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November 16, 2005

More Microsoft ad-supported software buzz

Posted by David Hunter at 9:25 AM ET.

Following up on her “Microsoft eyes making desktop apps free” story from earlier in the week, Ina Fried has more at CNET:

Although Office and Windows continue to produce vast revenue and profits for the Microsoft, some of the company’s other well-known consumer titles are generating only a trickle of business.

According to internal documents seen by CNET, Microsoft gets only about $2 for each copy of Works that is bundled on new computers. The standard version of Money isn’t even a break-even proposition, and the company has had to heavily discount its OneNote application in order to get computer makers to include it.

Microsoft predicts that things won’t improve from here, either.

“The outlook for packaged consumer retail software market is poor,” MSN workers said in an internal strategy paper seen by CNET In the paper, Microsoft said that worldwide sales of full packaged software–which includes Works, the Encarta encyclopedia, digital imaging software and Money–dropped by 7 percent in fiscal year 2004. In addition, the company said it was seeing similar trends for fiscal 2005.

And doing the math:

Calculating that the average person keeps their copy of its entry-level productivity suite Works–a kind of “Office lite” for consumers–for about three years, Microsoft reasoned that it wouldn’t take a lot of ad revenue to justify moving the product to an ad-driven model.

“That means that if ad revenues exceed 67 cents per year, we could actually give Works away and still make more money,” two Microsoft researchers and one person from MSN stated in a paper presented to Chairman Bill Gates at a Thinkweek brainstorming session earlier this year.

Much more by following the link and once again, this was a brainstorming exercise, but the numbers make interesting background to the new Microsoft ad-supported software and online services push.

Filed under Advertising, Home Software, Online Services

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