When Microsoft lets the rest of us get our hands on beta software, it means the development is nearly finished and the marketing machine is gearing up. Last week, the beta release of Office 2003 thudded on to half a million desks around the world, preparing us for a summer launch.

If you're used to Office on a single CD, these 15 discs come as a surprise. It is not just updated versions of familiar workhorses Word, Excel, PowerPoint and Access, a much improved Outlook and the usual related Office programs - FrontPage and Publisher. There are two brand new programs, OneNote and InfoPath, plus SharePoint Portal Server 2 and Windows Server 2003 with Windows SharePoint Services - and three CDs of marketing information.

You won't get all of that whichever version of Office 2003 you buy, but it makes up what Microsoft calls the Office System. Office isn't just a handful of desktop applications with similar interfaces, and when Microsoft talks about "turning information into business impact", it isn't referring to PowerPoint presentations. Including Windows Server 2003 might seem a heavy-handed hint to upgrade, but nearly everything new and important in Office 2003 is aimed at large companies - and will need Server 2003.

Office 2003 is a change of direction rather than a milestone. There are no major improvements to standard features, though some new tools help individual users. If Microsoft is right about how often we open a Word document just to read rather than edit, the new Reading layout should prove useful: it puts larger text on smaller pages without changing text formatting. PowerPoint burns presentations straight to CD. Excel's new toolbar gathers tools for working with lists of information. Like internet faxing, these are useful tools but hardly worth upgrading for.

Any Outlook user will want the new version, though, not least because it finally threads messages and replies into structured conversations in a sensible way. Dynamic rules sort messages into virtual Search Folders across all folders: a flexible way to manage unwieldy masses of information. And travellers will welcome intelligent connectivity that transfers messages sensibly over slow or fast connections and doesn't move the same information repeatedly.

Outlook's collaboration features let you share calendars, contacts and tasks with other users and see them on screen side by side. Instead of emailing a file that's immediately out of date, you can transfer it to a document workspace based on Windows SharePoint Services, then keep track of it in Word or Excel. This gives you a SharePoint website without having to set it up (or remember to check it), but it needs Server 2003.

So does the controversial Information Rights Management service for controlling who can print or forward confidential documents, enforcing document protection and expiring time-sensitive information. Microsoft is keen to position this as a policy tool rather than a stringent security system. It's also a work in progress: the beta pack doesn't include Windows Rights Management Services or the add-on for viewing protected documents in Internet Explorer. Protected emails can't be read in Outlook Web Access either.

The really polished feature in Office 2003 is support for XML. In Word and Excel, you can take any XML schema and drag and drop it into a document to tag it, then save the content as clean XML that enterprise applications can work with. Any user can easily work with XML using familiar tools - and any application can work with XML information from Office documents.

For documents requiring more structure, InfoPath turns a schema into an intelligent document template for filling in repetitive reports flexibly, automatically extracting information from databases. Schema rules control where you can add or skip sections, so you can't save a document that doesn't match the business logic. It's not a tool that makes sense without an XML infrastructure and it's not about creating standalone documents. An InfoPath document is an interface for viewing and creating XML that feeds into enterprise applications and web services.

FrontPage 2003 is a major upgrade with new coding tools and features for customising SharePoint Portal Server sites, but it won't be in any version of Office 2003. Neither will OneNote, a new program that anyone who takes notes will want to at least try. You can type anywhere on the page, or write on a Tablet PC. Record a meeting and OneNote synchronises your notes with the audio. Shrink the window and OneNote turns into a sticky yellow note for jotting down ideas and tasks or copying content from web pages. OneNote digests it all, saves automatically and makes your notes easy to navigate, but the interface can be confusing.

All five versions of Office 2003 have the basic applications Microsoft hopes to bundle with new PCs: Word, Outlook and Excel. The Standard Edition adds PowerPoint. The Small Business Edition includes Publisher and the Business Contact Manager, and the Professional Edition has all that plus XML and IRM. InfoPath only makes it into the Professional Enterprise Edition; a decision that makes business sense but undermines what's new in Office 2003.

Individual users might want Office 2003 but they can certainly live without it. For most businesses, making email less of a burden and simplifying collaboration make it worth considering. But far more important is the way Office 2003 applications become clients for working with information and services.

Combining information from back-end databases with Excel worksheets that calculate and analyse data; tagging key Word documents with XML schemas that makes the contents visible to other applications in a structured way; creating InfoPath forms combining structure with flexibility. These are the ways XML in Office 2003 sets out to turn information locked up in a mass of individual documents into a universal database, but making the most of that will require a substantial amount of integration and infrastructure.