Opening up the 'X' files

When Microsoft rolled out the beta version of its Office 2003 productivity suite at the end of last month, it was taking a big gamble. The new product is the first version that moves away from desktop functions such as word processing and spreadsheets into the ethereal, difficult-to-grasp world of XML (eXtensible Markup Language, an elder sibling of HTML) and "business collaboration". Upgrades in the past offered easily understandable features such as copy proofing, speech recognition and user-friendly help agents (unfortunately including the universally hated "Clippy").

This time around there are some end-user goodies, but the real target of Office's new feature set isn't users – it's "information architects" and the people who build the unseen side of big applications. The shift in approach is a leap of faith for Microsoft. Office is very significant for the company, producing 28 per cent ($2.3bn) of its total revenue and a stunning 58 per cent of its profits.

Why the change? In January the Computer and Communications Industry Association (CCIA), a collection of companies including Microsoft's arch-rivals Sun and Oracle, filed a complaint against Microsoft in the European courts specifically mentioning the Office suite. It alleges that Microsoft has historically used Office's large market share to protect its position by using proprietary file formats such as Word's .doc, Excel's .xls, and the Powerpoint .ppt file formats.

The complaint also alleges that Microsoft's refusal to port Office to Linux has helped to limit the take-up of that system relative to Windows. Companies such as Sun Microsystems, with its Star Office product (productivity suites that runs on multiple operating systems, including Solaris, Microsoft Windows and Linux), and the Open Office open source movement, have relied on reverse engineering, rather than any documentation of how the file formats work (because it's so sparse), to interface their products with Microsoft's products.

But it is interoperability that is driving Microsoft's new version of Office. XML lies at its heart. Essentially a metalanguage used to create other file formats, XML has taken the software world by storm because it enables companies to generate generic data from specific applications more easily. Thus, companies using XML-capable applications should be able to produce documents that can then be read by other programs of a different type.

Here's how. XML is used to define custom information "schemas" that describe the type of information being used. End-users can define their own schemas for any process from shipping logistics to knitting patterns, as long as everyone that they are communicating with agrees to use the same schema.

Microsoft Office 11 will support user-defined XML schemas, in addition to its own default schemas used to describe documents from programs such as Word and XML. Still, in order to achieve this interoperability, users will have to specifically request that a document be saved in XML format. The binary format historically used in Microsoft Office will still be the primary means of saving a document.

End-users will, therefore, have to be aware of XML, and remember to use it. Simon Hayward, an analyst at the research firm Gartner Group, says it will be difficult to educate customers. "All this XML stuff is so much gobbledygook," he explains. "In order to exploit those capabilities, Office needs to be plugged into a whole set of other systems and a set if standards."

Plugging into back-end systems is precisely what Microsoft hopes that Office 2003 customers will do. XML forms the basis of a wider strategy from the company focusing on automated software components that can be accessed over the internet.

Bill Gates, Microsoft's founder and chief software architect, has said that this will be a key foundation of the company's strategy over the next decade. The trick for the company will be persuading customers to buy into the concept, upgrading both their desktop and service systems to be XML compatible.

The problem for the business people who approve software purchases is that while they can easily evaluate the benefit of features such as speech recognition or additional font support, the return on investment from XML technology is not only difficult to quantify, it is also difficult to attain unless you upgrade your other systems as well. In the current financial climate, major computing infrastructure upgrades are the last thing on anyone's mind.

There's another wrinkle. It might seem as though XML should create a world where proprietary formats (as used by Word, Excel and so on) are things of the past, as long as you can persuade people to save their documents in the XML format.

Unfortunately, many expect that the arrival of XML will not signal a decline in Microsoft's dominant market share. Critics point out that while the XML Office schemas may have been published in the beta, it doesn't guarantee compatibility. Michael Gartenberg, an analyst at Jupiter Research, says that Microsoft's support for XML "doesn't necessarily translate into support for a universal file format. Office file formats are a powerful weapon in Microsoft's arsenal that they will not let go of easily."

Microsoft insists that any incompatibility is caused by its rivals not being up-to-date on the XML Schema Definition Language (XSD) that has been approved by the World Wide Web Consortium, the independent body governing web and XML standards. Jean Paoli, Microsoft's XML architect, says: "Those files would be usable in, say, WordPerfect Office if the product supported XSD. That's absolutely true."

The larger question is whether people will see any benefit in upgrading now, or even next year. Exploiting XML takes hard-won expertise. However, the research group Gartner found that 47 per cent of respondents were still using Office 2000 last year, while just 3 per cent were using the newer Office XP.

The threat to Office comes not from its competition, but from Microsoft itself. The main competitors (Sun Microsystems, Lotus, and Corel) hold a minuscule share of the market. Microsoft's eagerness to get people to upgrade to a product that generates the lion's share of its profits is unlikely to be reciprocated, especially as the benefits are hard to communicate. Office 2003 looks like a slow burn for Microsoft – and that will not please its accounting department, or shareholders, in 2004.