In a CNBC interview interview aired on Monday, Microsoft Chairman Bill Gates suggests that Windows 8 and Microsoft's Surface tablet line could ultimately dethrone Apple's iPad from its global tablet crown because iPad "users are frustrated." 

Yikes! I guess Gates has access to the really good stuff.

Office Should Be Everywhere

Last month, I took Microsoft CEO Steve Ballmer to task for delaying the arrival of Microsoft Office productivity suite on devices running Apple's iOS and Google's Android operating system. I was hoping Gates would set Ballmer straight. Unfortunately, Gates appears as confused as Ballmer - and equally tied to the contracting PC ecosystem over which Microsoft has long ruled.

(See also Ballmer's Latest Blunder: No Office For iOS And Android Till 2014)

It's great that Gates cares so much about user frustration. Only, in this case he gets it exactly wrong:

A lot of (iPad) users are frustrated. They can't type. They can't create documents. So we're providing them something with the benefits they've seen that has made that a big category but without giving up what they expect in a PC. If you have Surface or Surface Pro, you have the portability of the tablet but the richness in terms of the keyboard (and) Microsoft Office of the PC.

Wrong, wrong, wrong.

Users are not clamoring for iPad to be more like a PC. If anything, users want their PCs to be more like the iPad. So far at least, the market makes that pretty darn clear: In the most recent quarter, Apple sold 19.5 million iPads - compared to 11.8 million in the same quarter last year. The Surface? Not so much.

According to IDC tablet sales data, of the 49.2 million tablets that shipped this past quarter, the Surface accounted for a paltry 0.9 million - 1.8% of the market. In other words, the Surface barely rises above a rounding error. Worse, it's not just the Surface. As IDC notes: "(All) Windows 8 and Windows RT tablets continued to struggle to gain traction in the market." The combined total of Windows 8 and Windows RT sales across all vendors hits a still-minuscule 1.8 million units.

That's about what Apple's iPad line sells in a week.

Gates Doubles Down On Ballmer's Mobile Strategy

Earlier this year, Gates surprised analysts when he publicly stated that Microsoft's mobile strategy was "clearly a mistake." Many observers believed we would soon witness a rapid turnaround in the company's mobile strategy - including the Surface and Windows Phone. 

No such luck. Today's Bill Gates is completely on-message with Steve Ballmer:

Windows 8 is revolutionary in that it takes the benefits of the tablet and the benefits of the PC (so) if you have Surface and Surface Pro you've got that portability of the tablet but the richness in terms of the keyboard and Microsoft Office of the PC.

Gates is looking in the rear view mirror. While the global Windows user base of 1.25 billion is indeed massive, the PC market is no longer growing. Apple's iOS - iPhone and iPad - are poised to surpass Windows. And Apple's iOS is going to be only the second most popular personal computing platform - after Android.

(See also Windows Phone, Still An Underdog, Comes Out Swinging.)

Rather than touting the add-on Surface keyboard and the tablet's support of Office, Microsoft should be focused on porting Office to what will soon be the world's two most popular personal computing platforms - iOS and Android. As I said last month, "There was a time when Apple needed Office to be on the Mac. That time is past. Now, Microsoft needs Office to be on Apple's iOS and Google's Android."

The numbers don't lie: For  the past quarter, the tablet market - which includes Surface - grew 142%. In stark contrast, the PC market fell 13.9%.  

(See also The Real Reason Windows Phone Is Failing.)

Inexplicably, Gates and Ballmer don't seem to see what everyone else is looking at. The market has spoken, and the market does not want to be tied to the PC. Microsoft has an opportunity to leverage its strengths in productivity software to the leading platforms, but is too stubborn to let go of its dreams of Windows dominating the mobile space. Clinging to the proverbial 'stay the course' message is exactly the wrong thing for Microsoft to say and do.

Image of Bill Gates courtesy of Shutterstock. 

Microsoft had some news today: It confirmed plans for smaller "touch devices" in coming months — i.e., the rumored Smaller Surface — and preemptively blamed a presumably darkening outlook for Windows on the "declining traditional PC market." It also reported growing revenues and profits for the quarter that ended in April.

Just as important, though, might be what Microsoft didn't say. It was mum about the performance of its flagship Windows 8 operating system, and wouldn't say how well its Surface tablet has been selling. Hmm.

By The Numbers

Microsoft reported net income of $6.06 billion (72 cents per share) on revenue of $20.49 billion for the quarter, an 18 percent increase in profits and an 18 percent increase in revenue versus a year ago. After adjusting for $1.66 billion in Windows Upgrade, Office and Xbox upgrades, and a $731 million fine assessed by the EU, Microsoft reported diluted earnings per share of 65 cents.

Analysts polled by Yahoo had expected Microsoft to report earnings of 68 cents per share, up 13% from a year ago, and grow revenue by 18 percent to $20.56 billion. Microsoft also said that Peter Klein, the company's chief financial officer, would leave at the end of the fiscal year, or June. Microsoft will name a replacement in the next few weeks.

When all is said and done, Microsoft's bottom line is healthy — every product division reported increased profits except for the company's online business, where losses shrank. But as the company itself admitted, the outlook for Microsoft's Windows division and Windows 8 remains, at best, uncertain.

How Many Windows 8 Licenses? Redmond Sayeth Not

Microsoft reported $5.7 billion in revenue and $3.5 billion in profits for the Windows division, but once you set aside deferred revenue due to Windows upgrade offers, revenue was basically flat compared to a year ago. And then there was Microsoft's continued silence on how many Windows 8 licenses it sold.

Both IDC and Gartner blamed the slow uptake of Windows 8 for a stunning drop in first-quarter PC sales: 14% by IDC's metrics, and 11% according to Gartner. Most of the top PC manufacturers saw sharply lower sales for the first quarter, according to both firms, with Lenovo the big exception.

In January, Microsoft said it had sold more than 60 million Windows 8 licenses. That was up significantly over the number of pre-launch licenses it sold — 40 million in the first month, Microsoft said last year. And yet now the company has gone silent on the subject. This is not what you'd normally consider a good sign, particularly coupled with Redmond's oracular statement about the declining PC market.

On the other hand, Klein offered no shortage of happy talk about Windows on the analyst call. Check it out (MS Word doc).

Surface Gets Small, But Sales Remain Numberless

Outgoing CFO Peter Klein confirmed rumors of a smaller Surface tablet in a backhanded sort of way. During Microsoft's conference call with analysts, Klein declined to say how many Surface tablets the company had sold (again, not exactly heartening news). But, he said, the lineup will be refreshed with smaller "touch devices" in the coming months.

IHS iSuppli estimated that Microsoft sold, at most, one million Surface tablets during the fourth quarter. That's compared to a record 22.9 million Apple iPads, plus millions more Nexus 7s, Kindle Fires, and other 7-inch tablets.

Separately, Klein said that Microsoft was looking ahead toward Windows Blue, the next iteration of Windows 8 and, possibly, Windows Phone. He told analysts that Blue is designed to "further advance" Windows 8 and "in response to customer feedback." Rumors suggest that feedback may lead to the return of the Start button and an ability to boot directly to the Windows desktop, as opposed to the way Windows 8 forces all users into the tile-layout "Metro" interface.

Return To The Enterprise

Microsoft's Office division returned to growth in the quarter, with revenues up 8% to $6.3 billion. In January, Office delivered a nasty shock — a 10% revenue decline — apparently because the company's online service based version of the productivity suite, Office 365, hadn't performed as expected.

“Our enterprise business continues to thrive,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “Enterprise customers are increasingly turning to Microsoft for their IT solutions and as a result, we continue to take share from our competitors in key areas including hybrid cloud, data platform, and virtualization.”

Microsoft's rock, its Server and Tools business, reported $1.98 billion in profits and $5.0 billion in revenues. Microsoft's Entertainment business, which includes the Xbox, returned to profitability, reporting $342 million in profits and $2.5 billion in revenue. Online services only lost $262 million (versus $480 million a year ago) and reported $832 million in revenues. 

The next few quarters will be important for Microsoft, as the company's large installed base of corporate customers still using Windows XP must either switch by April 8, 2014, or else risk losing support for both XP as well as Office 2003. Earlier this month, Microsoft offered small businesses a 15 percent discount for upgrading to Windows 8 Pro and Office 2013.

Unable to light a fire under Windows 8, Microsoft is holding a fire sale instead.

On Wednesday, The Wall Street Journal reported that Microsoft is offering significant additional discounts on both Windows 8 and Microsoft Office to PC makers that will include the software in small laptops that include touchscreens.

Specifically, the Journal reported that Microsoft was offering computer makers a package of Office and Windows 8 for $30, when the normal discounted price of the bundle is $120. It's important to note that even the normal $120 figure already represents a substantial savings over what consumers could expect to pay if they purchased both products at retail; at least $140 for Office and $200 for a Windows 8 upgrade, for a total of about $340. Microsoft representatives declined to comment.

(Microsoft also reportedly honored an accidental "discount" that UK residents discovered, where an upgrade to Windows 8 Pro, normally £189.99, was "mistakenly" offered for £44.99.)

