Even mighty Microsoft can’t muscle customers in this challenging economy. We’ve finally seen a crack in Microsoft’s ability to command whatever license fees they see fit from customers, with the drop in prices for Microsoft Office 2007 Enterprise Subscription Agreements. ESA pricing dropped by 26%. If you aren’t familiar with Microsoft ESA subscription program, it basically lets you lease, or “subscribe”, software rather than purchase the software and play annual maintenance. Rarely do we see Microsoft dropping prices but I suspect we’re seeing this price cut for three key reasons:
It’s The Economy “Stupid”. Remember those campaign buttons that helped unseat George Bush I by pointing out the obvious issue was the economy? Well, the obvious answer to Microsoft’s price cut is the dearth in purchasing by business (and consumers alike) due to uncertain times in our economy. Dropping pricing on ESA licensing helps customers cut some costs out of their budget, though it doesn’t do much for those customers to just opt out of paying annual maintenance fees.
Open Office and Google Apps. Yesterday I wrote about the potential threat Microsoft could see from Google, given the Federal CIO appointment of Vivek Kundra, who ushered in Google Apps at his former CTO job with the District of Columbia. Competitive pressures from Google and Open Office aren’t at tsunami level but Microsoft is wise to not let competitors get their foot too far in the door before doing something about it. Independent assessments of Kundra’s Google App plans estimated the costs to be about 8 to 1 (there are still some costs for making the change, integration, etc.). This price cut at least starts to close the distance, but only for subscription based software. Microsoft isn’t out of the woods with this competitive problem yet.
- Relative Parity With Office Live. With the coming of Office Live (web based, hosted Office apps), Microsoft will of course be introducing new pricing for Office Live subscriptions. Making an early move to drop the cost of Enterprise Subscription Agreement licenses, could be an early signal of what we might see for Office Live subscription pricing. It would make sense for ESA and Office Live pricing to be relatively close, giving customers an either/or option, though I suspect Office Live pricing might be higher given Microsoft has the added cost of hosting the apps.
I’ll be interested to see if any other price cuts are coming from Microsoft. If purchasing continues at its current pace, Microsoft could be forced to lower prices and offer promotions to help customers hand over their money to Microsoft. I think we’re seeing that not even Microsoft can just bully their way through a tough economy.
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