CNET News.com: Microsoft hatching online plans for Office

“As more portal sites add free or low-cost business applications
to their services, Microsoft finds itself in an awkward position:
The software giant needs to launch a Web-hosting model for its
Office desktop productivity software to counter competitors and
maintain its huge customer base. It also needs to set prices that
keep Office’s enormous revenues–one-third to one-half of the
company’s total–rolling in.

In a sense, Microsoft finds itself in the same position
Netscape Communications encountered a few years ago as it attempts
to sell software that others are giving away.
Netscape, which
led the Web browser market by a huge margin with its for-fee
Navigator software, eventually gave way to Microsoft’s free
Internet Explorer.

In the short term, analysts expect Microsoft to take a hit.
‘This [move to Web-hosted applications] represents both high risk
and high opportunity for Microsoft,’ said Rob Enderle, an analyst
with Giga Information Group. It ‘will require that they cannibalize
their existing revenue and channels to get ahead of this emerging
trend, and…it will likely have a short-term, adverse impact on
earnings.’ “

“Several competitors, including Sun Microsystems, Corel, and
Lotus, along with Web portal-like start-ups such as Desktop.com,
are way ahead of Microsoft in announcing plans for Web-based

“…Enderle sees the threat to Microsoft as real. ‘They are
faced with the same problem they gave to Netscape, in the form of a
free bundled office suite from Sun. It will be interesting to see
if they do a better job of defending their market than Netscape,
which wasn’t being attacked by the federal government,
did.’ “

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