Macopinion

The End of Office for Macintosh?

by Marc Zeedar macopinion@designwrite.com

A decade ago Steve Jobs famously said, "The PC wars are over. Done. Microsoft won a long time ago."

This is still true in most ways, but the present reality is that Apple has made a huge comeback on the back of the iPod and Intel transition and Microsoft is now the "beleaguered" company. (In fact, I recently saw an iPod article that referred to the "Apple hegemony" -- a term that used be to exclusive Microsoft territory.)

Microsoft is being threatened on every level from open source and hungry competitors, and none of their attempts to expand into new markets, from handhelds to game machines to digital music players, show any signs of success. (Microsoft's most successful venture, Xbox, has made inroads against Sony, but even Microsoft isn't expecting profits from it until 2008.)

The new Vista operating system, years behind schedule, is a flop even before release, with few excited about it as so many good features it was supposed to include were removed so it could get released. Corporations aren't jumping for joy at paying big bucks for upgrading thousands of fleet machines with a whole new mess of unknown problems, and most consumers will probably need new machines to be able to run Vista, so it's questionable how many will bother with the upgrade. Even Microsoft isn't predicting Vista to have a huge impact on their bottom line until 2008.

Microsoft's reputation is so bad they actually hide the fact that Xbox and Zune are Microsoft products (the Microsoft name is conspicuously absent or minimalized in advertising and packaging). Can anyone imagine Apple doing that?

Suddenly Apple and Microsoft -- despite the still massive difference in size between the two companies -- are real competitors. Microsoft, despite their problems, has immense resources, and with the bulk of their revenue still coming from software, obscene profits. (To put this in perspective, Microsoft's profits are comparable with Apple's revenue.)

But Apple's got the greater potential of the two companies. Microsoft has leveraged about all they can from their monopoly. Their Windows monopoly itself is strong -- corporations aren't like to replace millions of machines with Macs any time soon -- but bulk sales aren't as profitable for Microsoft as Windows upgrades. Microsoft gets huge profits from their application software (Office) which is often bundled with new computers, using their operating system clout to rule out competitors. But with open source threatening their application software (it's hard to compete with free), Microsoft's hard-pressed to find growth. Even Vista sales will come at the expense of XP sales, so it's just replacement revenue, not growth.

Apple, on the other hand, is poised for huge growth. The iPod phenomena is just beginning -- the recent announcement of iPod connections on airlines is a perfect example of ways the platform can grow in the future -- and Apple has exciting new products looming. Some, like the iPhone, are only rumored, but others, like iTV, have been pre-announced. iTV has massive potential: it could become a whole new platform for Apple just like the iPod. It could also kick-start a new era of digital media where video downloads take off the way digital music did when Apple launched the iTunes Music Store.

Macintoshes are selling at double or triple the growth rate of the industry and most analysts think that will increase even more next year as Apple gains momentum. (Many suspect that with Vista's steep hardware requirements, consumers will just buy an Intel Mac instead of upgrading Windows.)

This is why Microsoft's stock is so low the company's buying it back and why Apple's stock is hitting new record highs every day. Microsoft's size works against it, too. For Microsoft to grow by 15% it would have to sell a lot more product than Apple would to grow a similar 15%. Thus investors are flocking to the company that presents the better growth rate.

Microsoft Feeling the Heat

A decade ago I always got the impression that Microsoft found Apple amusing, tolerated like a best friend's annoying pest of a little brother. There was that much publized Microsoft $150 million "investment" in Apple when Steve Jobs came back, and Microsoft's commitment to Office for the Mac.

But the relationship's different today. Apple is no longer amusing. Like the novelist's wife who becomes a best-selling author, Apple's success caught Microsoft unawares and suddenly the company's a significant threat. With its other struggles, the last thing Microsoft needed was a real competitor, especially innovative Apple, which has always been sort of an anti-Microsoft. No, Bill is not amused.

With the release of the Zune the relationship's leading into a real battle. Microsoft doesn't hesitate to take jabs at Apple in the press or use astroturfing to attempt to plant false and misleading statements about Apple in people's minds.

In fact, I read recently that Microsoft's actually getting petty: apparently they wouldn't give the CompUSA in San Francisco any Zunes to sell because that particular store has a tight relationship with Apple!

That hurts Microsoft more than CompUSA or Apple and it is amusing and revealing of character: Microsoft would rather cut their own nose off out of spite.

All this has got me thinking, how much longer will Microsoft make Office for Macintosh? Granted, Office for Mac does bring in significant revenues -- it was a half billion a few years ago and I'd think it'd be even more today as the Mac market expands -- but with that kind attitude why wouldn't Microsoft axe the product just to hurt Apple?

I'm not saying it'd be a smart move. It'd actually be quite stupid and it would only serve to lessen Office's monopoly hold on the market. Part of Office's reason for success is its ubiquity, especially the fact that it's cross-platform. A single platform solution just reinforces a product's limitation and causes businesses to search for a broader solution.

Mac users would be forced to find other software -- not that difficult considering open source alternatives and conversion utilities abound -- and that would spread over to the Windows side of the equation. No, it wouldn't kill Office for Windows by any means, but would take some of the shine off the product. Besides, with Mac users able to run Windows on Macs now, is Office nearly so critical?

I'm thinking we're reaching a point where Office for Mac is more important for Microsoft than it is for Apple. For one thing, Office for Mac hasn't been updated in too long and is not native on Intel Macs and that's caused some defection from people who used to use it, and those people, once the've found replacements, aren't like to go back. (For those who only need Office occasionally, like myself, the old 2001 edition still works fine.)

For another, the majority of people who use Office are business people who want compatibility with Office on the Windows side: average people are less concerned about that, and that's exactly the market Apple's been concentrating on recruiting for the last few years. As long as there's a word processor program available for Mac OS most people are happy. In the old days it was thought business customers were key to Apple's long-term success and for that Office was crucial, but Apple's demonstrated they can get plenty of growth via regular consumers, so the lose of Office for Mac would not destroy Apple.

But despite all that, there's another ace up Apple's sleeve: their own software suite. Apple has already starting competing against Office with its iWork suite: Keynote is superior to PowerPoint and Pages, though more design software than word processor, is a capable replacement for Word for many. All that's missing is a spreadsheet program and there are rumors Apple's working on that. (There's even a rumor of a photo-editing package that could help those of us stuck running Photoshop in Rosetta.)

Other solutions include open source alternatives like Open Office and commercial third party products. Mac OS X has tons of fanatastic software -- even some shareware products compete well with Office. Then there's always virtualization: being able to run Windows native on your Mac might be enough for people who only need Office compatibility occasionally.

Basically, there are plenty of alternatives now: Office is no longer the only game in town. Microsoft killing Office for Mac wouldn't be good -- certainly the publicity would damage Apple's image -- but it wouldn't put Apple out of business. It would only hurt Microsoft's pocketbook and it would drive more people away from Office and make it less of a standard.

I don't think Microsoft would be foolish enough to cancel Office for Mac. But who knows? If the war gets bitter enough, it could happen. But by the time it does, it might not matter much.

macopinion@designwrite.com