September 30, 2002 9:00 PM PDT
Microsoft cuts Office price on new Macs
Beginning Tuesday, buyers of new Macs can pick up the full version of Office v. X for $199, or about $200 less than the full purchase price. The promotion ends Jan. 7, 2003.As good as that deal appears, Office is cheaper for Windows users, particularly those getting the product on new PCs. New PC buyers pay as little as $100 for Office. Mac users not buying a new computer also are stuck with paying full price, as much as $299 for the Office v. X upgrade or $499 for the full version.
"That's not that big a deal," IDC analyst Roger Kay said. "That's a bundled incentive to buy a Mac, which is not the same thing as pricing Office at $200. It's not really a price decrease, but it does hint at this issue where parity says Office ought to be" in price.
Still, the bundle deal could help achieve some equilibrium between the cost associated with getting the Office suite on Macs compared with PCs. The bundle also could spur adoption of Office v. X, which Microsoft in July admitted was well-below projections. The company had expected to sell 750,000 copies of Office v. X but had sold only 300,000 copies.
Tim McDonough, director of marketing for Microsoft's Macintosh Business Unit (MacBU), declined to give current sales figures on Monday. "I'm not going to give you a number, but I'm feeling pretty good about the business right now," he said.
McDonough also could not give the number of users of Office for Mac. Earlier this year, MacBU estimated the number to be 3.5 million, down from about 8 million five years ago.
The bundling deal, which has been in the making since at least early summer, comes as the relationship between the two companies has cooled considerably. Microsoft unleashed a barrage of forthcoming products that competed with Apple during the Macworld trade show in July. At the same time, the Redmond, Wash.-based company blamed lackluster Office v. X sales on Apple's promotion of Mac OS X. MacBU General Manager Kevin Browne, who soon ends a sabbatical, said that Apple spent 20 times more on marketing the iPod music player than Mac OS X.
One sign of reconciliation might be seen by which company is footing the bill for the promotion, something McDonough would not address.
"We're not willing to discuss the business relationship behind the promotion," he said. But McDonough and Phil Schiller, Apple's senior vice president of worldwide marketing, did acknowledge both companies would pony up for marketing the promotion.
Schiller made clear that promoting the bundle would be just one aspect of Apple's overall holiday marketing strategy. By contrast, the bundling promotion "is our primary focus," McDonough said.
The new bundle replaces a smaller deal that expires on Monday. The earlier promotion offered a $50 mail-in rebate on the Office v. X upgrade and $100 for the full version.
Price disadvantage Mac
On the surface, the bundling deal would appear to be a big price break for Mac users thinking of buying Office. But Windows users have more competing products to choose from and can pay much less for Office.
For example, besides Office, three other major Windows products are available: Corel WordPerfect 10, IBM's Lotus SmartSuite and Sun Microsystems' StarOffice 6. Sun had been working on a version of StarOffice for Mac OS X, but it is unclear when or if that product will come to market. ThinkFree sells a $50 Java-based productivity suite comparable to Office v. X, but the product has been slow to take off. Apple also offers the AppleWorks mini-suite on consumer PCs, such as iMac, but not professional systems.
The $199 Office v. X bundle lessens but doesn't eliminate the disparity in price between Windows and Mac versions of Office with comparable features. Office XP Standard, which includes Word, Excel, Outlook and PowerPoint, sells for $409 at PC Connection and $440 at Office Depot. Office v. X, which includes Word, Excel, Entourage and PowerPoint, sells for $449 at MacConnection. The Office XP Standard upgrade costs $217 at PC Connection and $199 at Office Depot. MacConnection sells the Office v. X for $270. The Apple Store online sells the full version of Office v. X for $460 and the upgrade for $280. Microsoft lists the upgrade for $299 and the full version for $499.
While the discount offers some parity at retail, Windows PC buyers can pick up Office XP for much less than Mac users taking advantage of the Office v. X promotion. Gateway, for example, offers Office XP Small Business Edition with Quicken for $129 on the Profile 4, an all-in-one PC competing directly with Apple's flat-panel iMac.
Dell Computer and Hewlett-Packard offer even better prices. On some PCs sold through Dell's small-business Web site, Office XP SMB costs $100 more than on computers without the suite. HP has a similar deal on Pavilion consumer PCs.
Still, the comparison is somewhat apples to oranges. Office XP SMB replaces PowerPoint with Publisher, a consumer desktop publishing program, so the comparison isn't perfect.
NPD analyst Stephen Baker said he isn't surprised there is no price parity between the Mac and Windows products simply because Microsoft "has always been able to make a lot of money with Mac Office. They've never really gone with a big discount before."
IDC's Kay wonders if Microsoft keeps pricing high simply because Mac users are willing to pay more for everything else. "It's generally the case that you pay a premium for everything in the Mac environment," he said.
On the other hand, Microsoft could sell Office for less to spur sales, if necessary. "Microsoft as a monopoly pricer could take anything out of its prices, at least in theory," Kay said.
Microsoft has cut prices before, such as the deep discount for the Teachers and Students version of Office XP, which typically sells for $129 or about $300 less than the same non-educational version, Baker said. Consumers flocked to the discounted version buying three times as many copies as the comparable non-educational version, according to NPD TechWorld.
The larger impact of the sales disparity could hurt Apple as the company courts Windows users and makes inroads into the corporate market. For both sets of users, compatibility with Windows Office file formats could be crucial selling points.
"To totally snub Microsoft and say Office is not important to the Mac market is plain stupidity," said Yee-Wei Chai, a Mac user from Pittsburgh. "I believe Apple is trying to bundle AppleWorks in hope that people will see that as a minimalist Microsoft Works equivalent. However, from a marketing standpoint, that won't work."
"Just the word Microsoft in the name would solve all the compatibility questions that a potential switcher could have," Chai said. "Thus, it is important that Microsoft makes Office v. X for Mac as accessible as the Office for Windows is. This price difference between Microsoft Office XP and Office v. X alone can be a reason for a switcher to hold back switching."
Apple's Schiller agreed that Mac Office is crucial for courting switchers and also business customers. "I think Office compatibility is very important...it does help any business decide whether to put a Mac in place of any computer," he said.
Not surprisingly, Apple does not plan any Office bundling marketing with Microsoft in relationship to the switchers campaign.
Still, some of the best candidates for Mac Office would come from existing users, and some of them aren't interested in the product at any price.
Brady Mason, a Mac user from San Francisco, uses a PC at work and Mac at home. Because he doesn't bring work home, AppleWorks is good enough.
"I see no reason to use Microsoft products on my Mac at home," he said.