Microsoft shakes up its Office business

What's unusual about Microsoft's official announcement of Office 2010 prices is not the numbers themselves but rather the sea change they represent for the traditional Office sales and distribution model. I see three trends at work: the death of upgrade pricing, a step away from crapware-style distribution, and a remarkably easy electronic distribution system.
Written by Ed Bott, Senior Contributing Editor

This morning, Microsoft released more details about its pricing for Office 2010, which is due in June 2010 (my colleague Mary Jo Foley had the numbers and details bright and early).

What was unusual about this announcement is not the numbers themselves but rather the sea change they represent for Microsoft's traditional selling model. With Office 2010, we'll see some fairly radical changes. I see three trends at work here:

Upgrade pricing is officially dead. With every previous Office release, including the current Office 2007, you pay one price if you qualify for an upgrade and another, higher price if you don't. With Office 2010, Microsoft has eliminated upgrade pricing completely (a fact I confirmed with a Microsoft spokesperson this morning). I listed the simplified lineup of Office editions last summer For every SKU, there are still two prices. But instead of choosing between full and upgrade, you choose between a full packaged product or a product key card, at a similar discount. I can think of 150 pretty good reasons to pay $349 for an Office Professional product key card rather than shell out $499 for the software in a box. The product key card is also a good choice f you already have one boxed copy (or a previous download copy), and you want to install the software on another PC. Use the media you already have and get a significant price break.

As you can see from the table of estimated retail prices below, the net effect for customers is list prices that are lower by about 20% for the two most popular Office SKUs and a slight increase for the high end. Home and Student 2010 offers a $119 price point for electronic copies, compared to the single list price of $149 for the full Office 2007 version. I've compared Office Home and Business 2010 to Office Standard 2007, which includes the same mix of products. Office Home and Student has been heavily discounted through the years, so it's not certain that the lower retail price will have an impact on actual selling prices.


Office 2007 prices(full/upgrade)

Office 2010 prices(boxed/OEM or download)

Home & Student $149/NA $149/$119 ($30 decrease)
Home & Business $399/$239 $279/$199 ($40 decrease)
Professional $499/$329 $499/$349 ($20 increase)
By the way, I've seen several reports that the Professional Academic edition included in today's announcement today is new. That's not correct. Although this is the first time Microsoft has given this name star billing on a product box, the company has offered discounts on Office Professional through its academic resellers for years. The new $99 price represents a 50% cut over the current $199 sticker.

Microsoft is getting out of the crapware business. Millions and millions of PCs sold in the consumer channel over the past two or three years have included a trial copy of Microsoft Office and a free copy of Microsoft Works. Most people ignore or uninstall them. With Office 2010, there's a credible free option in the ad-supported Office Starter Edition, which includes full versions of Word and Excel that don't expire and are free of nag screens. Having a full copy of Word and Excel around, sans nagware, is a good thing. The setup program also squirrels away installer code that allows upgrades to any of the three retail editions (enter a product key to unlock a full, ad-free edition) at any time. The 2GB or so of disk space that the installer takes might be too much for a netbook with a tiny hard drive, but for most modern desktop or notebook PCs it's probably acceptable.

Electronic distribution is faster and smarter. One of the biggest improvements in Office 2010 is its use of the Click-To-Run installer, which eliminates much of the hassle of installing a trial version. In the beta release, it literally takes just one click to start the installer, which requires only a handful of fairly simple steps, such as accepting a license agreement, entering a product key, and choosing update options. Otherwise, the installation happens completely in the background, and you can begin working with programs as they download.

It's good to see that Microsoft isn't trying to revive its failed plans for subscription editions of Office (the horribly named, ill-conceived Microsoft Equipt flopped more spectacularly than Ishtar and New Coke combined, lasting roughly none months before being dumped).

The real question now is whether these new prices are low enough or whether Microsoft is chasing a falling market. Office Home and Student 2007 has been a surprise hit. How many of those customers will be willing to pay again?

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