Microsoft Alters Licensing Plan, Drops Office XP Price

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In what is widely viewed as a bid to boost sales of its desktop software
suite, Microsoft has dropped the price of its Office XP
family of desktop applications and tweaked the terms for its volume
licensing program in response to customers’ concerns.

Analysts that follow Microsoft pondered whether the step was more, such as the first salvo in what many expect to be an aggressive response to Linux, the open-source operating system that threatens Microsoft’s proprietary operating systems for enterprise users.

The lower price is billed as a full package product (FPP), and follows
the software giant’s moves to alter its licensing terms for businesses that
buy Microsoft Office through its Volume Licensing program, which also
shaved some of its licensing costs.

In all, the price changes have dropped about $100 off the price of Windows
Office XP, from about $599 to $499.

As of Wednesday, Microsoft reduced the estimated retail price of FPP
Microsoft Office XP Standard of Microsoft Office XP Professional version by
about 15 percent.

Stand-alone versions of its FPP applications Word 2002, Excel 2002,
PowerPoint 2002 and Access 2002 were reduced by about 30 percent, the
company also said Wednesday.

The price cut also followed a change in its volume-licensing program,
which had become a bit of a tempest for Microsoft after recent changes
prompted gripes from customers that they amounted to a price increase.

Under the new Software Assurance licensing program, however, Microsoft
said it would allow extra training and support, plus deployment and
management tools without extra costs, provided customers go with its
volume-licensing option.

The new Software Assurance features, which vary by licensing program,
include specific benefits for Office customers — in particular, employee
home-use rights for Microsoft Office System products, the company said.

Depending on where they buy, retail customers could save in the range of
$80 to $110 (U.S.) on the Office suite or individual applications. The new
prices for Office XP are in effect so far only in the United States and
Canada.

Analysts were quick to take note of the larger strategy that might be in
play with Microsoft’s price change, specifically as the software giant makes
moves to parry the threat that Linux open source poses to its operating
system monopoly.

According to a research report from Deutsche Bank securities published
Wednesday, the “blunt instrument” of pricing could be one of many ways
Microsoft is expected to respond to the challenge Linux poses to its market
dominance.

“Retaliate with price when needed to slow or stop encroachment” of Linux,
the note said. “This would be done on a selective and often creative basis,
but field operatives have instructions to not lose deals to Linux, according
to our checks. An example of the creative pricing tactics came yesterday
with the announcement that corporations using Software Assurance can now
provide their end users with the benefit of a “free version” of Office to
use at home.”

In the latest example of the looming Microsoft-Linux battle, the city council of Munich, Germany, announced it would move 14,000 PCs and 16,000 users from Microsoft’s Windows operating system over to the Linux open source system.

The decision is seen as a blow to Microsoft, which had reportedly lobbied heavily for the repeat business.