Can Office 2010 Help Microsoft Maintain Its Leadership?

Includes: GOOG, IBM, MSFT
by: Trefis

Microsoft’s (NASDAQ:MSFT) Office 2010 suite, which was released as a beta version during the past quarter, has been downloaded over two million times so far and has received encouraging feedback from users.

Despite the positive feedback, we think it’s difficult for Microsoft to maintain its share in the productivity software market due to competition from Google (NASDAQ:GOOG) and IBM (NYSE:IBM).

Microsoft Office constitutes around 30% of Microsoft’s stock

Microsoft’s Office Suite is a group of desktop applications used primarily for word processing, spreadsheet preparation, presentations, and email. The software is used by the majority of consumers and businesses, making collaboration between users easier and helping to perpetuate demand for the software.

We estimate that the Microsoft Office business (including Microsoft Dynamics) makes up 30% of the $32 Trefis price estimate for Microsoft’s stock.

Office 2010 insufficient to stop productivity software market share decline

Microsoft has dominated the enterprise productivity software market in the past with market share of around 95% driven by the success of the previous versions of its office suite. Microsoft plans to launch the latest version of Office in the second half of 2010. The software, which offers flexibility of use on the PC, browser and phone, has received positive feedback from early users.

Despite the positive initial feedback for Office 2010, we believe Microsoft may not be able to maintain its leadership position in the future due to increasing competition from other industry players. The main threat is alternatives to Office such as IBM’s free office software (from its Lotus Symphony suite) and Google’s low cost Apps suite, which includes e-mail, calendar, word processing, spreadsheet and collaboration programs.

We expect Microsoft’s share in the Productivity Software market to decline to 89% by the end of Trefis forecast period. However, you can modify our forecast here to see how Microsoft’s stock value would be impacted if the company were able to maintain its share in the enterprise productivity.

For additional analysis and forecasts, here is our complete model for Microsoft’s stock.

Disclosure: No positions