Microsoft wouldn't be the company it is today without the marketing genius that it rallied to dominate the office productivity software market with Microsoft Office. For many people, Office plays a more central role in their daily computing experience than their OS does. For Microsoft, Office is a huge cash cow and the engine that fuels the company's drive toward diversification. Microsoft derives about 40 percent of its $20 billion in annual revenue from Office with its nearly 100 million users worldwide.

Microsoft painstakingly built and achieved Office's dominance in the office productivity suite marketplace over entrenched competitors such as Lotus Development's Lotus 1-2-3 and Corel's WordPerfect. After Microsoft fended off Lotus and Corel, Apple Computer and IBM came up with a plan to create application components based on OpenDoc. This object-oriented software architecture was a great concept, but its poor execution made OpenDoc a nonstarter. So in the midst of competition, Office kept on grazing and belching the bucks throughout the late 1980s and 1990s.

Changing times and technologies again conspire against Office. This time, the challenge centers on a new model for software delivery based on hosted software that application service providers (ASPs) offer.

In August 1999, Sun Microsystems acquired Star Division, makers of the StarOffice productivity suite. Following its acquisition of Star Division, Sun announced plans to publish the StarOffice APIs and to distribute the software for free over the Internet. By the end of November 1999, more than 1,000,000 people had downloaded this freeware.

The StarOffice 5.1 suite includes word-processor, database, spreadsheet, graphics, presentation, HTML editor, email, newsreader, scheduler, and browser software. StarOffice is an Office-compatible clone that has sold well in Germany but hasn't had significant sales outside of Europe.

Now, Microsoft faces the prospect of competing against a free office suite that has file compatibility with Office and that Sun—a strong competitor—is backing. For Sun, StarOffice offers the opportunity to bolster the company's application line in a market (i.e., office productivity) that the company hasn't had a presence in. StarOffice is a good program, and even if it isn't in Office's league, businesses might find saving $500 to $800 per copy for office productivity software compelling.

Sun hopes to do to Microsoft with productivity software what Microsoft did to Netscape with browsers. Sun hopes that by giving StarOffice away, people will want to buy Sun servers. StarOffice has a server-based Java version that can provide a thin-client/server solution. With a subscription service, an ASP can even give away the Sun Ray 1 enterprise appliances (that connect to Sun servers using thin-client/server technology called Hot Desk technology) and make a profit on the service contract. This model might make network computing more compelling for businesses. Sun also wants to create a business that provides technical support and training for StarOffice.

At the time of Sun's Star Division acquisition, Marko Boerries, former Star Division CEO and Sun's current vice president and general manager for Webtop and Application Software, said, "People will need and want our services. To get these services, people can buy subscriptions from Sun and continually get updates and support."

Sun seeks to achieve broad distribution of StarOffice through various means, including deals with ISPs and online services (similar to how America Online—AOL—gives away its software for a service subscription) to promote this software. Sun also hopes to establish its application-hosted service, which the company calls StarPortal, around StarOffice. The StarPortal initiative will provide word processing, presentation graphics, spreadsheets, and other office software tools to Web browsers and portable devices.

Analysts conclude that several markets (e.g., education) will find this model of free office productivity software running on potentially low-cost network computers appealing. For Sun, the main goal is to enhance the sales of its more powerful server systems, and this play certainly has the promise to achieve that goal. And Sun now offers a reasonable desktop office productivity suite for the network computer environment.

The management at Sun has taken a highly competitive stance toward Microsoft—this position is no secret. With a respectable office suite that runs on Windows NT, Windows 9x, Linux, Sun Solaris, and even OS/2, Sun has some new interesting opportunities available. Sun might use StarOffice as a platform in the hand-held Personal Digital Assistant (PDA) market (for which an office productivity standard hasn't yet emerged). Under market pressure from Sun, Microsoft might finally have to cut the price of Office and compete on price. Sun's play was brilliant, but only time will tell whether Sun can exploit it to reach the company's goal to sell Sun-based servers to connect network computers.