In other words, PC makers are paying roughly 10% of the retail cost of Windows 8 and Office to include the Microsoft programs with their products. Note that the discounts apply to laptops with screen sizes of less than 10.8 inches, which have traditionally cost anywhere from $299 to $499 - iPad territory. The idea, apparently, is that slashing costs will spur PC makers to invest more heavily in small-form-factor Windows 8 laptops, and/or allow them to lower their retail prices. Either way, the Windows world wins.

Why Is Microsoft Cutting Prices Now?

Why is this happening now? Most likely because Windows 8 sales are sputtering.

Using the Net Applications data that Microsoft prefers, in part because Microsoft feels that it more accurately reports real-world usage, the most recent numbers show Windows 8's desktop operating system market share nudging past Mac OS X 10.8. That's expected, given the relatively high percentages of Windows PCs in the market.

Source: Net Applications, Feb. 2013

But NetApplications' data also shows Windows 8 sales growth seemingly, possibly, maybe, flattening out a few months after its October launch. In November, NetApps claimed that Windows 8 had 1.09% of the market; in December, 1.72%; January, 2.26%; and in February, 2.67%. Zoomed in, the graph looks like this:

Source: Net Applications, Feb. 2013

Is that a peak forming on Windows 8's growth curve, or does the line still indicate signs of healthy growth? Linux blogger (and my former colleague) Steven J. Vaughan-Nichols sliced the numbers a different way, showing that Windows 8 is falling behind Windows Vista, as a month-by-month comparison of the launch shipments shows. 

Windows 8 vs. Windows Vista

The parallels do look similar. Early reviews of Microsoft Vista describe it as an operating system that was nice to have, not a must-have; some, like PC World, called Windows Vista "fun to use". (Doh!) Only Stephen Manes of Forbes called it like history did: "Vista is at best mildly annoying and at worst makes you want to rush to Redmond, Wash. and rip somebody's liver out." (Manes has since authored a book about ballet.)

The point is that as professional observers work to see both the positives and the negatives in a major revision of Windows revision, customer reaction is frequently less nuanced. And once the public collectively decides on the worth of a product, the conventional wisdom can be hard to overcome. 

Windows 8 still has some momentum behind it, partly driven by the Microsoft spin machine and multimillion-dollar ad campaigns for the Surface tablet and Internet Explorer. And Microsoft has made no secret of the fact that if consumers are going to buy a Windows 8 tablet, they really should get a touchscreen.

So what's really happening here? Is Windows 8 already a bust? The market share trends charted by Net Applications offer clues, but it's too soon to tell for sure whether or not that little "hump" is a bump, a step or nothing much at all. But the latest discounts indicate that Microsoft is worried enough to sacrifice its margins to juice sales of smaller Windows 8 devices. Will it be enough to make a difference?

Image Source: Flickr/Ambernectar 13

After weeks of heated customer backlash, Microsoft has reversed its bullying policy that would have locked most Office 2013 users into using the software on one, and only one, computer.

Under the original policy, customers could only transfer Office 365 installations to a new computer if their old one failed while under warranty. So any crash outside of that window would mean that potential buyers couldn't re-install the software on a new machine. In a February 19 blog post, Microsoft made this restriction painfully clear with a nice chart that provoked some, shall we say, less-than-polite comments. 

(See also Microsoft Bullies Users Into Office 365 Services)

In a post published on the Office Blog this morning, Microsoft announced the reversal, stating:

You may transfer the software to another computer that belongs to you, but not more than one time every 90 days (except due to hardware failure, in which case you may transfer sooner). If you transfer the software to another computer, that other computer becomes the "licensed computer."

"These transferability options are equivalent to those found in the Office 2010 retail license terms," writes Jevon Fark of the Office Team. The new license terms apply to Office Home and Student 2013, Office Home and Business 2013, and Office Professional 2013.

(See also Microsoft: Buy Office 365, Not Office 2013. Or You'll Get Left Behind)

For full clarity, here is an outline of the revised terms as laid about by Microsoft:

• You may also transfer the software (together with the license) to a computer owned by someone else if a) you are the first licensed user of the software and b) the new user agrees to the terms of this agreement before the transfer.
• Any time you transfer the software to a new computer, you must remove the software from the prior computer and you may not retain any copies.

While it's certainly nice to see a company listen to its customers' complaints, it shouldn't take widespread hatred of a new policy and two weeks of deliberation for an outfit like Microsoft to see the light. The bad news here is the damage may already have been done, especially if some potential buyers have sworn off the lock-in license terms of Office and jumped ship entirely. This appears to be Microsoft's plea to keep them onboard. 

 Lead image via user imagemaker on Shutterstock

Microsoft's Office Store still feels more like Goodwill than a Target - but that's not necessarily a bad thing, according to Microsoft. 

If you think there are too few apps in the Office App Store, a Microsoft executive begs to differ. And as Microsoft moves closer to Office 2013's business launch on Feb. 27, the company expects more apps to be added both by the company itself as well as third-party developers.

Following the consumer launch of Office 2013 in January, the App Store's cupboard might have been considered somewhat bare. In total, there are about 200 apps within the Office Store, according to Richard Riley, a director at Microsoft, whose responsibilities include both SharePoint as well as the Office App Store.

Riley won't commit to a number of apps that would be added to the Office App Store, but he promises that there will be "much more than the 200" that are there now. "In terms of momentum and as we go through, I think in the next six months or so we'll see that momentum pick up and carry forward," Riley says. "I don't feel bad where we are. I really don't."

(See also Microsoft: Buy Office 365, Not Office 2012. Or You'll Get Left Behind)

Last July, Microsoft outlined the development model for Office 2013, the current version of Office  - a subscription version, known as Office 365, is also available. Both Office 2013 and Office 365 replaced the familiar Microsoft Basic for Applications with a Web-based language model that essentially takes an XML file and combines it with a Web app, using familiar Web languages like CSS, HTM, and JavaScript. Since the app runs outside of Office, if it breaks, only it crashes - not Office.

While the reliance on Web languages might have made a bit difficult for traditional Office developers, the approach theoretically opened up Office to a vast number of Web developers who may have never developed for Office before.

Microsoft's Attempts To Jumpstart Office App Development

"Historically, if you wanted to build something for Office, like if you wanted to build an an add-in for Word, you would have to have all of the Visual Studio add-ins for that have to understand C++, have to understand .NET wrapper code - there was a learning curve there," Riley says. "Like most developers these days, if it was different; you had to go spend time and figure out how to use it. That barrier no longer exists. If you understand how to write for the cloud app model, if you understand how to write Javascript and HTML, you understand REST, you can pretty much get started immediately without having to go wade through a big reference book and how to get going." 

Riley says Microsoft has been bringing existing Office developers, as well as developers new to the platform, into "jumpstart events," where the company puts dives deep into the technology. Afterward, the developers go away, develop, and then return for an "acceleration day," where those developers receive assistance to push those apps into the store.

"We can now credibly talk to a ton of new developers that historically would have ignored us," Riley says. "And actually go to them with a very credible technology story, but also a really significant market opportunity... when you look at all of the Office and SharePoint licenses in existence today, there is an opportunity for a developer to make a difference, to make a ton of money off of the back of the Office or Sharepoint store."

Riley said that he considers Microsoft to essentially be in the middle of the Office launch, where the consumer edition was released first and then businesses will be encouraged to sign on at the end of the month. "We haven't finished launching from an app perspective," he says.

It might be reasonable to think that Microsoft would have launched the App Store with a number of launch partners, big-name software developers whose products would instantly have added cachet to Microsoft's rollout. Riley doesn't agree. 

No-Name Apps Are OK

"I think it depends on how you look at it," Riley explains. "You don't need big names to add value to a product. Would no-name graphics capability that you could get for free from the App Store, to make your Excel spreadsheet sing, and get a pat on the back from your boss, be more useful than a big-brand-name thing that wouldn't get you the same result? So we have the quality here, and in my experience, we don't need a laundry list of famous icons."

Fair enough. Unfortunately, when asked to highlight some of the "no-name" apps that could make Office "sing," Riley turns back toward the Bing apps that Microsoft had launched previously. 

The hope of Microsoft's Office 2013 model is that it can combine live data sources from the Web into Office documents, such as combining sales data from a customer relationship management database with the Bing maps web service to create a more effective sales report. Riley promises that here will be a growing number of apps within Excel that help users visualize data. And there are hopeful signs: the Microsoft Oscar plugin for Excel, an Olympics medal tracker, an ESPN fantasy-football app. Riley also makes the point that corporations will write and publish their own internal apps that general Office users will never see.

Still, Microsoft needs more. When asked, for example, if there is any app that could take advantage of the datasets hosted by the U.S. government on data.gov, Riley replies that isn't aware of any. He then adds he would make a note to see what would be needed to make those sources available.

Of course, there's a larger question: For all of its reach, is Microsoft's Office simply too small a platform for those developers used to the huge installed base of iOS, Android and all of the other Web platforms? For a small app developer like Gliffy, no. Others may not see it that way, though. Opening Office to the Web allows more developers to enter Office. Only time will tell if they see it as a lucratie marketplace, or as a closet.

Microsoft has confirmed Office 2013 licenses will be locked to one PC and one PC only, halting transfers of the office suite software to replacement computers and perhaps forcing users to use its new Office 365 services.

