The Office competition

Office productivity tools have always been prone to playing follow the leader but with the competition hotting up, what are the choices fighting it out for the channel's business?

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By  Paul Barthram Published  November 2, 2003

I - Introduction|~||~||~|Office productivity tools have always been prone to playing follow the leader but with the competition hotting up, what are the choices fighting it out for the channel's business?

Office productivity tools, much like the PC operating systems, have been led by Microsoft for a long time, but with the competition looking to increase their penetration in the Middle East, the channel now appears to have some credible alternatives to Microsoft. With several alternate office productivity suites available, such as IBM's Lotus and Sun's Star Office along with freeware Open Office, the market is starting to look competitive once more.

All provide traditional suites with word processing, spreadsheets, design and presentation tools, and all include Arabic functionality for the Middle East market, but the differentiation comes in the bundled packages. Microsoft more than the other vendors is keen to bundle solutions that IBM and Sun are more likely to sell separately.

Yet as far as office productivity software choices go for the Middle East, many resellers and distributors are never able to look beyond Microsoft. The strength of the software giant in its bundling, marketing, sales and distribution has dominated many regions, and often left the competition looking like the poorer brand regardless of the individual suite's benefits, and vendor support.

"Nobody can deny Microsoft's skill at branding and advertising. And you know they've set a trend. But advertising and branding doesn't always lead to the best products in the world, and I think the movement has now been to walk away from costly expensive products," said John Bell, managing director of systems integrator Novell Middle East.

"Clearly in EMEA there is a vigorous year [ahead for software] and part of it is because of their [Microsoft's] licensing practice, to be brutally honest," commented Mark Latchford vice president for IBM subisidary Lotus Software EMEA.

It's fair to say the overwhelming costs of the Microsoft suite and the pressures on organisations to reduce costs are making customers more ready to accept alternatives in the market.

Sun Microsystems the developers of the Open Office system, and its commercial product offering Star Office has had considerable success in other territories, and is now looking to increase the software potential of its channel position with distributors in the Middle East region.

"Star Office today is the challenger in this market, and we are very proud to have sold about 40 million licenses of Star Office in the past three years. That's a great achievement for us, and we're really now executing on the strategy we have, and gaining momentum," commented Ahmad El Dandachi, software sales manager, Sun Microsystems MENA. "From the cost point of view actually our cost is three times less than the Microsoft price, so its really affordable today for customers in small and medium enterprises to shift from MS Office because of the cost savings they can make."
||**||II - Channel Performance|~||~||~|
Traditionally though the channel has never found a profitable margin from selling office productivity software, given the choice of either earning a one or two percent margin from selling the Microsoft suite or trying to earn a larger margin from the less popular but cheaper office productivity suites such as Star Office, and Lotus Smartsuite.

"We haven't done a great job with working with the channel and making sure that they could make a lot of money out of it. But I can point you to quite a few partners that are on this path and they make a lot of money," commented John Mangelaars, general manager of the Information Worker Business Group, Microsoft EMEA. "The people who don't make a lot of money are the people who've been shifting the boxes. So we have to work with them to upscale them to do some kind of collaboration services. So instead of just shifting the box they just put in a few more hours on the customer collaboration side, and the customer would pay $5,000 more for that."

The main idea for increasing channel revenue would therefore be for the vendors to work with channel partners, and help them develop third party solutions, such as country specific features (i.e. further Arabic translations or integrated communication tools) for the software releases; or in the case of the resellers help them develop a strategic value added relationship with the customer to educate them on how to best benefit from the office productivity suite.

The strategy to increase the powers of the channel through services and solutions are not solely an idea of Microsoft's though, as IBM, and Novell are already committed to developing the channel's work with office productivity suites. Yet whereas Sun is only looking at the moment to gain partners and push distribution in the channel, the others are much clearer on how they see services and solutions at the forefront.

