Microsoft is still fumbling as it tries to navigate its way out of the innovator’s dilemma. The business was built and nurtured on its lucrative suite of Office products— unfortunately, that reliance on Office is now complicating its full migration to cloud computing. Today, we spoke to Senior Vice President Chris Capossela, who acknowledged the challenge of growing profits without pay-to-install software.
Microsoft is gearing up for the launch of Office 2010 (available to businesses on May 12 and to the casual consumer in June), marking the first time the software giant will release free web versions of Office applications like Word and Excel bundled into Windows Live.
Now that consumers can get these basic applications for free, the company is hoping that pay add-on features will be enough to override the loss. Last week, the president of Microsoft’s business division, Stephen Elop, optimistically told us that while profit margins could (let’s be honest, they will) shrink, overall profits could be supported by new add-ons.
When asked how the company will maintain its profits, Capossela first response was paid software: “There’s a few things that we’re doing, number one we’re making it a lot easier for people to buy Office when they buy a new PC. We got a new Office pre-install program that many OEM partners have signed up to use….so when you go and buy a new PC in the fall let’s say you’ll have the Office skus already installed there….making it far simpler.”
In our video interview, Capossela eventually goes on mention that there will be paid services on cloud computing, although he did not articulate which services are expected to be the biggest revenue drivers. However, the fact that Capossela heavily (and immediately) highlighted the old pay-to-install Office model, underscores Microsoft’s ongoing dependence on the old cash cow and perhaps, excess optimism. Last month, Steve Ballmer said, “when it comes to cloud, we’re all in.” The company’s head may be in the cloud but one foot is on installed software.
Today’s Microsoft is no longer competing in 1995′s software market. The company still has to deal with piracy, but more significantly, it has a viable threat in Google Docs. Microsoft has been very successful in locking down the largest companies as enterprise clients, like Starbucks and GlaxoSmithKline— of the 10,000 largest companies Microsoft serves 70%. But the company is struggling in gaining traction among the smaller potatoes, the start-ups which have been attracted to Google Docs relatively simple and cheap model. Google Docs has become less simple over time, but many entrepreneurs still see it as the easiest and cheapest way to service their companies.
The consumer is clamoring for more simplicity but Microsoft’s business model seems to be moving towards more complexity. Because Microsoft can no longer expect to sell as many Office products in the store, it has to rely on a multitude of paid services and options (Exchange Online, Sharepoint, etc.) creating layers of complexity.
All that said, Microsoft is moving in the right direction and trying to embrace cloud computing. Personally, I’m excited to use Office 2010 online as a consumer and blogger, with all its rich features— but then again, I won’t be paying for it.