If you install Office 2013 on any PC, that licensed copy belongs to that computer for the life of that PC. $Deity help you if you lose that computer to hardware failure, age, or theft, because pfft! there goes your copy of Office 2013, even if you have the box with the license key and the installation discs.

This revelation has caused, as one might expect, some consternation in the tech community, if only because it puts the smackdown on the long-established practice of moving copies of Office to another computer when the need arose. Typically, a copy of Office outlasts at least one of my PCs, because the functionality of Office from one version to another isn't usually great enough to warrant a switch upon hardware upgrade. Especially for the price tag of Office.

Apparently, Microsoft is on to cheapskates like me, and is beginning to enforce corporate-like licensing on consumers now.

Just The Facts

Here's what PC World's Tony Bradley learned when he reached out to Microsoft.

"I asked Microsoft for clarification, and I received this official response: 'Office 365 Home Premium works across up to 5 devices (Windows tablets, PCs or Macs) and can be transferred across devices. The Office 2013 software is licensed to one computer for the life of that computer and is non-transferable.'"

The wording of Microsoft's response to Bradley is noteworthy: the software giant is clearly telegraphing that if you want ease-of-portability, then you should move to the subscription-based Office 365 model.

(See also Microsoft Office 365 Is Not A Good Deal For Singles)

But that strategy makes little sense: while it is true you can have access to Office 365 on multiple computers at the same time, that's not the same thing as being able to take the one copy of Office you own and move it to another computer, deleting the copy on your first PC or allowing the copy of Office to deprecate when the machine is taken to the nearest recycling center.

Users pretty much get the fact that you have to buy multiple licenses of Office (or other locally installed software) when using it at the same time. But now Microsoft is saying that their software is forever tied to the first PC on which you install Office 2013.

Curiously, Microsoft is trying to justify this move with the somewhat whiney excuse that they've done this before.

"Office 2013 has the same licensing provisions around transferability as the equivalent Office 2010 package, which was the package purchased by most Office 2010 customers," the company told Bradley.

Um, not quite. Computerworld did some digging and learned that while there was language in Office 2010's EULA that seemed to limit one licensed copy to one PC, there were allowances in the legalese made for shifting from one PC to another.

"'You may reassign the license to a different device any number of times, but not more than one time every 90 days,' stated the EULA for Office Home & Student 2010, the most popular consumer version of that edition. 'If you reassign, that other device becomes the 'licensed device.' If you retire the licensed device due to hardware failure, you may reassign the license sooner.'"

That kind of language has been removed from Office 2013's EULA.

Like A Good Neighbor?

When I examined the pricing differences of Office 2013 versus Office 365 earlier this month, I was making the presumption that when you used a copy of Office 2013, you would be able to use that copy of Office 2013 for a hypothetical full three-year period.

Three years is a reasonable time to expect a computer to run and still be fast enough to keep up with the software Joneses, but it's not unreasonable to expect the inevitable loss of PCs due to breakdowns, theft, or disasters. That skews the pricing model a bit for the single-PC users that would have otherwise benefited from using the local versions of Office 2013.

If you recall, for one PC using the various Office flavors for three years, the cost breakdowns were:

Office 365 Home Premium: $299.97
Office Home and Student: $139.99
Office Home and Business: $219.99
Office Professional: $399.99

But if you factor in the possibility of a PC replacement (planned or otherwise) within those three years, for whatever reason, you get a pricing model like this:

Office 365 Home Premium: $299.97
Office Home and Student: $279.98
Office Home and Business: $439.98
Office Professional: $799.98

So, if you have any plans to update your hardware soon, Office 365 looks like a much better bet, unless you are using the version of Office with the least features, Home and Student. And, if you are worried in any way about unplanned loss, then suddenly Office 365's subscription plan looks suddenly like an insurance policy.

Microsoft is clearly trying to push users into getting connected to its own ecosystem, hoping Office 365 and the just-released to the public Outlook.com will tie users into their services just as Google/Android holds its users in quiescent (and revenue generating) thrall.

The key difference is that while Google uses the freemium model for attracting users, Microsoft seems to be applying the use-this-or-pay-more model.

Charming.

Image courtesy of Shutterstock.

For those still wondering whether to choose Microsoft's traditional Office productivity software suite or the new, subscription-based Office 365, consider this: traditional Office users will have to wait for "updates," and they won't receive any new "upgrades" to the service at all.

And there's another consideration, too: Office 2013 is apparently locked to a single machine, perpetually, while Office 365 licenses are sold to a group of users, who can license and de-license PCs at will.

Choosing Which Office Is A Big Decision

These are important considerations for Microsoft Office users. Microsoft is in the middle of its Office 365 launch; Microsoft made the consumer version available on Jan. 29, and the version for small businesses and enterprises will be made available on Feb. 27. Although some consumers may have already made up their mind and opened their wallets, small businesses trying to decide between a traditional Office license and the new Office 365 suite may want to put on the brakes and reconsider their options.

So far, Microsoft has tried a number of strategies to encourage users to sign up for an Office 365 subscription, not the least of which has been pricing. Single consumers will probably gravitate toward the traditional Office 2013 suite, where users can buy a single license of Office 2013 Home & Student for $139.99. In two years, that option will have paid for itself, as Microsoft's Office 365 subscription runs $99.99 per household per year. But for larger households, Office 365 makes more financial sense.

Different Versions Get Treated Diffferently

The problem is that's not the entire equation. Microsoft representatives said this week that updates and upgrades will be treated differently for both products.

"Will Office 2013 customers with traditional licenses get updates with the same frequency as Office 365 Home Premium customers?" I asked in an email.

"No," a Microsoft representative replied. "Office 365 customers will get most updates first, and they will get upgrades and/or new capabilities. Office 2013 customers will get the same updates as Office 365 customers, usually in the form of a service pack, later than Office 365 customers, and they do not get upgrades and/or new capabilities."

The service packs will be rolled out "when needed," the Microsoft representative added. Microsoft will also continue to support Office 2013, as it does all of its products, for ten years.

What's An Update? What's An Upgrade?

Under the Office definitions, new content will be made available to users in the form of updates, minor improvements and patches; and more significant, major upgrades. Fortunately, at least for business users, Microsoft publishes its list of updates and upgrades here. 

Updates happen on a monthly basis; in October, for example, the Office 365 updates consisted of new Office Web Apps, PDF viewing inside the browser, and a new administrator ability to set password expiration dates. In December, the updates were less significant: a rate-limit increase for both Outlook and Exchange.

The 2013 upgrade, however, is more significant. Microsoft explains that it will be rolling out to customers throughout 2013. As you'd expect from a Software-as-a-Service (SaaS) platform, the improvements will go on behind the scenes.

The new 2013 upgrade features include, according to Microsoft:

• Wider support for mobile devices, so you and your staff can be more productive in more places.

• Integration between online conferencing, social networks, and email for improved collaboration.

• File sharing and storage in the cloud with SkyDrive Pro.

• Smarter email, calendar and contacts with broader mobile support.
• Improved management capabilities in the redesigned Office 365 admin portal.

SkyDrive Pro will offer businesses roughly the same capabilities as Microsoft's SkyDrive cloud storage, where users can upload documents, photos and other files. SkyDrive Pro will let users share the documents with others in the organization, and help IT admins manage the account. (The sharing features are actually restricted more than the basic SkyDrive content, because of corporate security concerns.)

Microsoft didn't say what it would do regarding security patches; Critical updates will presumably be pushed out on a roughly equal timeframe to both Office 365 as well as Office 2013.

Your Office Is Locked

But there's another consideration, too: With Office 2013, Office copies are apparently locked to one machine, forever. 

Adam Turner at Australia's The Age read through the Office 2013 licensing agreement and discovered that the terms of service for both the version that comes with new computers and retail copies are now the same: Only one computer can contain Office. Unlike with Office 2010, users can't "de-license" the PC and shift the copy to a new machine. Microsoft public-relations officials confirmed the story's accuracy to ReadWrite.

Unfortunately, Turner discovered this only through days of communications with Microsoft's public-relations team, and only after Microsoft's tech-support personnel gave him mixed messages. And Turner wasn't able to discover if the one-copy, one-license provision will be stringently enforced, or if it will end up as another loophole in the Office 365 licensing language. 

So far, Microsoft has used price as the prime lever to push consumers to Office 365. But for customers set on Office who still haven't made up their minds, the lack of timely updates and upgrades should be a major concern for those eyeing Office 2013. The fear of being locked to a single PC could also be an issue for some people. If you're the type of user who demands flexibility, including the latest features, Microsoft keeps coming up with more ways to encourage you to choose Office 365.

Microsoft's new subscription-based model for its Office productivity suite has a price tag that initially seems appealing for home and small business users… but is the bottom line cost really a savings for everyone?

It's no secret that over the years, the real cash cow for Microsoft hasn't been its venerable Windows operating system, but rather the bountiful profit margins it enjoys every time it sells a box full of Microsoft Office.

Running The Numbers

One reason is the steep retail prices for the package. Indeed, even with Office 2013, the retail price for the top-level edition, Office Professional, goes for a hefty $399.99. Office Professional gets you Word, Excel, PowerPoint, OneNote, Outlook, Publisher and the yes-it's-still-alive database known as Access.

