I wrote the following letter to Bob Cringely regarding his latest column:

Bob,

I liked your column today. I have some further thoughts on the matter.

Looking at Microsoft’s annual report, it would appear that about 1/2 of their bottom line is contributed by Office, and the other half is contributed by Windows, with everything else taking a loss or making only marginal contributions to the bottom line. If I remember correctly, about five years ago, Office was contributing about 2/3 of MS’s bottom line. And then there’s this:

Office 2003 appears to be falling behind in targeted sales for this point in the product’s lifecycle, according to Microsoft’s own internal figures and guidelines. Just 15% of PCs are running Office 2003, two years into its life, with Office 12 – the next edition of Microsoft’s ubiquitous suite – now on the horizon. However, Microsoft traditionally expects between 50% and two thirds of customers to be running the previous version of Office when the new copy ships.

So the product that contributes fully 1/2 of MS’s bottom line is falling behind in sales figures. This makes perfect sense to me. I’ve been in finance for about twelve years, and the feeling I’m getting around finance offices is similar to when I first started working right out of college. I was an auditor with a big six firm, and when I would go around to clients, I would ask them, out of personal curiosity mostly, what spreadsheet program they were using and if they planned to switch. At the time, there was this big deal about who would win the office wars, Microsoft with its Office product or Lotus with its Smartsuite product. But I knew from the answers that I was getting at the time that the battle was over before it had begun. That’s because everyone (who wasn’t already using Excel) said they planned to upgrade real soon. Upgrade. As soon I I knew that the users of the product had perceived Excel as an upgrade, even over Windows versions of Lotus, I knew that MS’s dominance of this market was inevitable.

Today, users are irritated and angry. Particularly ones who have been using Excel and other office products for a decade (as I have). Particularly troublesome are the overabundance of Baysean popups designed to help, but just get in the way. But it’s more than that. It’s the subtle but pointless UI changes that they make which only serve to slow down the power user. And of course, there’s the macro viruses and the like.

There’s the fact that Windows ships with a dysfunctional browser, which doesn’t help matters any. But it’s the OS itself too. Last summer I did some consulting at a company that had one of those blocking programs on their network, designed to stop illicit web surfing. I asked the IT guys why they had it installed and they said it wasn’t because they had people in the office looking at porn or anything. Rather, it was the guys in the warehouse, who would visit gambling and pornographic sites and would wind up inadvertently installing all sorts of worms and viruses onto the network. This was just the cheapest solution.

So I agree with you that we are on the verge of some sort of shift here. But an x-box terminal that runs windows isn’t it, not in the short term. I think what may be more likely is this:

Rumors that Apple Computer has been quietly developing its own spreadsheet solution gained a dab of credibility this week as sources pointed to a revealing company filing with the United States Patent and Trademark Office.

Just two days after requesting a trademark on the word ‘Mactel,’ which seemingly describes the convergence of Macintosh design with Intel hardware, Apple on June 8th filed for a standard character mark on the word ‘Numbers.’

Apple is clearly coming out with their own office suite. But the question is why? I had originally made nothing of this, thinking that it was just a gap in their product lineup that they were looking to fill, that they couldn’t afford to be reliant on MS for an office suite as they had been in the past. Now I think that they may be doing two things: enlarging the halo and kicking the box.

The halo effect is supposed to be the higher Mac sales that result from iPod adoption by Windows users. The effect has been largely thought of as fictitious, but it is in fact, real. You may have noticed this tidbit from the WSJ:

It seems as if there might be something to the “halo effect.” Thanks largely to the popularity of its iPod portable music player, Apple Computer is enjoying a resurgence in sales for its Macintosh computers, according to the latest figures from Gartner. Apple shipments jumped 31.4% in the second quarter from a year ago, nudging the computer maker ahead of Lenovo (formerly IBM) and into fourth place in the U.S. market, according to the research firm. Apple’s U.S. market share is now the highest it’s been in more than four years. Still, market leader Dell sells more than seven times as many computers as Apple in the U.S. In the second quarter, Dell widened its share to 32% in the U.S. and about 18% world-wide. Overall, U.S. shipments rose 10% in the quarter, exceeding analysts’ estimates, but lagging world-wide growth of 14.8%. Gartner analyst Charles Smulders attributes the industry’s gains to higher demand for notebooks and aggressive price-cutting on desktops.

31.4% jump. That’s quite impressive. Apple should do anything they can to enlarge the halo. That includes releasing their office suite, once it’s completed, for Windows. Office users are disgruntled, and not buying the latest upgrade. Moreover, everyone on the planet has been impressed with the usability or Apple’s latest generation of products, particularly iTunes and the iPod. Would those users take a look at an Apple office suite, just for a change, just because they’re pissed with their current vendor? And might that get them to buy Apple computerss when their hardware needs replacing? I think so. I also think that they would do it if the price were right, which brings us to kicking the box.

As I mentioned at the start, MS gets 1/2 of their bottom line from Office. Microsoft has been harvesting profits from a product that they basically have 100% of the market for, and which has been around long enough that it should be something of a commodity. And MS has been way too reliant on this source of income for far too long, with nothing new to replace it. I can almost imagine a guy standing on a rickety old box, reaching for a jar on a shelf, only to have someone walk by and kick the box. That’s what Apple needs to do. If they came out with a version of iWork for Windows (Ok, that’s a sentence, so maybe they’d call it something else), at a low price point of say $99, they may not take the market, but they would force the price of office suites down. That’s kicking the box, destroying the 1/2 of MS’s bottom line, and opening the way for other companies, the MacTel alliance included, to better compete.

What do you think?

And here’s Bob’s response:

I think Apple is definitely moving toward its own office suite and it will be a formidable competitor for MS Office. And Apple definitely intends to steal as many Windows users as it can. But that doesn’t, in itself, belie the xBox Office strategy which is, after all, Microsoft’s strategy. I think Microsoft will try to cover every possible bet and then put bigger dollars behind those that begin to win in the market.

All the best,

Bob

So readers, what do you think?

This entry was posted on Monday, July 25th, 2005 at 7:09 am and is filed under technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.