In a move that could bring a chorus of both cheers and jeers, Microsoft on Thursday is announcing its commitment to adopt XML technology as the default file format in the next version of Office, code-named Office 12, due to enter beta this fall.

The inclusion of the Microsoft Office Open XML Formats will become the defaults for the versions of Word, Excel, and PowerPoint in the upcoming version of the product. The new technology reportedly will result in higher levels of data interoperability for Office users both at the client and server levels.

The company will present what it believes are the benefits of the new file formats, which include better security, improved error recovery, and reduced file sizes, at its TechEd conference in Orlando next week.

"Customers have asked for improved file and data management, interoperability that is royalty-free without sacrificing backward compatibility. We think by changing to an XML-based default file format we can now deliver tools that help IT organizations address these issues," said Steven Sinofsky, senior vice president of Office.

This marks the first time since 1997, with the arrival of Office 97, that Microsoft has changed the file formats in a version of Office. That change did in fact cause a number of compatibility issues for users with older versions of Office. Although Microsoft officials said they expected no such major disruptions this time, some industry observers said that inevitably there will be some pain involved in moving over to the new standard.

"There likely will be pain with backwards compatibility, especially among those people who have built significant integrations with the current version of Office. But it should get easier with XML where they are talking about publishing the schemas and information on the XML patterns. This is why they are releasing the information so early, so ISVs can fully understand what this means," said Jim Murphy, senior research analyst at AMR Research.

"This is one of those moves where they are damned if they do and damned if they don"t. If they stuck with the traditional binary file format and offered the XML file format as an option, people would criticize them for not being sincere. This is similar to the decision they had to make with Service Pack 2 for Windows XP that broke some apps," said Peter O"Kelly, a senior analyst at The Burton Group.

O"Kelly and other analysts, however, see the decision to use the XML file formats as defaults as more than mere lip service to industry standards because in so doing Microsoft is adding real value to users" computing lives.

"This is more than just getting the Good Housekeeping seal of standards approval. They [Microsoft] are actually improving upon the binary file format they had before, like the ability to significantly compress files. It is taking their commitment to XML as a file format to the next level," O"Kelly said.

By offering file sizes that can be as much as 75 percent smaller compared with Office 2003 files, the new file format can reduce data storage costs. Another advantage to smaller files is they take up less space as e-mail attachments or as downloadable files, thereby lowering bandwidth costs as well, company officials said.

The new file formats also introduce improved data recovery capabilities including the ability to open and use the undamaged parts of a file when only one or two components are damaged in the cases of truncated e-mail attachments or damaged storage devices, they noted.

The new technology also improves security with the ability to strip out of files any identifiable personal information or confidential content, such as comments made in a document, before those files are moved out onto the network, Microsoft officials said.

Two weeks ago Microsoft chairman Bill Gates emphasized the need for interoperability solutions during his "New World of Work" speech at the company"s annual CEO Summit. The announcement of the new file formats is the first delivery on his promise made in that speech of "information solutions and IT fundamentals" that offer open XML standards along with out-of-the-box rapid development tools for corporate developers.

A positive aspect of the new technology is that it gives users a legitimate reason to upgrade to Office, something many have been searching hard for the last few years.

"One of Microsoft"s motivations here is to keep Office moving forward. It is hard to think of these applications [in Office] serving up any more functions than they do now, so improving its "integratability" offers a compelling reason to upgrade," AMR"s Murphy said.

The Office Open XML Formats will be published with a royalty-free license allowing users to integrate them into an application, business process, or server product. Company officials said the license will make it easier for third-party developers to integrate the file format into their tools, better ensuring they can build products that have complete access to Office-based data.

Versions of Office 2000, Office XP, and Office 2003 are compatible with the new software, which can be downloaded by users of those versions for free. After the software is downloaded, users can open, edit, and save new files with the new format from within those earlier versions of Office, company officials said.