At $400 a pop, that's a chunk of serious change for small businesses that might not be big enough to qualify for multi-seat license discounts. The next-highest offering, Office Home and Business, which drops Publisher and Access, runs for $219.99, a bit more reasonable.

Drop Outlook and the pricing gets even friendlier: $139.99 for Office Home and Student. Frankly, if I were going to buy Office for my home, this would be the one I would get, because my mail and calendaring is handled by Google and there are better desktop publishing tools and databases out there than Publisher and Access, respectively.

The Subscription Alternative

Into this pricing mix comes Office 365 Home Premium, which will set you back for $99.99/year. For a low, low $8.25 a month, you can get online access to the all of the tools in the jam-packed Office Professional, plus a 20GB SkyDrive cloud-storage account and 60 minutes of Skype calling a month. Oh, and that's for up to five PCs/Macs.

That seems like too good a deal to be true. What's the catch?

Well, let's remember the reason Microsoft is getting in the subscription business in the first place: its prized Office revenue has been drying up lately as fewer users are upgrading to new versions of Office, or are turning to alternatives like LibreOffice or Google Documents. Switching to a subscription model helps keep the revenue stream steadier in times of declining Office purchases.

With that in mind, it seems like there is going to be a catch. But analyzing the costs alone, there seems to be a real deal going on here. Breaking out a hypothetical situation for five PCs using each flavor of the Office releases for three years, the costs break down to:

Office 365 Home Premium: $299.97
Office Home and Student: $699.95
Office Home and Business: $1,099.95
Office Professional: $1,999.95

One Is The Most Expensive Number

So, if you're working with multiple PCs, the subscription plan is definitely a better deal. Care should be taken, though, for users with only one PC. Over the same hypothetical three years, those costs break down this way:

Office 365 Home Premium: $299.97
Office Home and Student: $139.99
Office Home and Business: $219.99
Office Professional: $399.99

Unless single-PC users truly covet the desktop publisher, database and other gimcracks tossed into Office 365, then Home and Student or Home and Business are better deals over three years. Heck, even over just two years, Office 365 is still more expensive than the offering most Office users really need, Office Home and Student.

The Inevitable Caveats

There is, as one might expect, quite a bit of comparing apples and oranges here. Office 365 will update as time goes on, while the boxed sets will stay the same for as long as you own them (allowing for service pack releases, of course).

That might be balanced by the fact that the Skype account just offers an hour of calls per month - bust that limit, and suddenly your monthly bill is not static anymore. And Mac users are out of luck if they want to use OneNote, Publisher or Access on Office 365.

Plus, there are still lots of questions on how closely Microsoft will be monitoring the usage of the Office 365 subscriptions. As ReadWrite's Mark Hachman revealed last week, the answers are still not clear.

Based on price alone and assuming the most vanilla interpretation of Microsoft's pricing model, if you are really set on using Microsoft Office and have multiple PCs in your home or business, it makes sense to try the Office 365 option, as long as you can manage Skype calls and assure your Internet connection is rock-solid.

But if you're a single PC/Mac user, you could stay with the old-fashioned install-the-application options and save yourself quite a bit of money over time.

Image courtesy of Microsoft.

Last week, Microsoft shipped five Bing apps for its new Office suite, offering everything from maps integration to image search. That's great, as far as it goes. But the bigger issue is the lack of apps for Office 2013, period.

The question that Microsoft's latest version of Office seeks to answer is a profound one: There's still no real difference between the Word document you see on your screen and the one you print out - they're both static pages

If Office 2013 had taken off the way Microsoft had expected it to, the five Bing apps it added - Bing Finance for Excel, Bing Maps for Excel, Bing Image Search for Word, Bing News Search for Word and Bing Dictionary for Excel and Word - would be some handy helper tools contributed by the Bing team. But as it stands, they are pretty much the flagship Office apps within the Office Store - and that is a real problem.

What Office 2013 Promised

Sure, recent versions of Office allow authors to hyperlink other locations on the Web, add clip art and even Excel spreadsheets. But the basic functionality is preserved no matter what format you view it in.

Office 2013 promised a lot more. Within Office 2013, which began rolling out last week, users and developers can swap out Microsoft's now-discarded Visual Basic for Windows with modern markup including HTML, CSS and JavaScript. One of the promises of Office 2013 was to invigorate static documents with live data pulled from a number of sources: a paper on the near-term economic prospects of Appalachia, for example, could theoretically include real-time data of coal futures and farm forecasts.

The end goal, you might say, was to provide so compelling an online experience as to make users feel cheated if they were forced to print the document out. 

But we ain't there yet.

What Office (Hasn't) Delivered

In fact, it's difficult to find any apps, period, inside the Office Store, let alone those that promise to deliver live data. What's truly surprising isn't the relative dearth of apps (I counted 48 for Word, for example) but that the one Office component I would have expected to have been flooded with helper apps - Excel - wasn't. There were just 14 apps for Excel in the Store at press time, and many of those are cross-category (Merriam-Webster's dictionary, for example, straddles both Word and Excel). There are just two for Microsoft Project, and three for Outlook (with several more for the Outlook Web app). Clearly, the largest problem Microsoft faces here is simply attracting new apps to the Office Store.

Microsoft needs some killer third-party apps, and, so far, the company hasn't received them. In fact, most Office apps are simply applications that are launched in the right-hand pane, with information that can be cut and pasted into the text. Apps like Gliffy, which lets users to create embeddable flowcharts and other tools that are then dynamically updated on target Office documents if they change, provide a hint of what Office 2013 should be able to do.

What About The Enterprise Apps?

To be fair, the gateway to live data has traditionally been the enterprise database, which has then served as a data source for Excel spreadsheets, which can then be embedded inside other documents. It's reasonable to believe that some of the corporations that have standardized on Office 2013 are creating their own Office apps for internal use, and simply not publishing them to the Store. 

Still, there has been a general lack of enterprise-focused tools, period, within the Office Store. (Some, like Salesforce, haven't used the store to deploy their Office integration tools; Omni's Riva syncs Salesforce to Office 365, for example.)

There's nothing particularly wrong with the Bing apps Microsoft released - Bing Dictionary searches words, and the Bing Image Search does the same for images. One of the more dynamic apps is Bing Maps for Excel, which lets users embed live maps data within Excel. That's a start. I've asked Microsoft for examples of these powerful, dynamic apps that tap into the power of Office 2013, but so far I haven't received a response. And there are so few that I can conduct the hunt myself.

Is it fair to ask for these killer apps when Office has just launched? Yes, I think so. We in the tech press call them "launch partners," and their number and quality are early indicators of the value of the platform.

I would like to know more about the use of live data within Office to enhance both personal productivity and business analytics. But what I see so far is the same company that once forged a powerful ecosystem around Office now reduced to asking: "Is anyone out there?"

Image source: flickr/_e.t.

Office 365, already priced as a cheaper, subscription alternative to Microsoft's retail Office packages, may offer families and friends additional discounts, provided that Microsoft doesn't close a key loophole.

What Makes A Household?

At this point, Microsoft's Office 365 package charges one fee per household, but it's not exactly clear what the definition of "household" is. Since the Office 365 license covers five devices, it's unclear whether Microsoft will treat a "household" as a single IP, or cover extended family such as parents and adult children who may move out of the home.

Microsoft representatives couldn't supply an answer. "I don't believe any one has asked me that question before," said Oliver Roll, a general manager at Microsoft.

After teasing Office 365's launch on its website, Microsoft has come clean: Tuesday marks the consumer launch of Office 365, plus Office 365 University. Consumers will pay $99.99 per year ($8.34 per month) for Word, Excel, PowerPoint, OneNote, Outlook, Publisher and Access, plus 60 minutes of Skype calling and extra SkyDrive storage; students will pay $79.99 for four years of the University bundle. Microsoft also revealed that business users will receive access to Office 365 on February 27.

Microsoft also launched its traditional Office packages: Home & Student ($139.99), Home & Business ($219.99), and Professional ($399.99). Each version can be licensed by either one Mac or PC, forever, except for the Professional version. That’s PC-only.

Microsoft's Roll said that the typical household would benefit from the new Office 365 pricing, but the exact payoff will vary by the number of devices in the house and other factors. "I’m a busy parent... I might have five or six devices at home and at work," he said. "I want Office to run on those devices, and I want instant access to my documents and settings on the device I'm using. People have begun to expect instant access to music and movies with services like Netflix; we don't think Office is any different."

The addition of Office 365 University adds a new wrinkle for students, however. Previously, students who purchased Office 2010 University received a perpetual license to the software for $99.99. The Office 365 version only lasts four years, but grants students a pair of licenses, they could use it on a Surface Pro as well as a notebook PC, for example, or even split the cost with a roommate.

Roll said he didn't know whether or not a consumer Office 365 license would be geographically locked - in other words, why couldn't a family simply install a copy of Office 365 on a PC that a student would take to college? (From a price perspective, however, it really doesn't matter that much; $99.99 split among five PCs is $20; multiply that by four years, and it's $80, the same as the University Bundle.)

A small family with one or two PCs, however, plus a set of parents, might benefit from essentially paying $20 per year, per PC.

