Michael Gartenberg, research director at Jupiter Research, sees the company trying to address that problem in Office 2003. The package, he said, will include dramatically expanded XML (Extensible Markup Language) support that should make it a more compelling upgrade for businesses. "They're taking a much better approach in (Office) 2003, providing a case for the added benefits and gains from working in XML," Gartenberg said. "They realise the biggest competition Microsoft faces for 2003 is Office XP and Office 2000." Gartenberg added that the XML reinvention of Office may be an encouraging sign of Microsoft emphasising innovation over hardball business tactics. "There have always been two approaches Microsoft has had in terms of upgrades," Gartenberg said. "One is to try to pull people in with feature upgrades and great new stuff. The other is to push them by doing something like saying, 'We're going to change the file format and force you to switch.' More and more, Microsoft wants to gently nudge people into upgrades." Duboise said plunging prices for PC hardware have also prompted people to re-evaluate their ideas about how much software is worth. "If you're paying $800 for a machine...paying half (that) for a software application is a hard sell," Duboise said, noting that PC makers typically count on major software upgrades to boost sales of new machines. "I think maybe there's been some industry pressure on Microsoft to bring their products more in-line with trends in hardware prices." As far as outside competition, analysts discounted the effects of gains made last year by Canadian software maker Corel, which signed deals with a number of PC makers to bundle its WordPerfect software on low-end PCs. Duboise said Microsoft can obviously cut whatever kind of deal is necessary if it decides it needs to win back PC makers, as evidenced by Gateway's recent decision to return to Microsoft Works as the standard productivity software it ships on new PCs. Recent gains by OpenOffice, the free open-source office suite hatched by Sun Microsystems, are more interesting, said Gartenberg, but they pose no immediate threat to Microsoft. "I think you have lots of folks that are looking at OpenOffice...but there are very few organisations that could easily pull (Microsoft) Office out of their environment," Gartenberg said. "I think the potential threat for Microsoft is more a question of people trying to use OpenOffice as a leverage point when they're negotiating license renewals." Some Microsoft customers are taking action, though. This week, the government of Munich, Germany, said it was planning to switch 14,000 PCs from Microsoft Office to OpenOffice as part of a larger move to open source and the Linux operating system.
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