Microsoft: How Does ‘Free’ Sound?

Microsoft recently announced the availability of an updated version of its Office Live Small Business service and made most of the services free. The announcement came during chairman Bill Gates’ keynote address at the company’s Office System Developer Conference.

Version 2.0 of Office Live for Small Business will feature “new e-commerce and e-mail marketing features and advanced Web design and platform capabilities,” according to a company statement.

The service was first introduced in 2006 as Office Live but was recently renamed Office Live Small Business. It is a key part of the ad-driven consumer side of Microsoft’s software-plus-services initiative, and it provides a range of services for small business that use Microsoft Office.

“We have a new version of Office Live Small Business today that has a lot of new features, a lot of things that relate to marketing that our customer base has been asking for,” Gates told the audience.

Among key changes, Microsoft has decided to make the basic services free. Previously, only Basics, the lowest-end offering, was free while two-higher tier offerings (Essentials and Premium) were available by paid monthly subscription services.

Other options will be available on a monthly or yearly fee basis, however, including Store Manager, which is a hosted e-commerce service for customers who want to sell products on their own Web sites or on eBay. That service will cost small business owners – the primary target for Office Live Small Business — $39.95 per month.

Additionally, you can get both private domain name registration as well as up to 100 business e-mail accounts with 5 GB of storage each. That service is free for the first year and $14.95 per year after that.

Office Live Small Business 2.0 also adds support for Mozilla’s Firefox 2.0 browser, making it compatible with Mac computers. The free features also include Outlook synchronization to let customers access Office Live Small Business e-mail, contacts and calendars, both online and offline, as is around-the-clock support, according to Michael Shultz, Microsoft’s director of marketing.

The newly updated suite also offers an e-mail marketing feature for sending opt-in/opt-out newsletters and promotions to prospects and customers. “E-mail marketing is such an important application for small business,” said Shultz. “More than 45 percent of SMBs use e-mail to communicate with their customers.”

The service is currently available in beta form, which lets you send 200 e-mails per month for free with each additional e-mail costing 5 cents. Once the beta period ends, Shultz said, he expects the service will cost $9.95 per month.

However, one analyst who tracks Microsoft but already has a Yahoo Small Business account – Yahoo’s competitor to Office Live Small Business — wondered aloud about how the new offering will fare, should Microsoft’s takeover bid for Yahoo succeed – not only with customers but also with the services’ developers.

“It’s distracting in the face of this merger because there’s a tremendous overlap with the Yahoo product set,” said Roger Kay, president of analysis firm Endpoint Technologies. “Even as they’re negotiating a merger that’s going to end in one of the product sets going away, it would be hard to focus,” Kay added.

Ultimately, if the bid goes through, one or the other of the competing products is likely to hit a dead end, while the other continues. That could cause users to shy away from either or both, and it doesn’t help the confidence of the developers at both companies working on the services.

Microsoft CEO Steve Ballmer said last week, he expects Microsoft’s employees to keep pressing forward with initiatives already in the pipeline, no matter what the future holds.

Adapted from with additional reporting by Lauren Simonds.

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