Sharing Can Be A Good Thing

How strictly Microsoft enforces that policy is well, up to Microsoft. HBO, for example, notoriously doesn't enforce username and password sharing, providing up to three accounts per subscriber. "In private, HBO executives did not dispute the notion that the password borrowing could lead young people to subscribe to HBO in the future," The New York Times has reported. Sharing an Office 365 account might do the same.

Unlike Google, Microsoft's Office 365 doesn't live entirely in the cloud, as users will be able to download copies to their PC that will allow them to run offline. Patching and upgrades will happen automatically, however, and Roll said that new features will be added more frequently than Microsoft has traditionally done.

Businesses Love Office 365

Microsoft also claimed that Office 365 has been a hit among its enterprise customers; 20% of all enterprises that use Office have subscribed to Office 365, and among small and midsize companies, Microsoft has seen a 150% increase, Roll said. 

Part of that may be ascribed to Google, which recently pared the free version of its Google Apps product from its enterprise portfolio. At the beginning of the year, both the Department of Defense and the city of Chicago signed on to use Office and other Microsoft products and services. Now, Roll said, the Catholic International Education Office, covering 2.5 million students across 103 countries, has signed on to use Office 365, as has the All India Council for Technical Education.

"In the business world some of those core parts... are the same - business users want to be able to access their documents regardless of what device they're using," Roll said. "They'd like their settings to be personalized; SkyDrive is an important part of the business services. I save documents at work to SkyDrive... and on my home PC, I pick up where I left off."

Office 365 will also include the Office Store, a marketplace for add-ons and plug-ins that includes project software, new dictionaries, and even companies like Gliffy, which Microsoft invited even though it competes with Microsoft-branded products.

(See Inside The New Microsoft Office App Store: One Developer's Real World Story.)

How does a small app developer manage to distinguish itself on the new Microsoft Office app store? Work fast, track competitors and design a great icon.

One of the features of the new Microsoft Office revision is the Office Store, where users can download plugins and other tools to supplement the core Office experience. Microsoft is rolling out its subscription service, Office 365, to consumers on Tuesday, January 29; business users should receive it a bit later.

To a small app developer like Gliffy, that means waves of curious customers will soon be searching the Office App Store for new tools. And Gliffy has worked to put itself at the top of the heap - even as Microsoft has removed one of the key tools for gauging its success. When Gliffy first published its diagram and flowcahrt app on the platform, Microsoft displayed the number of times users had downloaded its app, as well as its competitors. Now, Microsoft has removed that visibility; Gliffy knows how many times its app has been downloaded, but not its competitors, meaning that it's flying blind.

That doesn't mean Gliffy isn't pleased with its success. Users have downloaded the Gliffy plug-in more than 1,000 times. "We got where we wanted to be," said Ron Levi, director of marketing at Gliffy. "We wanted to be the number-one app downloaded in our space, and I think we are."

Come On In, Competition

What makes Gliffy's story especially interesting is that Microsoft invited the company to participate - even though Gliffy competes with Microsoft's own Visio software.

Chris Kohlhardt co-founded Gliffy in 2005 to provide an easy way to embed diagrams within wikis, and today users can create org charts, Venn diagrams, flowcharts, floorplans and other diagrams via its Web service, and embed them within Word 2013, Google Docs or Atlassian Confluence. Gliffy's free service allows up to 5 diagrams, with a $4.95 monthly/$49.50 annual tier allowing users to create up to 200 diagrams; a $9.95 monthly/$99.50 pro tier is also available.

Kohlhardt said he originally approached services like Jotspot and Socialtext about providing an add-on, but the most receptive partner was collaboration software maker Atlassian, where Gliffy has resided for several years and that provides the bulk of its revenue.

Although the company was always looking out for other platforms, Microsoft's offer came as a welcome surprise. “We didn’t even know that there was an opportunity,” Levi added.

Microsoft invited a wide range of apps makers, from online dictionary developers like Merriam-Webster, to Hertz: developers with broad appeal, as well as those involved with highly specific functions. “They wanted to have a strong showing, so they reached out to a number of folks,” Kohlhardt explained. 

"Unquestionably, the Microsoft Office opportunity is potentially an enormous one," Levi said. 'We were thinking, is there any other software package that is larger, worldwide? No way. The fact that they've opened it up to other software developers - this interview started with Chris saying that we're looking to take on Vizio - is a really interesting expression of Microsoft's openness."

Microsoft "launched" the app store in mid-November. “All app stores are interesting to me at all times, but especially in their infancy,” Levi said. “Hardly anyone was there yet, and we were just working out the kinks... We all read about app stores measured in the millions of downloads, with sophisticated marketing applications, and here we are - this is the largest software company in the world, and we’re literally measuring [downloads] in the dozens.”

In early December, Microsoft began showing off the new Office software - and offering contracts - to subscribers of Microsoft’s early licensing programs, such as TechNet. So the Gliffy team faced an odd problem: should a small developer team spend money to promote itself within an app store for a product that was barely public? “Everyone was in something of the same boat, which is that they’re trying to build momentum, because they know that it’s easier to get momentum now than it would be in six months, or when it hits,” Levi said.

From a product perspective, Gliffy wanted to get out there early and get some feedback, so the company did a quick prototype internally and then worked with Microsoft to develop a Minimum Vable Product (MVP) that the company felt added enough value for people to see what Gliffy was all about and how well it would work, said Han Lee, Gliffy’s principal software engineer. Users could create a Gliffy diagram, insert it into their Word document, and then, if they updated the diagram, the Word document would be updated as well.

An Icon Is Worth A Thousand Downloads

From there, Gliffy turned to marketing. Microsoft handed each developer a blank page to describe its app; Levi said its strategy was to look at competitors who had more downloads, and try to figure out what they were doing right. 

"On the enticing people to download front - and I think this is true with all apps stores - everything starts with the name and the tiny little graphic," Levi said. "Ten years ago it was all about how much you could jam into a search result. Now, it's all about how much you can jam into a little 50 x 50 graphic."

When Gliffy launched, it added its standard Gliffy logo from the Atlassian system. "But we kind of realized, maybe we shouldn't go for the brand thing - we're not Merriam-Webster; we're not Hertz," Levi said. 

Originally, the Gliffy logo said "Gliffy," but the revised logo used a tiny model of a flow chart. "And you know what? We got a lot more downloads," Levi said. 

Gliffy reached out via blog, newsletter and its existing client list. To date, the number of ratings that Gliffy has accumulated has been small, but that hasn't been all bad. "I think Microsoft is really focused on more than downloads, and other app stores have been really focused on downloads," Han said, noting that Microsoft's algorithm that promotes apps takes a variety of factors into account. "And it makes the game really more interesting for an app developer. I think it's good because it allows incumbents more visibility than you would just on pure downloads."

The fact that Microsoft turned off the ability to view the number of downloads for each app disappointed Levi, as it now prevents Gliffy from measuring its progress against the competition. "But it's business," he said. "I understand."

In total, the Office Store currently has more than 200 apps, Microsoft said. "As it’s just getting under way, with the Office 365 consumer service launching [Tuesday], we don’t have numbers of downloads yet," a Microsoft spokesman said in an email.

But Gliffy is hoping for a surge of new customers and downloads as Microsoft opens the Office Store. "I'm really excited to see what will happen when the marketing machine turns on," Levi said. "I want to know the power of riding the wave."

Maybe Windows 8 isn't doing so badly after all.

Overall, Microsoft profits fell 4% during the fourth calendar quarter, although revenue climbed. Revenue and profits within Microsoft's Windows division jumped dramatically compared to a year ago, however.

In total, Microsoft reported $6.4 billion in net income, in line with what analysts expected. Revenue increased 2.73% to $21.5 billion.

Microsoft Beats Wall St. Estimates

Analysts had expected the firm’s revenue to grow about 3% from the $20.9 billion the company posted in the same period last year to around $21.5 billion, according to analysts polled by Yahoo Finance. They also anticipated a 4% drop in profits, from 78 cents per share to 75 cents per share. 

“Our big, bold ambition to reimagine Windows as well as launch Surface and Windows Phone 8 has sparked growing enthusiasm with our customers and unprecedented opportunity and creativity with our partners and developers,” said Steve Ballmer, chief executive officer at Microsoft, in a statement. “With new Windows devices, including Surface Pro, and the new Office on the horizon, we’ll continue to drive excitement for the Windows ecosystem and deliver our software through devices and services people love and businesses need.”

Microsoft's Windows division recorded the highest revenue of all of Microsoft's business units, and nearly the highest profits as well.

Microsoft said that in total, more than 60 million Windows 8 licenses had been sold, in keeping with what Tami Reller, Microsoft's Windows marketing chief, had said earlier this month. Revenue from the Windows and Windows Live Division jumped by 24% versus a year ago, and profits climbed 14%. For the September quarter, the Windows and Windows Live Division produced $1.64 billion in profits on  $3.2 billion in revenue.

 At launch, Microsoft claimed that 16 million Windows 8 pre-release licenses had been installed; by the end of November, 40 million Windows 8 licenses had been installed. In January, Windows marketing chief Tami Reller said 60 million Windows 8 licenses had been installed. 

