The price hike in Microsoft Office Suite may push small and medium enterprises (SMEs) into the open source camp as the business software equivalent, Open Office, becomes more cost-effective, say market pundits.
SMEs will shoulder the burden of Microsoft`s price hike for its Office Suite software that came into effect from 1 November.
Mike Cathie, Microsoft SA`s business and marketing officer, says the price increase is aimed at bringing the local market in line with the US software manufacturer`s international pricing policies.
The pricing increase will only affect Microsoft Office Suite in the open licence category - that which is aimed primarily at the SME market. According to Cathie, these are licences aimed at organisations that want a minimal upfront expense, but still require some interaction with Microsoft.
The new pricing policy does not affect consumers, who buy the full packaged product, or the top end of the corporate market that have long-term licence contracts.
Reacting to market demand
Cathie says the new pricing structure will see Office Suite increase from a range of $250 to $380 from $230 to $300. Microsoft`s pricing is set in dollar terms, exclude the distributors` mark-ups and are not the final resale prices.
He says Microsoft cut its prices in 1999 and again in 2001 when the rand fell against the dollar. In December 2001, the rand hit a worst level against the dollar of R12.94/$ and interest rates soared to 23%.
"We reacted to market demand then as our pricing would have been absolutely ridiculous. Many hardware vendors adopted similar strategies," Cathie says.
This year the rand has been one of the strongest performing currencies against the dollar. It touched a five-year best level of R5.70/$ in April and is now trading in a range between R6/$ and R6.70/$.
"Market conditions have improved. We have been asked how our increases bear up to the increases in CPIX [the SA Reserve Bank`s inflation measure that is the consumer price index minus mortgage rates in urban areas] and if we had stuck to our original pricing base, people would be paying 35% more on the new prices," he says.
Re-looking Open Office
Doug Woolley, MD of Workgroup, says the price increase was probably overdue and SA had been paying about 35% less than other countries with similar profiles.
"The price increase may cause some companies to take a re-look at Open Office, but usability is always an issue and the current versions of it are a bit buggy. The price increase may cause some people to get off the fence," he says.
Open Office version 8 is due for release next year and is expected to tidy up some of the bugs that have plagued it. While it was originally designed for Linux, it is Microsoft compatible.
Comztek MD Paul Conradie says price is not the only variable for companies to consider. "They will consider their risk profile and whether or not they are willing to move to Open Office. Many companies know that vendors change their pricing all the time and so the Microsoft increase has not been a huge issue for them," he says.
BMI-TechKnowledge director Mark Walker says Office Suite has about 90% of the market share for office applications in the country.
Cathie says claims that Microsoft initially dropped Office Suite pricing in order to gain market share are "cynical in the extreme".
"We held our 2001 prices until now," he says.