Sales of Office 2010 especially to consumers fuelled Microsoft's record quarter, the company and analysts said last week.
"Office 2010 is the most successful consumer version we have ever shipped, and the product is also performing extremely well in the business segment," said Peter Klein, Microsoft's chief financial officer, during an earnings call Thursday with Wall Street analysts.
Microsoft's Business division, which includes the Office line, brought in $6.03 billion in revenues during the final quarter of 2010, an increase of 24% over the same period the year before.
The division's revenues accounted for 30% of Microsoft's total for the quarter, the largest piece of the pie of any of the company's groups. By comparison, Windows revenues contributed 25% of Microsoft's revenues last quarter.
"Office 2010's success was a little bit of a surprise, honestly," said Rob Helm, an analyst with Directions on Microsoft, a Kirkland, Wash. research firm that focuses on Microsoft's moves.
In the fourth quarter of 2009, the Office division contributed 26% of Microsoft's revenues, while the Windows division accounted for 38%. At that time, the Office group sold Office 2007, by then a two-year-old product.
"Office 2010 sales are growing faster than PC sales," said Helm. "That's a mirror image of what was going on last year," he added, referring to very strong WIndows 7 sales late in 2009 that prompted a jump in computer sales.
Helm said that one contributing factor to Office's recent gains was business upgrades. "I think that there are a lot of small- and medium-sized businesses that have gotten behind on upgrade, and decided to go with Office 2010," he said.
Microsoft, however, mentioned strong sales to consumers several times during its earnings call.
"Office 2010 is the fastest-selling consumer version of Office in history, with license sales over 50% ahead of Office 2007 for the equivalent period following launch," claimed Bill Koefoed, the general manager for investor relations.
In a filing with the US Securities and Exchange Commission (SEC) last week, Microsoft said that while Office 2010 sales to businesses still accounted for the majority of the suite's revenues, consumer sales had increased by 49% compared to the year before more then three times the 15% growth rate of Office's business sales.
Price cuts may have played a part in boosting sales to consumers, said Helm, who cited the lower costs of some editions, particularly the consumer-oriented Home and Students version.
Before Microsoft launched Office 2010, it discarded the long-offered "upgrade" pricing, discounts for users who already had an earlier version and replaced it with a single license price that in some cases was lower. A one-license copy of Office 2010 Home and Business 2010, for example, cost $199, $40 less than the corresponding Office 2007 Standard edition's upgrade price.
Retailers have also heavily discounted Office 2010 Home and Student, the most popular retail version. Amazon.com, for instance, currently sells that three-license edition for $125, $25 off list but other online sellers have it as low as $100.
"[Microsoft] is not taking its foot off the accelerator of core ... Office products," Allan Krans, an analyst with Technology Business Research, said in an e-mail. "The desktop market is Microsoft's to lose, and in [the fourth quarter of 2010] the company tightened its grip on these critical markets."
Overall, Microsoft brought in revenues of $19.85 billion, a record for the October-December quarter. The company cited a 55% increase in sales from the company's Entertainment and Devices division, on the back of the Kinect and its halo effect on the Xbox 360 game console as well as the strong Office numbers for driving revenues.