Office 365 Subscriptions Didn't Pay Off

Microsoft made a bit bet on its Office 365 suite, pricing Office 365 at less than the standalone Office package and tempting its customers to switch to the subscription model. Surprisingly, that didn't pay off. Revenue fell 10% to $5.7 billion, while profits fell 15%. Traditionally, Microsoft's Business Division yields the most revenue among Microsoft's business unit; for the September quarter, the unit reported $3.6 billion in profits on top of $5.5 billion in revenue.

Microsoft's Server & Tools business reported $2.1 billion in profits on top of $5.19 billion in revenue. For the September quarter, Server & Tools produced $1.7 billion in profits on $4.5 billion in revenue. Microsoft's Online division lost less money than a year ago - $283 million, on higher revenue of $869 million. And Microsoft's Entertainment Division, which houses the Xbox, recorded a larger $596 million profit on revenue of $3.7 billion.

Microsoft had predicted a strong start to Windows 8. In October, Keith Lorizio, vice president of U.S. sales and marketing for Microsoft, predicted that 400 million users would be using Windows 8 by July 2013.

Windows 8 Sales Could Quiet Critics

For months, there have been signs that Microsoft's Windows 8 software didn't take off as quickly as, say, an Amazon Kindle or Apple iPad - signs that Microsoft's revenue figures seem to disprove. A top executive at Internet retailer NewEgg, for example, had characterized the Windows 8 launch as "slow going." Merle McIntosh, the senior vice president of product management of Newegg North America, said in November that he expected sales of Windows 8 to begin taking off during the second quarter of 2013. Julie Larson-Green, the head of Windows development, talked about how it could take weeks to transition to Windows 8. And Tami Reller, in charge of marketing strategy for Windows 8, began managing expectations for Windows 8 weeks ago by spinning it as a product that would require multiple selling seasons to get up to speed. 

Image source: Microsoft

Two rays of light have pierced a so far gloomy winter for Microsoft: the company signed big software deals with both Chicago and the Pentagon, two wins neither Google nor the Federal Trade Commission can dampen.

Chicago Buys Office 365, The Department of Defense Gets That And More

On Thursday, the Windy City announced that it had signed a four-year deal with Microsoft for Office 365, shifting the company's three email systems, documents and spreadsheets over to Microsoft's cloud-based platform. Days earlier, the Department of Defense announced an even more sweeping deal, consolidating on Windows 8, Office 2013 and SharePoint 2013 in a three-year deal worth $617 million.

For Microsoft, which had to sit by and endure what was essentially a slap on the wrist to rival Google by the FTC, the two announcements represented a reprieve of sorts. It's still unclear how Microsoft's holiday sales fared, but the conventional wisdom appears to be that the Windows 8 launch was disappointing, and that the complementary Windows Phone 8 launch, while appealing, still hasn't caught fire with consumers, who still clearly prefer iOS and Android devices.

The Business Division Remains Microsoft's Profit Engine

Year in and year out, however, Microsoft's Business Division remains the keystone upon which Microsoft supports its other businesses. For Microsoft's first fiscal quarter ending in October, the division was both the most profitable ($3.6 billion) and generated the most revenue ($5.5 billion). For all the talk about the Windows operating system, that was only Microsoft's third-most profitable division, and also generated the third-most revenue out of Microsoft's five business units.

It's little wonder, then, that Google has taken aim at Microsoft, with its Google Apps for Business, which only recently ceased offering its free services, essentially daring customers to switch to Microsoft. Check the Google Enterprise blog on any given day and you'll find a list of recent design wins: K-pop sensation PSY's label, YG Entertainment; Banshee Wines; First Team Real Estate and so on. 

Pricing Pressure From Google?

Microsoft is still getting wins, too, though Google's pricing pressure has undoubtedly had an effect. The DOD's deal, led by the Army Contracting Command in collaboration with the Defense Information Systems Agency, the Army and the Air Force, "demonstrates the best pricing DOD has received to date for Microsoft desktop and server software licenses", officials said, and representing a $70 million per-year savings. That means that, for whatever reason, some of Microsoft's traditional revenue stream has dried up.

The question, of course, is why the DOD received preferential pricing: military reluctance to use Windows 8? Pricing pressure from Google Apps? And since the package has been customized to meet the specialized needs of the Defense Department, does the DOD's package use the Windows 8 interface and Start screen? It's rather hard to believe that military personnel would be swiping in from the sides of the Windows 8 screens, sharing battle plans and other sensitive documents via the Windows 8 charms.

Meanwhile, the City of Chicago did not publicly disclose how much money it spent on the contract with Microsoft, and the contract is not (yet) on the city's website. The City of Chicago claimed that it saved $400,000 per year for its 30,000 government users. 

“This strategy is an innovative solution for the City, making our operations more effective and secure and saving taxpayer money,” said Chicago Mayor Rahm Emanuel, in a statement. “We are leveraging new technologies to streamline and modernize the way we do business in order to provide the residents of Chicago with the best service at the best price.”

Cloud... And No Cloud

The contracts also reveal some hidden gotchas for customers, too. The City of Chicago said that all of its email and desktop application users would migrate to the cloud "by the end of 2013," meaning that the city will require a full year to make its transition. And at the end of the contract, what then? Will Chicago switch back to a locally hosted email system? Of course not - the cost would be prohibitive. From now until eternity, Chicago will be stuck in the cloud, with really only Google and Microsoft to choose from as hosted email.

But while Chicago has bought itself a cloud solution, the DOD has not. Microsoft may be charging less for Office 365 in an attempt to convince users to switch, but the DOD appears willing to pay more for both security and flexibility.

While it might be an overstatement to claim that Microsoft news dominated 2012, the company’s drumbeat of publicity around the launch of Windows 8 gave it a disproportionate significance.

And Microsoft did gear up and execute on a series of milestones: Windows 8, the Surface tablet, Windows RT, Windows Phone 8, Windows Server 2012, and Office 2013 (at least within Surface). But what are the big trends behind those headlines? What's really shaping Microsoft right now?

1. The Headline: Windows 8

Beginning in February 2012, Microsoft launched the Consumer Preview of Windows 8, followed by the Release Preview of Windows 8 on May 31. Microsoft was out in front of reporters and analysts, explaining via blog posts how it built Windows 8 and what its goals were. The company touted how Windows 8 was built for a variety of screen sizes and delved into the touch keyboard through discussions of the new apps. But Microsoft has been surprisingly cagey about Windows 8’s success so far: We won’t really find out the final results until January, when Microsoft reveals its sales numbers as part of its first-quarter results.

1a. The Real Trend: Metro

If there was one word that summed up Microsoft during 2012, it’s this: Unity. The Consumer Preview of Windows 8 ushered in the “Metro” interface that will define this generation of Microsoft’s products. Flat, but bright, iconic and ambitious, with a reliance on typography rather than icons, the Metro interface (now referred to, unofficially, as the “Microsoft design language”) was quickly adopted across Microsoft’s other product lines, most notably within Windows Phone, Microsoft’s Web Apps, and sites like MSN.

2. The Headline: Surface

Microsoft’s big reveal of the Surface tablet in the summer was a masterpiece of temptation: a slick demo, a quick hands-on with the product, then out the door, appetites whetted. Microsoft’s refusal to discuss pricing or even allow a hands-on until days before the product was actually released forced many buyers to pre-order a Surface sight unseen. That, combined with the uncertainty around the Windows RT operating system used on the base model Surface (how close was it to Windows 8? How did Metro apps work? Was Office RT really Office?) probably added too many questions to Surface to make it a real success, although it “sold out” soon after launch. Still, like Google’s Nexus line, the Surface launch taught us that consumers prefer the hardware that the ecosystem builder “owns.” So far, third-party Windows 8 tablets seem to have gained even less traction.

2a. The Real Trend: Owning Your Own Platform

As ReadWrite noted in July, a key lament of ecosystem control is designing the hardware, software and services so that all three work together in a unified whole. Apple does this with the iPhone, iOS and iCloud; with Google’s purchase of Motorola, it can do the same. Until Microsoft decided to build Surface, however, it lacked the hardware component. Time will tell how Surface fares (the price still seems a bit high) but Microsoft has all the pieces of the puzzle in place to control its destiny.

3. The Headline: Windows Phone 8

Living with the HTC Windows Phone 8X for a month after its October launch taught me two things: Windows Phone 8 is a bright, beautiful mobile operating system, and that it deserves more traction. Yes, there was the “smoked by Windows Phone” viral efforts. But almost more than Windows 8, Windows Phone feels modern and connected, and Live Tile integration makes it fast and easy to use. So far, the general perception is that from a quality perspective, at least, Windows Phone 8 belongs in the same category as Google’s Android and iOS. But from a sales perspective, Windows Phone 8 isn't really close to competing with the market leaders.

3a. The Real Trend: Apps And The Web

Unfortunately, apps still remain the Achilles heel of Windows Phone 8 - and, if you consider Windows RT or Metro apps in the same category - of Windows 8 on PCs and tablets as well. Microsoft has made a valiant effort to convince users and developers that optimized apps like “Contre Jour” are the wave of the future, even as detractors sniff that Microsoft’s Web browsers are the least standards-compliant of all. If Microsoft can convince users that Web apps fill the bill, then it can whitewash any apps deficiency. But critics have also loudly begged for Facebook to build an app, rather than an HTML5 mobile page. So far, Microsoft is on the losing side of this trend.

