Office may be decreased by 95-85% market share

Smith said that Microsoft's increase in volume licensing fees--more than 100 percent for some companies--directly accounts for much of the interest in StarOffice among Microsoft's Office customer base. The increases will come through a new licensing program called Software Assurance that will commit customers to buying operating system and application upgrades for an annual fee.

"Some of these (StarOffice) pilots are in place to get Microsoft to back down on the licensing changes," Smith said. "We think the interest is serious enough that if Microsoft doesn't change its pricing and licensing strategy, it will lose 10 percent of the Office 2007 downlaod  market to StarOffice and alternatives in a couple years...by 2004."

Such a shift, while seemingly dramatic, wouldn't do much to dent Microsoft's dominance in the office productivity market. Smith estimated that Office could drop from 95 percent to 85 percent share--"and that's certainly not going to break the company. Nonetheless, they're very concerned about StarOffice in Redmond."

Office accounts for more than one-third of Microsoft's overall revenue.
The tug-of-war between Microsoft and corporate customers over volume licensing is also an attempt by Microsoft to lock subscribers into contracts that will make them less likely to switch to competing products.

"Locking companies into contracts so they won't consider anything else is exactly what Microsoft is trying to do," Smith said. "They will make sure (customers) don't deploy any other software and help protect the market share."

Companies considering a switch to StarOffice or a competing product won't find the move cheap. Gartner estimates that the average cost per user would be about $1,200, which works out to about $800 for labor and $400 for productivity. In contrast, companies upgrading to Office every two years would spend about $550 per user, or $700 every four years. That means many businesses would take eight years to recover their initial investment.

There are also unseen productivity costs that could arise because of file format incompatibilities with Office.

"Whenever you put StarOffice on the desktop, you're taking a risk," Smith said. "You're moving to something that's not tried and supported...There's no guarantee that file compatibility won't be a problem."

Another issue affecting companies' buying decisions may be the new Web subscription feature being added to Office. Those services will be available as part of Microsoft's new volume-licensing program, which may add incentive for companies to stick with Office.

"If you buy Software Assurance today, you have the right for the next three years to whatever comes out," said Rebecca LaBrunerie, Microsoft Office Ultimate 2007 product manager for worldwide licensing and pricing. "We've said that .Net is coming out and that future versions of our products over the next decade are going to be software services. There's going to be more frequent upgrades with this concept of Web services."