to fall behind on Office releases.
Loser: Consumers loyal to Microsoft Office. Many consumers are getting by just using a decade-old version of Office, or using a free alternative such as Google Docs. Microsoft is offering two options to win back those users. The first, Office Starter 2010, replaces Microsoft Works, which had long been a nonstarter mostly because of lingering document format issues. The new hosted Office Web Apps offering, meanwhile, is aimed straight at Google Docs.
But both Office Starter and Office Web Apps could prove a tad feature-lite for users accustomed to Office's buffet menu.
And home/small business users who still upgrade Office on a (semi-)regular basis are getting no favors from Microsoft. The full Home and Student edition, which includes Word, Excel, PowerPoint and OneNote, still costs $149 (three installs), though users can opt for the new Product Key Card that can be purchased for $119 at electronics retailers like Best Buy. Like the upgrade, it offers rights for one installation.
Winner: Small businesses. Many small businesses have been defecting from Office. Microsoft "can't let that continue," said Paul DeGroot, an analyst at Directions on Microsoft. "If the small-business trend catches on with larger businesses, it would have very serious consequences."
Thus, Microsoft is cutting the price of the full Home and Business edition -- which includes Word, Excel, PowerPoint, OneNote and Outlook -- to $279, matching the upgrade price of Office 2007's Small Business edition (which, in addition to those five apps above, includes Microsoft Publisher) and nearly hitting the $239 upgrade price for Office Standard 2007. A one-license key card will be $199, or 30% off the upgrade price (upgrades affect only one PC, too).
What if that's still too much? Well then, you can search Microsoft's various recession-busting resources.
Winner: Students (and their loved ones). Kids, stay in school, if only so you can get your friends, guardians and relatives a copy of the new Professional Academic version of Office 2010.
Available to K-12 and college students, staff and faculty, the $99 Professional Academic version includes seven apps -- Word, Excel, PowerPoint, OneNote, Outlook, Publisher and Access -- that can be installed on up to two PCs.
In comparison, the cost for students to get all of the same apps by buying Microsoft Office 2007 Professional and OneNote 2007 is $250, which allows installation on only one PC.
That $250 price tag isn't chump change for college students who are more interested in beer than in productivity software. So Microsoft pushed aggressive discounts like this one to students at targeted times (back-to-school, or end-of-school/graduation season). Those promotions were also noteworthy in showing how lax Microsoft was about enforcing current student status, such as for people who had just attended their 30-year reunions but also had alumni e-mail addresses that could qualify them for the discount.
Loser: Office power users at smaller firms. Office Professional 2010 includes the same seven apps as the Professional Academic version. Its full price remains unchanged at $499. Cutting the $329 upgrade "will hurt a bit here," says DeGroot, since the key card costs $349.
DeGroot's advice is for small to midsize businesses is to "go with Home and Business as their standard and buy Professional for the few people in their org who need Access and Publisher."
Winner: Best Buy. The big-box retailer is one of Microsoft's best partners. Killing the boxed upgrade version of Office could have hurt Best Buy and other electronics retailers, who depend heavily on foot traffic generated by software to fuel other purchases. (According to Microsoft, Office 2007 Home and Student is the single most-popular PC title among U.S. retailers of the past two years.) While interest in boxed software is on a long-term decline, Microsoft is trying its hardest to prop it up.
The individual license product keys that replace upgrade editions of Office can only be purchased via "major electronic retail outlets." This will keep the Best Buy's Geek Squad as well other brick-and-mortar types like OfficeMax and Target in the game, though the cards will likely be available via Amazon.com and NewEgg.com, too.
Winners: Google Docs, IBM Lotus Symphony, Zoho Office and OpenOffice.org. While Microsoft is certainly taking steps to retain users via free editions such as Office Starter and Office Web Apps, its failure to cut Office's prices across the board could "push some users off Office completely," says Konary. The experimentation with Google Docs and others has already picked up, according to IDC stats, which show that the app is "widely used" at one in five workplaces.
Eric Lai covers Windows and Linux, desktop applications, databases and business intelligence for Computerworld. Follow Eric on Twitter at @ericylai, send e-mail to email@example.com or subscribe to Eric's RSS feed .