4. The Headline: Office 2013

As the name suggests, Office 2013 is a 2013 product, at least for consumers. Microsoft began making its versions of Office 2013 available to businesses in early December.  But when Windows RT launched with Surface, one of its more potent features was the inclusion of a “preview” of Office 2013 Home and Student, that quickly morphed into a final version. ReadWrite has complained about the inadequacy of Microsoft’s Office Web Apps, but Office 2013 has been well-reviewed; it just costs more. The year ended with rumors that Microsoft would begin selling Office for the iPad and iPhone, a development that looks increasingly more likely as time goes by.

4a. The Real Trend: Office 365 Subscriptions

Subscriptions. The cloud. They go hand in hand. By pricing Office 365 subscriptions more cheaply than the standalone editions, Microsoft has encouraged consumers to bury their Office payments as a recurring charge on their credit card, rather than as a major purchasing decision to agonize over. Google’s cloud services have made save-all-the-time, run-anywhere cloud office suites indispensible, and Microsoft, no dummy, has embraced the concept whole-heartedly.

5. The Headline: Windows Server 2012

Unless you’re an IT geek, chances are that Windows Server was one of the least interesting Microsoft announcements this year. But for IT administrators, the release of Windows Server 2012 on Sept. 4 was an important milestone. Boasting improved virtualization (Hyper-V) capabilities, the new ReFS file system, and improvements to Active Directory, Windows Server also simplified the number of versions, consolidating them to essentially three: Foundation, Standard and Datacenter.

5a. The Real Trend: Enterprise Is The Place To Be

From IBM ditching its ThinkPad and computer hardware business in favor of enterprise services to Dell’s transition away from “Dude, you’re getting a Dell,” the fact is that tech vendors are increasingly looking to stable, high-value, recurring contract services. Microsoft’s Server and Tools business isn’t Microsoft’s most profitable - that’s the Business Division, with about twice the profits of the server business - but both share high-margin subscription business models. And with more and more users turning to tablets, the emphasis is shifting to the datacenters powering the cloud services that connect these portable devices. Microsoft certainly isn’t alone here, but it's making a big effort to be a significant player.

Conclusion

Say what you will about the quality, utility and pricing of the products and services Microsoft launched in 2012. But recognize that those launches pretty much all went smoothly, without major availability issues, bugs or other glitches. We’ll learn the final results - revenues and profits - in the quarters to come. Microsoft has talked optimistically about its successes all year. Come January 2012, we’ll see how well all of Microsoft's hard work really paid off.

It can take days to weeks for users to adjust to Windows 8, the new head of Windows product development admits in a recent interview. What's wrong with this picture?

In an interview with the MIT Technology Review, Julie Larson-Green explained that most users "don't have trouble upfront" with Microsoft's new operating system. But for those that do, it can take some time to get used to. 

"Two days to two weeks is what we used to say in Office, and it’s similar in Windows 8," Larson-Green said. "We do a 'living with Windows' program where we watched people over a series of months in their household. A lot of people don’t have trouble upfront."

Larson-Green should know; she was the mastermind behind the "ribbon" interface that appears in the most recent versions of Microsoft Office. She told the Tech Review that it took about the same amount of time for users to become accustomed to the ribbon interface as it did for Windows 8. 

Let's think about that for a minute. At least on the surface, there are two immediate responses to that point:

1. A business productivity perspective.
2. The out-of-the-box, consumer response.

Neither favor Microsoft.

Is Windows 8 More Efficient?

Productivity is an interesting metric; Basically, it equates to useful work done in a given amount of time. Generally, increased efficiency equals increased productivity, but that's not necessarily true: an inefficient process that adds an extra step or two can be just as productive if performed quickly. Put another way: the Macintosh OS may in fact be simpler and more efficient than Windows 7. But I never completely switched because years of habit made me more productive on Windows.

The same thing may hold true for Windows 8, at least according to Larson-Green.

"Some people who review it for a shorter period of time may not feel how rich it really is. We’re going for the over-time impression rather than the first 20 minutes out of the box. We’ve found that the more invested you were in the old way, the more difficult the transition is, which is unfortunate because we first hear about everything in the tech press. Those are the ones that we knew up front are going to have the most challenge."

Way to alienate your influencer base, Julie. Are you saying that Windows 8 wasn't designed for the liberal tech press "experts, but for the real 'Mericans who have never used a computer before?"

In all seriousness, what we haven't seen from Microsoft is any justification to buy Windows 8 based on productivity. To be fair, the switch from Windows Vista to Windows 7 didn't provoke many productivity studies, either; aside from an English town council that loved Windows 7, as well as an English gambling community, Betfair, which felt similarly, most merely assumed that Windows 7 was far more efficient than Vista. What we do know, however, is that usability experts, such as Jakob Nielsen and Raluca Budiu, have panned Windows 8 for aspects like too much "cognitive overhead," a fancy term for forcing users to remember how to do things in a new way. 

In fact, Larson-Green herself put it well in 2009: "It was really about how we make the PC more productive, and get out of the way more so that people can spend less time interacting with the PC and more time doing the tasks they use the PC to do," she told InformationWeek, describing Windows 7.

From a productivity standpoint, the bottom line is this: Yes, new applications and technologies require training. According to Microsoft, at least some percentage of users take up to two weeks to get up to speed. If you're a decision maker at a large enterprise, are you wlling to sacrifice two days to two weeks of your entire employee base to learn an operating system that replaces a perfectly functional Windows 7? Two weeks of lost productivity costs a heck of a lot of money.

I'd be asking this question: If Windows 8 can make up that lost time in some other way, shouldn't Microsoft be telling us about it? So far, it hasn't.

Found The Windows 8 Charms Yet? Good Job!

From there, Larson-Green gets a little patronizing. 

"Over 90% of customers, from our data, use the charms and find the start screen all in the first session," Larson-Green added. "Even if you’re a desktop user, over time there’s a cutover point around six weeks where you start using the new things more than the things you’re familiar with."

Patting your customers on the head for using the basic functions of the operating system isn't something she should tout. It's something that she should assume. But although I'm not entirely sure where Larson-Green is going when she refers to desktop users (versus mobile? the desktop UI?) one thing is clear: six weeks is an awfully long time to start using the "new things".

Comparisons to Apple are unavoidable. How long does it take a new user to learn how to use an iPad? Some time, certainly. But days? Weeks? And I would argue that discovering new features should be a delight, not a chore.

In many ways, this is Microsoft's equivalent of Apple's pathetic "you're holding it wrong" moment on the iPhone 4.

Most customers are invested in the "old way," Ms. Larson-Green - and that's not a problem, it's actually an advantage for Microsoft since that old way usually involves your products. Instead of blaming the customers, many think you should have met them halfway. At least.

Until Microsoft discloses - and patches - a new Word vulnerability on Tuesday, anyone using Microsoft's Outlook email program and its Word word processor should be even more cautious than usual.

That's because one of Microsoft's security bulletins for December includes a "Critical" vulnerability for Microsoft Word, one of the few times Microsoft has attached the "Critical" tag to a Word issue. 

Waiting For Patch Tuesday

Microsoft's standard practice is to give a heads-up on the number of vulnerabilities it plans to fix on "Patch Tuesday," the second Tuesday of every month. On that day, Microsoft releases the patches themselves, and discloses the vulnerabilities that they fix. (If it revealed the problems before providing the solutions, of course, black-hat hackers could exploit the hole.) So at this point, we don't know what exactly what problems the current, unpatched version of Word hides.

In October, however, Microsoft disclosed a hole in Microsoft Word 2007 and Microsoft Word 2010 that allowed an attacker to take over a PC just by viewing an infected RTF file. That was a significant vulnerability; most modern attacks are triggered when a user views a Web page, or at least clicks a link. The October vulnerability was much more passive, and could be triggered just by idly scrolling down your inbox. Once your machine was infected, the attacker would have the same administrative rights as you do - and if you run as administrator, the attacker could completely control your machine.

Tuesday's vulnerability appears to be even more severe: It can target Office 2003, 2007 and 2010, as well the Microsoft Word Viewer and Compatibility Pack. As security reporter Fahmida Rashid notes, it's a  good bet that the inclusion of "Word Viewer" means that the new vulnerability allows a similar, passive attack. But note that it does not include Office 2012, so if you own a Surface tablet with the latest Office version, you should be safe.

In total, there are seven updates, which will even ensnare Windows RT. The Windows RT update will be provided by Microsoft, either via the Windows Store, Microsoft Update or Windows Update, a Microsoft spokeswoman said in an email.

How To Defend Yourself

At this point, Outlook/Word users can do several things to help mitigate the threat of any vulnerabilities.

First, always - always - allow Windows to download its approved patches. It's probably best to allow Windows to install them, too, although users who leave their PCs on, as I do, risk getting caught by an unexpected reboot. While this shouldn't be a problem for Word users, the inability of modern browsers to "save" inside a Web service can play havoc with your workflow. So it's up to you whether you want to install the patches automatically.

