Microsoft Alters Licensing Plan, Drops Office XP Price

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 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.