June 10, 2010 8:32 pm

Microsoft Office set to go free online

 

In its last fiscal year the business division was Microsoft’s largest and most profitable arm

Microsoft is set to launch a free online version of its widely used Office software next week, a watershed moment for one of its core businesses as it seeks to counter the rise of Google Docs and other online services.

The move comes nearly five years after Ray Ozzie, chief software architect, warned that Microsoft needed to embrace the internet faster. In a landmark speech, Mr Ozzie predicted that a “services disruption” was about to up-end the company’s traditional software business and urged all its developers to treat the move as a matter of urgency.

Since then, according to industry observers, the company has moved steadily to add services that complement its software products but has been happy to leave it to others to set the pace in the move towards “cloud computing”, or the handling of applications online.

“I wouldn’t quite say they’re dragging their feet, but they’re definitely not moving fast,” said David Smith, an analyst at Gartner.

He and others said that the pace reflected a calculated bet by Microsoft that it could extend the life of its current, highly profitable business model without losing out on future opportunities online.

“They’re just trying to preserve their existing business – it’s a fine line to walk,” said Matt Rosoff, an analyst at Directions on Microsoft.

With the free, advertising-supported version of Office, together with options that let companies buy some of its capabilities as online services, the latest release of the software “shows we’re all-in, we’re fully engaged with the cloud,” said Stephen Elop, head of the Microsoft Business Division, which gets most of its revenue from Office. He denied that Microsoft was dragging its feet, but said it was moving at the pace of most of its customers who want to continue to use traditional software while starting to add more cloud applications.

In spite of that, Office is “the more exposed of Microsoft’s two main businesses” to disruption from the internet, said Mr Rosoff. In its last fiscal year the business division was Microsoft’s largest and most profitable arm, although the launch of Windows 7 has since pushed the operating system back to the forefront.

Only about 20 per cent of Office revenues come from consumers, Mr Elop said, and analysts expect only a small proportion to be lost as some users give up software to use the free service.

“There’s an upsell opportunity there for us,” Mr Elop added, as the company tries to convert online users to paying customers.

Dave Girouard, who runs Google’s online applications, said adoption of its services had accelerated, with new paying customers added at a rate three times faster than a year ago. “These things are moving in our favour,” he said.

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