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AUGUST 14, 2002 BYTE OF THE APPLE By Charles Haddad Arrogance, Thy Name Is Microsoft Office users are steamed at Gates & Co.'s demand that they register their software. Keep it up, Bill. You make Apple look better every day
Microsoft's trap was to let itself get hooked on mediocrity. Rather than invent exciting new products, the company focused on selling incremental improvements of its flagship Office suite every two or three years. But users have wised up. Increasingly, they're not willing to pay hundreds of dollars for a package of small changes (see BW Online, 8/7/02, "Smile When You Say That, Microsoft"). Recent industry surveys show that users now only upgrade software such as Office when they buy a new computer, sales of which have slowed sharply in the past two years. PUNISHING LOYALTY. Microsoft doesn't plan to free itself from this trap by reinventing Office. Indeed, two years ago, the bear decided to punish users who decline to obediently upgrade every two to three years. Microsoft swears these programs are designed to guard against piracy. But they also let the company monitor who has been good and who has been bad. I'm talking about two Microsoft initiatives: Windows Product Activation and the Licensing 6.0 Program. The first forces PC users to register Office with Microsoft before they can use it and that's been in place for more than a year. The second leg is the Open License 6.0 program, which went into effect Aug. 1. High-volume users, such as schools and corporations, that upgrade in lockstep with the company's schedules are rewarded with lower prices. But those who don't will pay more. As you can imagine, customers are not happy. And if alienating your core customers isn't gnawing off your own foot, I don't know what is. These outraged users are creating a great opportunity for Apple. The Yankee Group, in a report written by analyst Laura DiDio, found product activation and licensing are "hugely unpopular" and "sowing the seeds of dissent." LOOKING ELSEWHERE. Tough talk, but DiDio backs it up with numbers. In partnership with Sunbelt Software, she surveyed 1,500 companies about Microsoft's Licensing 6.0, which makes it cheaper to pay a yearly fee to lease Office than to buy an upgrade. Now, it will cost a company more to hold on to its current version of Office for a year or so and then buy an upgrade than to start paying the annual fee to lease the new version. Ninety percent of respondents said the new deal would raise their costs by between 20% and 200%. And that comes at a time when companies are cutting expenses to the bone. Way to go, Microsoft! No wonder nearly 40% of those surveyed said they were so outraged that they would actively consider alternatives to Office and Windows. And the two best alternatives -- Apple's OS X and Linux platforms -- have never been stronger. Apple's new operating system, based on the Unix kernel long used by big companies and universities, is as dependable and feature-rich as Windows XP, if not more so. Apple also has released a new server to run OS X called Xserve (see BW Online, 5/29/02, "Apple Plunges Back into Servers"). This wafer-thin device features Apple's powerful G4 processors and comes with up to 480 gigabytes of storage. And it's competitively priced, starting at $3,000. As one IT manager gushed to me, "I can buy two of these babies for what it would have cost for one comparable IBM server." Making the Xserve sweeter yet, Apple is also offering an unlimited license of OS X server software, which would cost $1,000 if bought separately. HISTORY'S UNHEEDED LESSON. Microsoft's controlling behavior has been characteristic of monopolists throughout history. Rather than change with the market, they try to bend the market to their will. In the end, the companies themselves wound up bending to the breaking point. Two classic examples are Western Union, which tried to ignore the telephone, and IBM, which initially closed its eyes to the revolution in personal computing. Don't get me wrong: Microsoft is not about to fall anytime soon. Its continued arrogance, though, may well help Apple snare another percentage point or two in the corporate desktop and server market -- and that would translate into big money for the company. Long term, however, Microsoft better be careful. The corporate graveyard is studded with the tombstones of once domineering companies that died slow deaths through self-inflicted wounds.  Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BusinessWeek Online Edited by B. Kite Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | AUGUST |
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