Microsoft's integration could up customers' costs

Office 2003's advances will come at what could be a steep cost: Jupiter Research analyst Joe Wilcox estimates that businesses using Office will see their Microsoft Corp. licensing costs rise 10 to 40 percent if they want to take full advantage of the software's new features.

As it touts Office 2003, formally launched Tuesday, Microsoft is shifting from positioning Office as an applications suite toward packaging it as a system, highlighting its integration with Microsoft server products such as SharePoint Portal Server, Live Communication Server (formerly called Real Time Communication Server) and the forthcoming Rights Management Services. While Microsoft has kept Office 2003's price tag similar to that of Office XP, businesses that want to use some of the software's collaboration and rights-management features will need to run the latest version of Microsoft's corresponding server software.

"We're seeing now much more of a focus on vertical integration between the client and the server," Wilcox said. "Microsoft is trying to position Office as the front end to a lot of back-end processes. They have a huge presence on the desktop, so they want to leverage that into all these back-end server products."

While integration traditionally lowers software costs, Microsoft's deepened product interdependencies have the opposite effect, by increasing the number of products customers need to license, he said.

"Microsoft will argue that, long-term, this integration will cut down maintenance and operating costs and provide customers better ROI (return on investment)," Wilcox said. "To be honest, that remains to be seen. We won't know until customers actually start putting all the pieces together and see how much it actually saves."

Ben Schorr, one beta tester attending the launch said he expects his business to upgrade soon to Office 2003, lured by significantly enhanced spam-filtering tools in Outlook and by Microsoft's debuting OneNote note-taking application.

Schorr, director of information services for Hawaiian law firm Damon Key Leong Kupchak Hastert, said his organization skipped the Office XP upgrade cycle and is still running Office 2000 Professional for its 60 users. OneNote's features will be essential to those in notes-dependant professions like the legal industry, he said.

Microsoft's Office 2003-integrated Rights Management Services, which remains under development and was not part of Tuesday's launch, could also pique the interest of his firm, Schorr said, but only if clients begin requesting its use -- and so far, they haven't show much interest in DRM (digital rights management) tools.

"Since 1996, we've offered free encryption to our clients. There's been zero interest. Maybe one has taken us up on it," he said.

Most of Office 2003's functionality improvements are aimed at enterprise users, but a Microsoft messaging consultancy executive at the launch said she sees enough enhancements in Office 2003, most notably in Outlook, to justify the upgrade investment for small businesses, including her own. Diane Poremsky, chief executive officer of Johnson City, Tennessee-based CDOLive LLC, said she'll be upgrading her three employees to Office 2003 Professional.

"Outlook is the real selling point," she said. "The spam filters work really well, you can find messages easily, and I really like the Calendar interface."

Many of CDOLive's clients still run older versions of Office, having skipped upgrading to Office XP. That presents them with higher upgrade costs but also greater ROI opportunities as they evaluate the Office applications' advances in the years since their last upgrade, she said. The Rights Management Services could encourage some upgrades, Poremsky said -- her company is seeing high interest from customers, but doesn't yet have any that are ready to commit to using the fledgling technology.