April 2, 2001 9:55 AM PDT

Office XP test drive almost free

Microsoft borrowed a chapter from America Online's playbook Monday by announcing a free trial version of its forthcoming Office XP software.

The first-ever trial version of Microsoft's Office business software comes as the company increasingly positions itself against AOL Time Warner. AOL for years distributed trial CDs for its online service through direct mail, computer trade magazines and other avenues.

Microsoft's .Net and recently announced HailStorm technologies, now under development, target consumers through online services and set the company on a collision course with similar services from AOL, analysts said.

But unlike AOL, Microsoft will ask prospective Office XP users to cough up $9.95 for shipping and handling. Once installed, the trial version runs for 30 days.

"With Office XP we really think seeing is believing, because a lot of Office customers don't know what other things they need their Office software to do," said Lisa Gurry, Office XP product manager.

Though Microsoft has offered corporate or general previews with beta versions, "this is the first for broad individuals...and with final code," Gurry said.

Microsoft is hoping to move at least some of its business to a subscription-based model, for which a trial program makes perfect sense, said Gartner analyst David Smith.

"The $9.95 (price) could be a good lead-in to some kind of service pricing, which is a market they haven't tapped," Smith said. "They don't know what the subscription-based market for Office truly is."

Though the CD seeding might be good for wooing subscription customers, Microsoft has not included a version that can be unlocked for future use.

"It's an interesting idea we may pursue in the future, but not in the Office XP time frame," Gurry said.

Going after the consumer
Smith described the trial "as an attempt to go after the large number of PCs that don't have Office in the consumer space. Microsoft has certainly saturated the base of original Office users" in business settings.

In fact, during Microsoft's second fiscal quarter 2001, Office sales fell 2 percent year over year, to $2.49 billion from $2.53 billion. The company could see slower sales during the third quarter in anticipation of the new version of Office.

"It's all in marketing and getting to the consumer," said Technology Business Research analyst Lindy Lesperance. "Subscriptions could really open that market for them."

Gurry wouldn't say whether Microsoft might later offer CDs with magazines the way AOL does. "It's an opportunity we will look into down the road, but for now we will just have the CDs available for order over the Web."

Besides the trial program, Microsoft also announced that Office will reach store shelves May 31, as previously reported. But larger companies subscribing to Microsoft's licensing programs are expected to get their copies this month, and some PC makers expect to offer Office XP on new systems by early May.

Gurry said "it would be likely" that Office XP will appear on new PCs before launch "from certain hardware manufacturers."

The pricing game
Microsoft has yet to release pricing on Office subscriptions, and for good reason, Lesperance said. "They want their license subscribers to get their copies first and pay full price," she said. "Microsoft wouldn't want them tempted away just yet by subscriptions. That's more for consumers."

One reason: As Office sales slow, Microsoft needs the corporate turnover. Office is Microsoft's most important product line, accounting for 46 percent of revenue and more than 50 percent of income.

Typically, corporations upgrade every other version of Office. About 60 percent of current customers use either Office 95 or 97, according to Microsoft. So converting the existing base of customers is as important to Microsoft as winning new subscription sales, Smith said.

The retail version of Office XP initially will be available in four flavors: Standard, Professional, Professional Special Edition and Developer. The Standard version will offer new versions of Word, Excel spreadsheet software, the Outlook collaboration application and the PowerPoint presentation program. The estimated retail upgrade price will be $239, and the full version will cost $479.

Office XP Professional adds the Access database, bumping the upgrade price to $329, or $579 for the full version. The Professional Special Edition is a more full-featured version, including the FrontPage Web creation program, and will sell for $479. Office XP Developer, which adds FrontPage and development tools, will cost $549 as an upgrade and $799 for the full version.

Two other versions of Office will be available on new PCs: Small Business and Professional with Publisher. Microsoft said final pricing will be determined by PC makers. Office XP Small Business will come with Word, Excel, Outlook and Publisher. The Professional version adds Access and PowerPoint.

Microsoft also announced that people buying Office 2000 between April 2 and June 30 will received an upgrade coupon good for a comparable version of Office XP.

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