In computer marketing, things are rarely as straightforward as they seem. Sometimes, a supplier will appear to be fighting hard on one battlefield when its real objectives lie elsewhere. Sometimes, the behaviour of the combatants appears to defy rational analysis.
The battle for a share of the market for desktop office software falls into this category. While some of the big software and hardware suppliers seem to be engaged in a re-run of the 1980s price and features wars, in which each tries to offer more for less, the executives really have their eyes on a bigger prize: long-term control of the server-based services that will be at the centre of the emerging generation of utility-based computing and web services.
For more than a decade, Microsoft has completely dominated the office software business. Sales of its Office suite – which includes Word, Excel, Access and PowerPoint – have reached nearly $10 billion a year. Its market share is above 95%, giving it the status of a legal monopoly. A global network of resellers feed its customers’ appetites for the software, but the marketing is rarely aggressive. After all, most customers demand Office and will settle for nothing less.
Microsoft even seems to have ring-fenced the territory through which competitors might come at it. Its low-end product, Microsoft Works, offers many of the functions of Office for a fraction of the price. And in most cases, users get it free when they buy a PC.
It is against this overwhelmingly popular and dominant product that Sun Microsystems, primarily a supplier of enterprise hardware, is pitching its own alternative, Star Office, an inexpensive suite based on open source software.
Sun’s involvement in this market has so puzzled many observers that some have put it down to an irrational jealously and a form of paranoia by Sun’s CEO Scott McNealy. He would, it is said, do anything that might weaken the position of Microsoft and its chairman Bill Gates.
Certainly, Sun has entered from a weak position. Not only does it have little experience of successfully selling office PC software, but its brand in this area is weak, and it has few friends or partners in the distribution network. Furthermore, no reputable analyst has yet endorsed Star Office, or indeed any of the other alternative office suites now available, as the technical equal of Office – although most concede the gap is narrowing.
Even more strange, Sun is unlikely to make much money from the product, even if successful. At $400 a copy, there is plenty of margin for Microsoft on each copy of Office it sells – and it sells a lot. For Sun, at $50 for each copy of Star Office, there is much less scope. And, of course, it offers a near equivalent open source product, OpenOffice, that is completely free. For some of those small companies that offer little else but low cost software, $50 a copy may be enough; for Sun, a multinational giant, it almost certainly won’t add much to the bottom line.
Sun’s apparently strange behaviour, however, is matched by Microsoft’s. At almost the exact point when IT directors across the world are trying to cut spending, and just as the open source movement seem most capable of making a small dent in the Office’s apparently impregnable share, the software giant has changed its licensing rules and, as a result, many customers must pay more – in some cases much more – for their Office software.
What lies behind these marketing tactics? There is, ultimately, one overriding reason, and it is one that has been signalled by many of the leading industry executives for some time: however much intelligence might be incorporated within the proliferating number of client devices, ultimate technical control will be exercised at the managed, infrastructural level. And that power will translate into wealth.
For Microsoft, Sun, IBM, HP, Oracle, perhaps even BEA, the most important strategic objective is to take and hold a central position in the supply of key parts of this server-based infrastructure. The office desktop is an important way in, both commercially and technically; but winning control is no longer an end in itself – even for Microsoft.
Microsoft’s reason for introducing its controversial ‘Software Assurance’ programme can be seen in this context. Its medium and long-term goal is to convert its corporate desktop customers into subscribers of Office services. These customers will then become potential customers for other .Net services, such as managed security, billing, payment systems, integration services, business process outsourcing, and, of course, applications that extend beyond Office. Microsoft’s acquisition of two business application software suppliers, Navision and Great Plains, demonstrates this.
This same objective demonstrates why Sun, among others, entered the market for desktop software, even though it is unlikely to make money from it. Microsoft’s goal is to leverage its power and influence on the desktop to gain an advantage at the centre – and in doing so, control the enterprise development and management environment. This is not a sinister strategy that demands legislative involvement; it is just a good business move.
For Sun, and for suppliers such as IBM and Oracle, the more Microsoft is successful with .Net and its server-based software delivery systems, the more difficult it will be, ultimately, to succeed with technologies that use the more open architectures that are so important to Sun and others: the Unix (and Linux) operating system, the Java-based languages and tools, and, debatably, non-Microsoft web services platforms.
For customers who spend heavily on packaged desktop solutions – and many, many do – this supplier focus on the long-term objectives has had a welcome side effect. For the first time in a long time, they have a real choice.