Timing is Everything: Sun Remakes the Office Suites Market

In a move that has the potential to remake the office suite market, yesterday (August 31, 1999), Sun announced the acquisition of the German company StarDivision and its StarOffice office suite.

(You’ve never heard of Star? They are the #1 office suite for Linux and the #2 office suite in Germany. They were also briefly the focus of an IBM acquisition in 1995, which was turned off when IBM decided to buy Lotus, which already had an office suite.)

This is not about Sun entering the office suite applications software market – a seemingly thankless task, except in the niches, given Microsoft’s solid and long running domination of this market. Rather, it’s about Sun thinking out of the box and, in a move certain to become a classic HBS Case Study, attempting to change how the market works.

It will do that by not only buying StarDivision but by providing StarOffice, on all if its platforms (see below), FREE. Starting August 31, downloads at the www.sun.com/staroffice site (hosted by announcement partner Exodus) are free. Sun will also sell you the software (all versions) on a CD for $9.95 or the software with documentation for $39.95. A range of service agreements, up to premium 7x24 for corporate customers, will be available; Sun says it has "a Plan for a Plan to outsource support." They also intend to provide web-based support, especially for developers. Support could be a problem for Sun, since they have little experience with end-user support. Microsoft, for instance, offers free, unlimited support to individual users of its office suite.

StarOffice Platforms

Windows 95, 98, NT

OS/2

Solaris

Linux

StarPortal (Java client; SW on Server; Access across Internet)

StarOffice is already nearly ready (early access this fall, delivery Spring 2000) to provide a webserver-based version of their software, StarPortal. This fits right into Sun’s plans to reintroduce a new version of a network computer next week and to further pursue their vision of the Service Driven Network.

With the ASP (Application Service Provider) market starting to run, Sun saw its chance to be a major player and to greatly accelerate the rate at which productivity software might migrate from the desktop to webservers. This has to be good for Sun:

StarOffice runs on almost every platform and offers a wide array of applications, so the disruption factor may be even greater. StarOffice has the potential to provide an alternative in previously well-protected niche markets like OS/2, Unix, and Linux in which Microsoft was not a player. This will affect vendors like Lotus (OS/2) and Corel and Applix (Unix and Linux). Lotus and Corel will, of course, also be affected in the larger Windows NT market, where they were significant players, but where they already had to compete with the market dominating Microsoft.

Because StarOffice fields a full set of applications it is a formidable competitor, making it difficult for existing or new players to seek cover by differentiating their offerings through unique additions. This makes it especially hard for individual applications for niche markets to survive. Free is hard to beat. Just being a little better, with a few extra features, isn’t enough.

But this cuts both ways. Both Corel and Applix, whom we interviewed about the Sun announcement, were quick to point out that they were already selling successfully against free StarOffice. R. J. Grandpre, Vice President of Sales and Marketing of the Applixware Business Group pointed out that being a Unix port rather than an OS/2 port (like StarOffice) gave Applix better stability. "Star went for a Microsoft-style user interface," Grandpre said, while Applix stayed with a more Linux style, which they believe will be more pleasing to the Linux audience.

Of course, that assumes the target is the Linux audience. Corel’s Linux group (who were serendipitously visiting my office the day after the StarOffice announcement) point out that Linux desktop users may well be value-minded consumers with no prior exposure to Linux – and no love for its sparse interface or skills to support it. They’ve emphasized a no-skills-needed 5 minute installation (we watched; it worked!) and a very user-friendly interface.

Corel also points to what may be a real sticking point for StarOffice: It’s one thing to have a good list of applications (see below). It’s another thing to have the complete features in each application that existing users are accustomed to. Word processing, spreadsheet, and office application buyers are infamous for refusing to switch vendors if even a single feature is missing. WordPerfect (and Microsoft office), each with 16 years of feature creep, may be very well protected from a relative newcomer on that score.

