IBM Targets Microsoft's Office Franchise

Big Blue beefs up its free desktop software suite with a support service.
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SAN FRANCISCO -- IBM (IBM) - Get Report wants to take a bite out of Microsoft's (MSFT) - Get Report lunch.

But it will have to get in line.

On Tuesday, Big Blue launched a support service and new product aimed at eroding the Office software franchise and Microsoft's small-business server market.

The move comes as Microsoft, under assault from free desktop software offered by

Google

(GOOG) - Get Report

and on-demand software from a host of start-ups, moves toward a mix of traditional licensed software that works with subscription-based services, which it bills as software plus services.

For the first three quarters of its current fiscal year, Microsoft took in $12.5 billion selling client software, including Office, up 12% year over year.

IBM announced its free Lotus Symphony desktop software suite in September 2007, in an attempt to displace traditional Office software applications, such as Outlook (email and calendar), Excel spreadsheets and PowerPoint presentations. The software is based on the open-source Open Document Format.

The problem in getting established businesses to accept freeware is that they are not apt to make the switch, especially when it lacks support.

To bolster Symphony's status with dependability-minded corporations, IBM added a support service Tuesday. The service is priced from about $25 to $50 per user, depending on the number of users. The price caps out at $25,000 per corporation.

Don't look for the Symphony service to contribute big bucks to IBM's top line. "This is not a serious revenue play for IBM," IDC analyst Melissa Webster said Monday. Rather, IBM is making a "competitive gesture" by attacking a rival in the hope that companies faced with tighter IT budgets will spend on other IBM software instead of an Office 2007 upgrade.

IBM sells a portfolio of collaboration software, middleware and business intelligence software.

On Tuesday, the company also announced Foundations, a small-business hardware and software server built on a product it picked up in February with the acquisition of Net Integration Technologies. The server is intended for companies with up to 500 employees. Preloaded with Symphony and Lotus collaboration software, Foundations will compete directly against Microsoft's small business server software.

IBM estimates that a company with 20,000 employees could save $8 million annually with its free Symphony software and a services contract vs. upgrading to Microsoft Office 2007. The service introduced Tuesday is expected to get past businesses' jaundiced view of anything free.

Microsoft analyst Rob Enderle said Monday that IBM's Symphony has not yet made headway with corporations. "We are not seeing any serious effort to deploy Symphony," possibly because businesses may wait several years to replace software. "Just because we're not tracking activity doesn't mean there isn't any."

IBM said that it will surpass 1 million users this month on beta versions of Lotus Symphony, which is being commercially released Tuesday.

Businesses have been satisfied with Microsoft's Office 2003 and "are not excited about changing it out," Enderle said.

"Large enterprises are going to be more comfortable with something that is sold and delivered in a traditional fashion," Enderle said. They need to understand the economic model behind a product before committing to it due to conversion and training costs associated with ripping out old software. Freeware becomes unusable when the developer stops providing support and upgrades. And the provider may eventually decide it's no longer free.

"The idea that someday IBM is going to send them a bill slows them down," Enderle said.

By coming out with a support option, IBM is answering an important corporate objection to open source products, Webster said.

Open source software "has not made much of a dent against Microsoft Office" because of the lack of a big vendor behind it, Webster said. "IBM is putting the power of its brand behind this, and now support as well."

IBM points to Microsoft's commitment to make its documents compatible with the Open Document Format as a way to allay corporate fears that Symphony won't let them communicate with their clients who use Microsoft-based products.

But that won't help much with the thousands of documents already created, Enderle said. Older Microsoft documents would have to be manually converted to ODF, a cumbersome process. That issue would become irrelevant with time, he added.

Companies have accepted Google Apps, which is offered free as hosted software, because it is popular with employees. But the economic model behind it -- users being subjected to advertising -- "is probably going to make it less palatable," Enderle said.

Both Microsoft and IBM have to contend with

Adobe

(ADBE) - Get Report

, which has moved into the office documents territory with the launch Monday of Acrobat.com, which provides word processing and Web conferencing services that are integrated with its PDF document software.

"Both Google and Adobe have a unique advantage in the Microsoft space," Enderle said. Creative companies are accustomed to using Adobe to create Web content, videos and pictures. "They may find an affinity for this product that may be increasingly similar to other Adobe offerings," Enderle said. And Google gives its Apps an edge by making them available across the Web as a free service, he added.

IBM was up $1.58, or 1.2%, to $128.94 in recent trading. Microsoft was up 24 cents, of 0.9%, to $28.03.