On one front, Microsoft must convince as many as 120 million Office 95 and 97 users to upgrade to the new version, an opportunity customers passed over with Office 2000. On the other front, the company must combat lost sales to casual and professional pirates. In North America alone, potentially one out of every four copies of Office is pirated, meaning it was copied illegally.
"Microsoft's biggest competitor may in fact be software pirates, just as their biggest competitor is their installed base," said Prudential Securities analyst James Lucier. He said that with so many different versions of Office or Windows available, "there's just no adequate incentive for people to move up."
Interestingly, Microsoft is marshalling similar tools to deal with both problems. With the first package of bug fixes--or service release--to Office 2000, Microsoft introduced activation technology that makes pirating the software more difficult. With Office XP and, later, Windows XP, Microsoft will refine the technology, essentially "locking" the software to the user's PC configuration.
Also with Office XP, Microsoft will begin selling software on a subscription basis, under which customers pay a fee for using the product for a predetermined time period. While the move is largely viewed as a way of generating additional revenue, the subscription scheme also could undercut piracy.
"Moving all of their software to a subscription basis is the ultimate way to combat piracy, because then you're not going to get anything unless you're a subscriber," Lucier said.
Moving more customers to a subscription basis could also diminish competition from older versions of Office, as customers would pay for incremental upgrades as they became available.
