Microsoft Could Face Lasting Damage From Word Ruling

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A federal district court decision that found that Microsoft Word violates an XML technology could prove to be a crippling market blow for the software giant’s flagship Office desktop productivity package

If Microsoft loses its battle with i4i, Word as we know it will be gone. Even as its battle slogs on, an extended period of time when Microsoft isn’t selling Office on store shelves is an even greater problem.

The company has been pushing the court for a speedy trial to ensure that doesn’t happen. But whether or not it can actually prove that i4i’s patent on XML file types is invalid is up for debate. The longer the battle is waged, the more cash Microsoft loses. And the smaller the chances that it will be able to achieve critical business and financial goals in the coming years.

The importance of Word and, by extension, Office, cannot be underestimated. Office represents the largest portion of Microsoft’s revenue. It’s one of the main reasons why the company has been so successful to this point. Without it, Microsoft would lose a key revenue stream that it relies on to help it in other areas of its business. Granted, an XML patent infringement probably won’t lead to the total demise of Microsoft, but it could significantly impact its operation.

While the cash Microsoft generates from the Zune or the Xbox 360 is welcome, the cash it generates from Word and Office is a necessity. With that cash, Microsoft can invest in Windows, Office, the Xbox 360, the Zune, Bing, and all of its other endeavors. It relies upon the sale of Office to maintain its strategy for the future. Most importantly, it relies upon Office to boost its revenue when other divisions aren’t performing as well as they supposed to.

Without Word, Microsoft would be in a tough position. It wouldn’t be able to invest the cash it needs in all those other divisions. Plans it might have for Windows, Bing, or a future Web-based browser might be put on hold. Updates to Windows that both enterprise users and consumers are looking for won’t be released.

In the beginning, the fallout might be manageable. But what if i4i proves its patent case and forces Microsoft to not only pay up, but changes its offering? It could be a disaster for Microsoft.

Without Word, Office is a shadow of its former self. Companies looking to have a full-featured productivity suite would need to look elsewhere. Consumers who want to perform basic work at home would pick an alternative option. Simply put, Office isn’t Office without Word.

As Microsoft started scrambling for ways to address its patent infringement and get Word back into Office, perhaps the most dangerous scenario would see end users opt for Google Docs. Right now, Google Docs, a free office suite, can’t quite stack up to Excel or Powerpoint. But considering word processing is so important to office productivity, it’s possible that Google Docs’ Document app, which is on-par in many ways with Word, would coax users to Google’s side, from which they might never return. We also can’t forget that OpenOffice is a viable alternative to Office and, according to i4i, is free from any legal recourse. If users don’t opt for either one of those alternatives, they can choose an online office suite, like Zoho, which also provides an attractive service.

Regardless of the alternative that users opt for, it could be disastrous for Microsoft. All of the aforementioned services are free. They boast features that, for many users, are more than enough to help them complete the tasks they set out to perform. And since both Google and Zoho are online, it makes documents readily available anywhere, anytime, as long as users have access to the Web. Those three features alone might be enough to keep Office users away from Microsoft even with the release of a newly updated Word.

So as we consider what Microsoft’s recourse is as it battles with i4i, its strategy seems clear: engage in legal battles as soon as possible to limit the amount of time Word is in limbo, while focusing efforts back at headquarters that ensure the company doesn’t allow its competitors to capture market share and possibly, hurt its ability to compete as effectively in the marketplace.

There is another option for Microsoft to pursue to try to cut its potential losses. Considering i4i is ostensibly pursuing the patent-infringement case for its own (financial) gain, Microsoft has the option of settling with the company through a licensing deal. It would reduce the amount of time Microsoft would need to suffer without Word revenue. i4i would receive a revenue stream from Microsoft. And the software giant can move on, set its sights back on Google, and get back to work.

However, i4i has made it clear on numerous occasions that it doesn’t want to simply settle and move on. It’s content to leave its case in the court’s hands.

“Where we come from, if someone tries to take something that belongs to you, you stand up to them; you don’t just reach for the calculator,” i4i Chairman Loudon Owen said in an eWEEK interview. “We’re not in a position to guess or second-guess or speculate as to what the court is going to do.”

Microsoft’s future could be drastically changed if it doesn’t find a way to win its legal battle. But who would have thought that it would be a small, unknown company called i4i, that would cause so many problems for the software giant? I, for one, had my money on Google changing Microsoft’s future.