Snippets of interest regarding the validity and wisdom of the DOJ's attack on Office from the New York Times.
Dataquest, a market research firm, said that Microsoft Office now has 93 percent of the world market for the collections of business software known as suites. The other 7 percent is divided between two other suites built around former industry heavyweights. Lotus SmartSuite has 4 percent of the market, and Corel WordPerfect Suite has 3 percent.
The part of the states' lawsuit dealing with Office accuses Microsoft of using predatory pricing strategies to gain dominance in the market for office suites.
The Justice Department argues that Microsoft's pricing policy for Office leaves computer manufacturers the practical choice of installing Microsoft's suite on all the computers they make or on none of them. The result, the suit says, is that competition "is threatened to be curtailed and foreclosed."
But some experts in the industry argue that the states are mounting a battle that may already be lost, since Microsoft Office already enjoys the same level of monopolistic dominance held by the company's Windows operating system.
Just three years ago, WordPerfect was the world's best-selling word processor, with more than half the market. Lotus 1-2-3, the venerable spreadsheet program, had a similar market share.
No one argues that Microsoft's pricing strategies alone are responsible for the sharp decline of these competing suites.
Most analysts say that Microsoft gained its monopoly position in part by figuring out more quickly than others that most people want programs bundled in a suite and designed to work with and look like one another. The company also produced updates that took advantage of technological advances far more quickly than competitors did.
As an example, Dennis Tevlin, Microsoft's director of marketing for the Desktop Applications Division, said that when Windows 95 was released, "Lotus and WordPerfect had ample time to develop updates. But they just didn't do it. So we were already on to our second generation when they were just shipping product."
Corel assigns blame for WordPerfect's decline largely to its previous owner, Novell Inc. And a senior Lotus Development executive, who, under company policy declined to be identified, said that the many shifts in the industry over the last five years, including the move to suites, brought the downfall of Lotus 1-2-3. Neither company placed primary emphasis on the pricing policy described in the states' lawsuit.
Whatever happened in the past, said Chris Le Tocq, an analyst for Dataquest who follows this industry, "it's very tough to see a way anyone could come in with a word processor or a spreadsheet and turn this around" in the future.
And Hewlett-Packard Co. chairman Lewis Platt said: "By now, it's over in that business. Most people find it more difficult to switch applications programs than to even switch operating systems."
Even Vacco, when told of the latest sales figures, said: "Wow! Perhaps it has gone too far, but only the marketplace can provide an answer. Given a more level playing field, can another player compete? I don't know."
A senior government official involved with the state and federal lawsuits said, "When a market tips as decisively as this, there's a real question whether or not it makes sense to try to generate competition."
Microsoft, the state lawsuit said, offered computer manufacturers -- known in the industry as an OEM, for original equipment manufacturer -- two choices when buying the office suite. They can buy individual copies of the program for installation on some computers at a price of roughly $170 to $190. Or, they can buy the program at a far lower price, roughly $125, if they purchase it for installation on every computer in a company line -- the Dimension series of Dell computers, for example.
This is called a "per system" license, and the suit says: "It is impractical in an economic sense for an OEM to install a competing office productivity suite on a computer subject to a per-system license. In order to do so, the OEM would have to pay for both Office and the competing product, and likewise would be required to pass along to the customer the cost of offering both Office and the competing product."
But Tevlin said that Microsoft's pricing was set in this manner because retailers would complain if manufacturers could buy single copies at a cost far below theirs.
Executives of Corel Corp., the Canadian company that owns WordPerfect, said sales may have been hurt by this -- but not very much. "The fact is, sales to OEMs are not really a big money maker for us; the retail market is more important," said Cindy McGann, Corel's corporate counsel. Tevlin of Microsoft said manufacturers accounted for only about 6 percent of the Office market.
Still, Don Sylvester, a senior vice president at Corel, argued that Microsoft's pricing "absolutely harms everyone in the market, and nobody wants to wake up six months from now and find that Microsoft is the only one standing in the word processing and suite market."
As it is, Corel has changed its marketing strategy. "It's clear to us that Microsoft isn't our competition anymore," he said. "They are our environment, and we need to deal with that fact by making our product completely compatible with Microsoft Office so users can move files back and forth between their programs and ours."
The senior Lotus executive agreed that compatibility was essential for survival. And both companies are now selling their products at a fraction of the cost of Microsoft Office. This leaves Microsoft officials wondering aloud what all the fuss is about, since predatory pricing typically means selling a product for far less than a competitor. Corel sells WordPerfect Suite to manufacturers for about $15, and the retail price for the program is only $99. Lotus is owned by IBM, and its suite is bundled free on most IBM personal computers. The retail price of Microsoft Office is $399.
Even with rock-bottom prices, both companies said they believed they could survive and even prosper, and both have large bases of customers who buy updated versions of the programs. A survey early this year of about 300 companies by Olsten Corp., a temporary worker company, found that 21 percent of the offices surveyed still used WordPerfect, and 27 percent still used Lotus 1-2-3. |