Second, turn your caution up a notch. At this point, most Web users have a finely honed sense of what is spam and what isn't, and are able to detect most phishing attempts (misspellings and malformed URLs are common clues). But for now, you'll have to try and detect whether or not an email is malicious from the subject line. Users and companies who rely a Web-based version of their email (like Google Apps) may have an advantage here.

Third, never run in admininstrator mode. Yes, not having admin rights can be a pain sometimes. But if an attacker can gain the same levels of administrative rights as you can, downgrading your own status to a user might help offer at least a bit of protection. 

(Fourth: Get a Mac. There, are you happy?)

It's not clear that there are, in fact, any worms or attackers with live code exploiting this in the wild. But there almost certainly will be starting on Tuesday, when Microsoft reveals the exploit and the patch and attackers hope to catch complacent Windows users napping. Don't be one of them.

Image source: Flickr/davef3138

Google has pared the free version of Google Apps from its business suite, narrowing the gap between itself and Microsoft’s suite of hosted office productivity software services. But the costs and feature set offered by Google still, on paper, give Google the advantage.

In a bid to make things “very straightforward,” Google axed the basic Apps plan, which offered free email, calendaring and documents, plus 5GB  of generic Google Drive storage, to up to 10 users per month. All companies will now have to pay the $50 per year cost of Google Apps for Business.

“When we launched the premium business version we kept our free, basic version as well,” wrote Clay Bavor, director of product management for Google Apps, in a blog post. “Both businesses and individuals signed up for this version, but time has shown that in practice, the experience isn't quite right for either group. Businesses quickly outgrow the basic version and want things like 24/7 customer support and larger inboxes. Similarly, consumers often have to wait to get new features while we make them business-ready.

Google’s move can’t help but be seen as a bit of a dare to businesses. But Google isn't operating without a net. Those customers who have already adopted the free plans are grandfathered in, and Google is still the cheaper option. Microsoft’s most comparable Office 365 plan (the P1 option for small business) costs $6/user/month, or $72 per year. That plan offers cloud-based email using the company’s domain name; Web-based viewing and editing of Word, Excel, PowerPoint and OneNote files; file sharing, and instant messaging and video calling. While the services are comparable, some limitations still hold Microsoft back: for one thing, the P1 plan limits companies to just 50 users, as well as being more costly. It’s not surprising that Bavor claimed that “millions of businesses,” plus government and schools, have turned to Google Apps.

Familiarity: Microsoft's Selling Point?

So why use Microsoft? “Office 365 delivers enterprise class capabilities, the familiarity of Office, and a cloud service backed by Microsoft,” a Microsoft spokeswoman said in a statement. “For a cost difference that amounts to the price of a cup of coffee, small businesses that are considering a move to the cloud have more reasons than ever before to choose Microsoft.”

In many ways, she’s right - and annoyingly so.

As I wrote in July, I love the write-once, access-anywhere of cloud-based Office suites, and Google was first to the scene with Google Apps. This summer, Microsoft added its new Office Web Apps, which add cloud-based Word, Excel and PowerPoint functionality that’s so painfully close to the full-blown version of Word, it hurts. A typical Web user - me - can do almost everything he needs to with Office Web Apps. Almost.

Google just doesn’t offer the perfect compatibility that I need. It comes close, but if you try to send an .gdoc file to just about anyone you'll quickly learn that most poeople still have no idea how to open it. Sharing a file works somewhat better, although it’s still a new paradigm for many people. Most people prefer a Word file, with changes tracked. And the most recent version of Office includes automatic cloud backup, perhaps its strongest feature. 

In August, Microsoft announced its Office apps, essentially Office plug-ins that combine the power of the Web, plus a lightweight XML description of how the app interacts with Office. Google offers its own Office Apps Marketplace, with its own robust set of apps offerings.

Moot Points?

For many companies, of course, the decision has already been made. Businesses that have turned to Google Apps and chosen the free option are either locked in, or must choose a substantially more expensive option to buy into that Office familiarity. Businesses with existing Office 365 subscriptions still have a (somewhat less) cheaper Google Apps option available, but if money was their priority chances are they'd already have made the move. Google Apps for Education will still be available as a free service for schools and universities, and Google Apps for Government - whose $50/user/year price includes such necessities as Federal Information Security Management Act (FISMA) compliance - hasn’t changed its pricing structure.

Personally, if I were a business seeking a cloud-based office productivity suite, I might be somewhat more inclined to choose Microsoft. But how many businesses are in this position? And how much are they incented to choose familiarity over cost? This is clearly an acceptable risk for Google. So yes, Google is daring businesses to switch to Office 365. But most won't.

This isn’t quite brinksmanship. Businesses can still choose to ditch one hosted solution for the other. But Google’s decision just made it a bit more difficult for companies to change horses midstream.

Image courtesy of Shutterstock.

Friday, Microsoft launched two of its first apps truly optimized for touch and Windows 8, including the first use of its “radial menu” for Microsoft OneNote.

Both OneNote and Lync are available in the Windows Store, Microsoft said Friday in a blog post. While Windows RT includes OneNote, it does not include Lync. On the other hand, Microsoft has confirmed that people can download Lync from the Microsoft Store, and use it on Windows RT tablets, including the newly released Surface with Windows RT.

Microsoft has said the Windows RT tablets would receive a “final” version of Office soon, which is actually available via Windows Update as an optional update. That update should automatically download after a day or so, although people can also manually download it, as well.

Technically, all versions of Office, including the preview version that’s built into Windows RT, have been retrofitted for touch. While both OneNote and Lync were designed to work well with mouse or keyboard, they were specifically redesigned to take advantage of touch, Microsoft said, a subtle difference.

In Outlook, for example, a feature called Touch Mode is turned on by default in “properly configured tablets,” Microsoft said this summer. This increases the size of the Quick Access Toolbar and Ribbon tabs, adds spacing around small buttons in the Ribbon, increases the height of the status bar, turns on the Outlook touch triage action bar and adds space to expanded folders in Outlook, said Gray Knowlton, principal group program manager within the Office unit, in a blog post. 

OneNote, however, tries something new: a radial menu that orients the commands around the user, rather than making him or her negotiate the legacy drop-down menus that populate the remainder of the new Office.

What is the Radial Menu?

When creating the new Office, Microsoft said that designers tried to accommodate different input methods. 

“For example, a physical keyboard is optimal for large amounts of typing (still significantly faster than an on-screen keyboard for most people),” wrote Knowlton in a blog post in July. “A mouse is optimal for precise targeting, and touch is great for broad strokes such as scrolling and zooming. In some postures, such as standing, touch is the preferred input, while the efficiency of typing at a desk is hard to beat. Each posture and input characteristic is great for some jobs and not as good for others. We wanted to make sure Office apps felt intuitive, natural and comfortable as across different postures and different kinds of input.”

However, Office for Windows 8 and RT takes a couple different approaches to touch, rather than one unified interface. he said this summer, for example, that Lync and OneNote would automatically invoke the software keyboard, for example, while the other desktop apps would use new specialized APIs. The APIs push content out of the way, so that the virtual keyboard doesn’t cover what you type. Office also saves your popular document locations across devices, so that you don’t have to negotiate document menus.

But the most intriguing element is the radial menu, which can be manually invoked. As the name suggests, the radial menu allows you to swipe, rather than tap, outward in a circle: instead of tapping a command to bold text, for example, you swipe right.

Continuing the swipe outwards brings up second-level commands. It’s a bit different than the so-called MiniBar, a rectangular menu that accompanies frequently used commands in Word, for example. The two are quite similar, except that Minibar requires a tap, while the radial menu uses a swipe. That actually might make a difference in a jouncing train, where commuters are holding the Surface on either side.

In a way, OneNote and Lync are a bit like specialized versions of Word and Skype, respectively; OneNote allows you to create lists, capture items, and send information to others, while Lync is a business collaboration tool that includes video as well. 

Will the radial menu replace Office's Ribbon? Almost certainly not, as there are only so many directional options that the interface allows for. But it might be a unifying element that pushes Office ahead.

Office still seems somewhat caught between its legacy interface and the new Metro or Windows UI; Fast Company’s Austin Carr has blogged about the discrepancies before, making the point that he finds it unlikely that data-driven programs like Excel will be more efficient on a mobile device; ”don’t expect Goldman Sachs to start forcing its M&A bankers to learn pivot tables on a Samsung tablet anytime soon,” he writes. 

But, as Knowlton notes, users have a variety of different ways of interacting with Office content, including touch and the traditional keyboard. OneNote’s radial menu might not necessarily be the right direction, but recall that previous versions of Office have lionized the Ribbon interface, for example. And -- this might have played a role -- both Google and Apple were issued patents for radial menus in late July and August, respectively, just days after Microsoft publicly revealed its Office plans.

Microsoft hasn’t said how broadly the radial menu will be adopted. And a pessimist might wonder at the combination of interfaces within Windows 8: the horizontal swiping found within the Metro environment, the more traditional menu-driven desktop mode, and the MiniBar and radial menus that Microsoft has adopted within its apps. Still, there’s no question that the radial menu feels fresh, as Windows 8 itself does. Is the Radial menu a trial balloon, or the way forward? It may be the latter.