StarOffice Applications

StarOffice Writer: Editing

StarOffice Calc: Spreadsheets

StarOffice Impress: Presentations

StarOffice Draw/StarImage: Vector and Bit-Mapped Graphics

StarOffice Schedule: Calendars, To-Do Lists

StarOffice Mail: EMail

StarOffice Base: database interfaces

StarOffice Discussion: Reading Internet News

StarOffice Math: Complex Formulas

StarOffice Workplace: Desktop Environment

With existing users, there’s also the issue of switching costs. Customers have to be willing to take on the cost of loading new software, reconfiguring hardware (if necessary), training users and support staff. It’s not free and it does have additional costs in lost productivity. Of course, in 2000, many user organizations will be looking at moving over to Windows 2000 and up to Office 2000, so upgrades may be required anyway and looking at another choice may be a possible alternative.

One should also consider software costs in context; users do. The total cost of systems ownership (TCO) includes software, hardware, administration, training, and support. Of that, software is usually only about 15%. Too, the difference isn’t between free and list price. Almost no software buyers pay list price for an office suite. Some users get office suites free (or invisibly priced) as part of the purchase of a new computer system. Most are existing users buying a new version (it doesn’t matter for pricing purposes if they’re switching vendors) – this typically gets them a $100 to $150 price. Corporate buyers are buying volume licenses, typically for prices in a similar range, or lower. So free can be better, but it’s not as much better as initially seems.

StarOffice is written in object oriented code and is fully componentized, making it particularly well suited for its move to the webserver environment. And that’s the big goal. To the extent that Sun gets ASP’s and ISP’s on board and presses its free software model forward, making its money on selling hardware and support services, it will make it hard for a software vendor like Microsoft, who counts on software revenues, however discounted, to compete.

Microsoft is already dipping its toe into the ASP market. Its ISPCon site is testing other ISV’s software (such as Great Plains and Intuit) and there is talk of Microsoft offering its own productivity software (the Office Suite) through eager ASP’s. But (as Microsoft has consistently said) there are pricing and licensing issues. Now there is an alternative with no such issues.

We interviewed Microsoft’s Andy Dixon who emphasized the importance of support and TCO in buying decisions. But, he pointed out, if customers want a web-based product, they can use Microsoft’s Office Suite with Windows Terminal Server or Citrix to achieve that result. Here, the main difference would be licensing (Microsoft requires that each specific user or physical desktop be licensed, rather than the concurrent usage model ASP’s would prefer to see) and pricing. Microsoft is clearing considering its options. "We’re driven by what customers want," Dixon says.

Some ASP’s were already on hand for Sun, including AT&T, talking about offering StarOffice to its 8,000 small business customers and perhaps its consumer accounts as well. Also there (among many others) were Aliant, BellSouth, AOL, Chello Broadband, Corio, EarthLink, Engage, Interpath, netASPx, Portera, and US West. Some are "considering," others are "engaging in discussions;" all seem very interested.

Is this concept ready? In the demo (admittedly, on a dial-up line), performance was less than sprightly. Questioned, Marco Borerries, founder of StarDivision and Vice President and General Manager of Sun’s new Webtop and Application Software group, admitted that it could be better. "We have some tuning to do," he said, as I questioned him from the audience of press and analysts. They’ll also ride the wave of rapidly increasing bandwidth to get to better performance. Others from Sun, including Ed Zander and Scott McNealy chimed in, noting that most users would be running the application on a PC desktop, at least for now, and that they could choose to load the software from CD onto the desktop to improve performance, if necessary.

So we will not expect any sudden deaths or departures from the office suite market. Here are some possible, and some likely, outcomes.

Possible Outcomes	Likely Outcomes
ASP Market Roars in Fast	ASP Market Appeals to Some; takes a while to broaden to mainstream
Sun owns ASP Office Suite Space	Others (Microsoft, Corel, Lotus, Applix) offer competitive solutions, but timing counts and Sun could end up with an important piece of the market share
Microsoft loses Office Suite Market share in every market – consumer, small business, corporate	Microsoft is likely to loose some market share in the new customer and value oriented markets; existing customers will be harder to move
Corel folds	Corel moves to diversify into other protected niches
Lotus withdraws from the office suite business	Lotus continues to support existing customers; might choose to focus or offer a web-based offering

In short, while markets can be completely changed by single companies thinking differently, everything has to go just right. The visionary has to have a complete (or rapidly growing) vision and he has to execute at least well (if not perfectly). Competitors have to make lots of mistakes. This, in fact, can’t be counted on. So outcomes may be different, in the end, then they look at first glance. In any case, this event has lots of potential for change, so it will and should receive lots of attention, ours included.