Experts say Microsoft's XML play won't backfire

Markham said Microsoft is certainly not blind to that fact. The company fully recognises that by introducing a file format based on a published specification, it's giving rivals a chance to create Word equivalents that mirror its software's functionality. However, Markham said, Microsoft is counting on the fact that creating such products may not be as easy as it sounds.

In fact, rather than giving rivals ammunition, the XML move could steal it away.

Peter O'Kelly, analyst with Burton Group, said the XML formats introduced in Office 12, which is due out sometime in the second half of 2006, could detract from the arguments Microsoft's rivals have been able to pitch to potential customers regarding the software maker's existing applications.

"Microsoft has surely raised the level of debate, as no one can accuse them of having an XML format with technicalities, as they could before when the formats were incomplete and not well documented," said O'Kelly.

Microsoft said the transition to XML formats in Office eliminates one of the chief complaints about its products: that they lock in customers by failing to allow people to integrate them with other tools.

The potential benefit for Microsoft doesn't stop there. Customers will also lose some ability to use the rise of open source Office alternatives as a bargaining chip when negotiating licensing fees with Microsoft, O'Kelly said.

"Many organisations have used alternatives as a tool in negotiating contracts with Microsoft, and that probably gets toned down with this," O'Kelly said. "So Microsoft has figured out that this is good for themselves as well as their customers."

Another important aspect of the file formats in Office 12 could be the creation of opportunities for third-party software providers looking to tap into demand for new applications made possible by the XML design.

Forrester's Markham said it's likely that a new software segment could evolve from the demands created by businesses embracing Microsoft's new strategy, including companies making conversion tools for translating documents and data in and out of XML, and companies looking to address compliance issues raised by more flexible document access.

"Microsoft already has a whole industry in open source that supports variants of their products and documents created from those products," Markham said, "and this will just accelerate that."