"I've seen quite a shift in what have been for the past few years product resellers. I've seen a massive shift by demand from resellers gearing up to offer value added services. It used to be that on a large IT project that you could basically split the cost of that project 60% product cost, 40% value added services. It's completely changed, and I'm seeing projects now where 80% of the pricing is in the value added services, the consultancy, and 20% product. And I see that trend continuing to be in the favour of the service delivery," said Bell.
||**||III - Working with Channel|~||~||~|
"Lotus' growth historically has been fuelled by our channel. Our partners have made money very simply by margins, the development of solutions and applications on the platform, and the services," explained Latchford. "We have a whole lot of programmes to get them building business models, across the three areas and on top of that there are certain policies that we identify and develop internally to generate trust within the channel. Then there's initiatives we have in relation to the Middle East, such as Lotus Innovation Centres where the Lotus model has actually put them out there in the channel to develop solutions in the workplace."

"We are getting there. The investments that we've made in the last two years, in terms of solutions and partners, we are making good progress," said Mangelaars. "If you go out to meet the partners, you'll find great solutions. What we will do next year is we will really ramp up our investments in partners to really make sure that we have more and more solutions on the Office system. And this will also drive the really vertical solutions for country specific verticals. So we will invest in partners more and more, to make sure we get much more detail, and much more volume in solutions."

With all the major software vendors looking to improve channel performance, the question still hangs over which vendor to partner with from a reseller perspective? IBM and Sun offer wider margins, but IBM is the more vocal of the two to be pushing solutions assistance as well. Microsoft on the other hand is saying it will push for better solutions to be provided with the regional version of Office, but hasn't described how it fully intends to educate the reseller partners on adding value.

Novell previously used to own the Word Perfect Office but saw little future in playing against Microsoft in the office productivity arena and offloaded the product some years ago. The company is now working with the channel to develop services and support for customers looking to migrate to Linux environments and open source products through integration services, and as part of its services it is advocating the freeware Open Office suite.

"The main differentiator is on price, [with Open Office] it is for free and not locked into a platform," Bell explained. "We hear through the channel that people just cannot survive on a one or two percent margin. And that's because of the high costs in delivery. When delivery is free, and the application is free, we're seeing a switch to more value added services. Consulting companies are increasing their revenues, increasing their service levels, because people want to stick this stuff together, they've got all the stuff they need. I don't see a great deal of upside for software sales, but it's the integration layer, which is the sweet point at the moment."
||**||IV - The future model|~||~||~|
Mangelaars does not see the benefit from resellers selling their services with freeware though. "If they shifted the free software box, they would still make less money because the customer knows it's for free so they still won't make a margin. What we've got to do is use the functionality in this platform and make sure the resellers drive this value to the customer so they can see its worth, because its great value, and the partner will make the profit in services because they've added value."

"You have to be relevant and that you drive value, everything is too expensive. So we've invested a lot in out of the box value, so like compact edition, like mobility support, manageability support, spam protection, the OneNote note taking, so new categories. Our office productivity comes at a price but it is driven by the value," Mangelaars added.

The real question here though is how much use is it packaging so many advanced functions to organisations if the majority of the workers have no need for access to worldwide platforms or any of the other advanced functions provided for by the software vendors?

"Typically people are using no more than 10% of their word processing product capability, so why should they pay 100% of the price?" asked John Bell. "Many people could use just a normal text editor for the letters they type, so why should they pay hundreds of dollars, for maybe one hour a week [of usage]."

"Its true, but again it depends on the product," said Latchford. "Again we saw that with our IBM mainframe heritage. People would say to us 'we don't use that capacity for this particular software' so we built flexibility around the [mainframe] pricing about two or three years ago, based on what is actually used rather than what the whole list is. And frankly you can see the whole industry demanding more of that."

On-demand pricing is another alternative to paying for a whole package of software of software. While the ASP (application service provider) model has not caught on yet for office applications in the Middle East, there are some enterprise applications starting to adopt the method, which suggests that other customers may follow and start thinking outside the more familiar methods of software purchasing when it comes to office productivity in the future.

"That I think is the movement that will come," said Bell. "It's good news for the channel, but not necessarily for Microsoft."
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