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Microsoft Releases Office 2003 Licensing Prices

Microsoft this week put the final piece of the Office 2003 pricing in place by quietly publishing licensing costs to enterprises for the updated productivity suite, which will officially launch on Oct. 21.

The licensing price list, obtained by TechWeb from a Microsoft partner, and available on the Microsoft for Partners Web site, details costs of Microsoft Office Professional Enterprise Edition, Office Standard Edition 2003, and Office Small Business Edition 2003 under a variety of its licensing programs.

Under Microsoft's Open Business program--the benchmark typically used to compare prices--Office Professional Enterprise Edition will cost $457 at the "NL," or "no level" price. This is the minimum discount level in Microsoft's volume-pricing structure; customers who purchase larger volumes, or buy under other programs, can get bigger discounts.

Licensing prices for Office Standard come in at $370, while the Small Business Edition runs $411.

Those prices came as a surprise to Paul DeGroot, an analyst with Directions on Microsoft who covers the Microsoft Office suite.

"I was expecting lower volume prices, because these are not positioned well with retail prices," DeGroot said.

In August, Microsoft announced retail pricing for the various editions of the application suite. The retail version of the most expensive bundle--Office Professional Edition 2003, which includes the same applications as the licensed version with the exception of Microsoft InfoPath in the latter--will be priced at $499. Standard and Small Business editions will carry retail price tags of $399 and $449, respectively.

"For all practical purposes, Microsoft hasn't changed volume pricing for Office," said DeGroot. That contrasts with retail costs. In May, Microsoft dropped the retail price of the current Office XP by approximately 15 percent, then stuck with those lower retail prices for Office 2003.

"You now have a situation where the difference in price between volume and retail pricing, which used to be more than $100, is now $50 or less," he said. "It would actually be more to Microsoft's benefit to reduce volume prices than to reduce retail prices. The primary audience of Office is, after all, business."

DeGroot contended that the relatively high licensing prices, when combined with additional costs of deploying new server-based software to take advantage of many of Office 2003's most-touted features, including digital rights management, workgroup functions, and collaboration, may bode ill for Microsoft.

"They may have trouble selling Office 2003," he said, noting that the changes to the core Office applications are actually fairly modest. "A lot of the functionality of Office 2003 comes from servers," he said, including SharePoint for workgroup sharing, Live Communications for collaboration, and Rights Management Services for digital rights management.

"Office used to be a departmental decision to buy or upgrade, but with these additions, it's now a corporate decision. To take advantage of the major features of Office, companies are going to require server upgrades. That pushes the decision up to a much higher level."

DeGroot speculated that the flat licensing prices stem from a desire by Microsoft to maximize profits. "As products mature and you're looking for ways to maintain a historical rate of [revenue] growth, one of the most obvious ways is to charge more for what you've charged for before, and charge for what you haven't charged for before." Among the latter, he included digital rights management, a new technology for Microsoft.

With prices like these, Microsoft is going to have a tougher time selling Office 2003, noted DeGroot. "I don't see anything in Office that would make me say every Office user should upgrade."

This story courtesy of TechWeb.

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