Microsoft’s productivity apps are $22 billion cash cows
As Microsoft Word turns 30 on Oct. 25 it is not only the world’s most pervasive word-processing applications, it is a cash cow for the company.
Word is an original application in Microsoft Office, the productivity suite that customers must buy to get Word and that has sold more than 750 million copies worldwide. It has been the single best selling software product in U.S. stores for years.
Microsoft doesn’t break out revenues from Word itself or from the Office suite, but it does for Office System products, which includes Microsoft Office, Office 365, SharePoint, Exchange and Lync.
For the fiscal year just ended, Office System products generated 90% of revenues for Microsoft Business Division – about $22.2 billion. More significantly for Microsoft as a whole, the Office products account for 54.4% of the corporation’s after-tax profits, according to figures in the company’s 10-K filing with the Securities and Exchange Commission.
For the fiscal year just ended, Office System products generated 90% of revenues for Microsoft Business Division – about $22.2 billion
Microsoft’s Office 365 subscription service, which falls within Office Systems, has become a $1.5 billion business on its own in two years. That’s more than Microsoft as a whole took in during 1990, the year it wrapped Word, Excel and PowerPoint together to create Office.
It turns out that was a turning point for the company because that year for the first time Microsoft took in more revenue from applications than it did from the sale of system software, and it has never looked back.
Today for many users Microsoft Word is synonymous with word processing, a distinction it has won over the years through hard fought competition and some shrewd product strategy, but at the outset, its success was far from assured.
Back in the fall of 1983, when the company’s revenues were $50 million, Word rolled out as Multi-Tool Word, one of more than 300 word processing apps then available – WordStar, Electric Pencil, MultiMate, pfs:Write, PostScript, WordPerfect and XyWrite among them – most of which were wed to a single piece of hardware or one operating system. Word’s precursor, Bravo, was one.
Bravo was the product of a team at Xerox’s Palo Alto Research Center headed up by Charles Simonyi. It boasted a what-you-see-is-what-you-get word-processing interface designed to run on a prototype Xerox personal computer called Alto. That meant users could look at the screen and see a fair approximation of what the document would look like when it was printed out.
Shortly after Bravo was completed, Microsoft hired Simonyi away, licensed Bravo, and developed the team that brought Word to fruition and eventually produced Microsoft Office.
The initial commercial version of Word supported just two operating systems, MS DOS and Xenix, Microsoft’s version of Unix. Other Microsoft apps at the time such as the spreadsheet program Multi-Plan ran on about 50 different computers with different architectures and chips, Simonyi says.
The trouble was, Simonyi says in a video recounting those years, that the hardware couldn’t keep up with the ambitions of the software. For example, Word could write italics, but printers and screens didn’t support italics very well, he says.
“Mac hardware was good enough first,” he says, so Microsoft produced Word for Macintosh in 1985 that sold well despite Apple’s selling Macs with a free word processor, MacWrite, included. Word proved so much better that by 1989 more than half of Mac owners also bought Word for the machines. In 1994, Apple gave up on MacWrite altogether.
During its first decade Word faced stiff competition from WordPerfect, far and away the most popular app in its category at the time, catering to the capabilities of IBM PCs as they were then built. WordPerfect was so well established, Simonyi says, that trying to unseat it by matching it feature for feature was pointless. “We didn’t have a chance of competing with something that was optimized for the present,” he says.
So instead Microsoft opted for a strategy that took a long view and developed Word for a day in the future when hardware would be able to display new graphical features of Word. “We were aiming way ahead of WordPerfect,” he says in the video.
That came in 1989 when Microsoft introduced Word for Windows, establishing the application firmly in the Windows graphical user interface. Windows had been launched the same year as Word, but it took six years for Microsoft to deem Word ready for the interface.
Word for Windows proved a turning point for the program, although it didn’t really take off until the following year with the release of Word 3.0. Word for Windows proved so popular that in 1993 Word for DOS was discontinued.
Meanwhile rival WordPerfect didn’t come out with a stable Windows version of Word until 1992. By then Word for Windows had shot ahead, and WordPerfect never regained the top spot. In 1994 Word claimed 90% of the word-processing market, and was used by more than 10 million customers worldwide, according to Dataquest numbers at the time.
“Historically, moving Word to Windows was significant, as was adding it to the Office suite,” says Michael Silver, an analyst with Gartner. “Both of these happened within the first 10 years of the product.”
Since then Microsoft has continually tightened the integration of Word and the other Office apps, says Phil Karcher, an analyst with Forrester Research.
With Office 2013, the latest version, Word has enhanced integration with other Office suite apps to make for richer documents. One example: while working in Word users can search an Office database, the Internet or personal files for images to illustrate the text. They can be sized and placed anywhere in the text with the text filling in automatically around them.
The successes didn’t come without blunders, notably:
Word 3.0 released in 1987 with so many bugs that Microsoft mailed out free Word 3.0.1 disks to its registered customers.
Word 97 was the prime carrier of the Melissa Virus that overloaded mail servers worldwide by mass-mailing emails via a macro embedded in a Word document.
Customers screamed in 2007 when Microsoft replaced the familiar Word toolbar with a ribbon it said made it easier to find the features they were looking for. Customers complained the new layout made it more difficult to locate the commands they already knew how to find.
There were lesser errors, such as Office Assistant, the cartoon paperclip named Clippy that popped up to offer help to users as they worked on documents. Clippy annoyed so many users that he was scraped in 2003.
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