For consumer software companies, simply making the sale isn't enough. Continued profitability requires that each customer be inducted into a neverending product cycle of updates and upgrades. Buy a product now, and you're meant to buy it again next year, and the next, and the next.
But what happens when customers decide that they have all the bells and whistles they need? Where will the software companies' revenue come from then?
Microsoft has come up with a solution — and whatever your estimate of the Redmond-based giant's capacity for innovation, this one truly is a novel plan. Customers don't want to upgrade? No problem. Make them do it anyway.
This month, Microsoft will quietly begin eliminating free product support for older versions of their software, including Visio 5.0, FrontPage 98, Outlook 98 and the popular Office 97 business productivity suite. From now on, if customers of these versions find themselves in need of person-to-person technical support, it'll cost them.
Further, Microsoft has altered its licensing scheme for business customers, replacing its most popular licensing program with a new arrangement called Software Assurance. This plan guarantees subscribers access to the latest versions of Microsoft's business and operating system software at discount prices — provided they upgrade to what Microsoft deems the "current" versions of its products, like the just-released Office XP.
Sound a little suspect? Not sure XP is right for your business? Well, don't debate it for too long. Microsoft has given its corporate customers until October 1 to make up their minds about the new licensing program. If they don't buy in by that date, then the deal's off. From then on, any Office XP upgrades they purchase will be for full price, as if they were brand-new customers.
According to market analysis firm Guernsey Research, under the old licensing program Microsoft customers were expected to spend $3.6 billion on Office upgrades. This new plan is projected to bring the figure up to $5.4 billion, a 50 percent increase.
It sounds a little unfair — and yet, you can't really blame Microsoft for playing hardball with upgrade fees. In a way, its Office product is a perfect example of the problem that makers of popular software must increasingly face.
Analysts estimate Office's current share of the business productivity market at over 90 percent, leaving Microsoft with little room to bring in new customers. But according to the company's own estimates, roughly 60 percent of those customers still run Office 95 or 97, the two oldest versions of the suite. What this means is that, barring support fees, the revenue stream from more than half of the existing Office customers has ceased.
Even corporate customers have shown reluctance to upgrade this time around, with many citing poor economic conditions as a factor. Some are only now completing their upgrades to last year's version, and see no compelling reason to go through it all again for Office XP.
After all, let's face it: How much room for improvement is there? As far as text editors go, Microsoft Word has the bases pretty well covered. And no matter how enticing the idea of embedding live Internet content in your Excel spreadsheets may seem in theory, the practical applications of this new feature are probably few.
To be fair, Microsoft has managed to include worthwhile improvements in its latest products. The decision to build voice dictation capabilities into Office XP is laudable, for example, and surely a welcome addition for Repetitve Strain Disorder (RSI) sufferers.
Also, Internet Explorer 6 will incorporate the Platform for Privacy Preferences (P3P) standard, allowing the browser to automatically reject cookies from sites that don't post an acceptable privacy policy. The idea is that unwanted marketing and data gathering from IE6 users will be kept to a minimum.
But some of the other recent "improvements" are considerably more dubious. IE6's new Smart Tags feature comes to mind. Something of a misnomer, Smart Tags allow developers to define "permanent" Internet hotlinks, which can be added to the browser much in the same way as plug-ins.
When the IE6 browser encounters text on a Web page that matches an installed Smart Tag keyword, it will automatically insert a predefined Internet link corresponding to that keyword. This will occur irrespective of the site designer's intent or graphic sensibilities. The most likely developers of Smart Link components: Who else? Advertisers.
Office XP, too, has its suspect "features." One user recently noted that the latest version of Word has an annoying tendency to "correct" certain URLs — even if they were correct to begin with. Specifically, he observed that two forward slashes had a way of mysteriously becoming one. Try to fix the URL back to the way it was, and it would change again. The only way to reverse Word's meddling was to load the document in the FrontPage HTML editor and adjust the link by hand.
Though marketed as user-friendly improvements, these are hardly the type of changes that inspire customers to buy an upgrade. It's little wonder, then, that Microsoft has to resort to strong-arm tactics to keep the flow of upgrades coming in. And playing dirty with support contracts isn't the only trick up its sleeve.
One card Microsoft has played many times before has been to evolve the Office file formats. Over time they've become ever more complex, such that competing productivity suites have a hard time keeping up with the changes. As a result, users turn to the one software package they know will be able to open all the files they receive from clients or customers — Microsoft's. And often, only the latest version will do.
Not you, you say? You have the office software you need, and you're not going to budge an inch? If that's the case, then to be on the safe side you'd better plan to keep the same version of your operating system as well. In Microsoft's model, the operating system and the applications software go hand-in-hand, with one often requiring the features of the latest version of the other.
Even if that's fine with you, don't expect to buy a new computer anytime soon, either. Most new systems ship with Microsoft's latest OS and applications pre-installed. Sometimes, the latest hardware even requires the latest software versions just to function.
And remember, Microsoft shouldn't even need to resort to these kinds of methods for long. Eventually, the plan is to migrate everyone to network-based software built around the new .Net platform. You'll no longer buy your software at all; you'll subscribe to it. Once that happens, everyone will pay, and keep paying — upgrade or no.
Unfortunately, there doesn't seem to be an easy way out of this cycle. Sure, it's possible that there might eventually be some kind of backlash from frustrated Microsoft customers who are tired of the unwanted changes to their software. Yet without any real competition in the market, these customers aren't likely to have any true recourse.
But then, it's always possible Microsoft could be forced to acquiesce somewhat. Maybe they'll release optional patches, to let users regress their copies of Office to the feature set of an older version.
They could make these latest updates available for free, to demonstrate their concern for the consumer's best interests. Or then again, maybe not.
By the way — whatever happened to that lawsuit the Department of Justice was talking about a while back?
