The new Open XML file formats offer true compatibility with all of the billions of Office documents that already exist. You can take any existing Office document (well, any created in the last decade or so), open it in Office 2007 Beta 2, and then save it as an Open XML Format document that will look like the original, print like the original, and behave like the original.
In addition to this type of compatibility between documents, however, there's also another type of compatibility that people will need in order to ensure a smooth transition to Office 2007: compatibility between the various versions of Office that may be in use within an organization.
Large organizations can't just upgrade every desktop one fine day, so there will be a transition period during which multiple Office versions are being used by groups of people who need to work together on Office spreadsheets, presentations, and word-processing documents. In widely distributed organizations, or associations made up of many business entities (where one management team doesn't control everyone's technology deployment decisions), that transition period could be measured in years. And during that time, there will be a need to take documents created in Office 2007 and view/edit/print them in Office 2003, or vice versa, or do similar things with other combinations of Office versions.
Compatibility between multiple version of Office
There's a single solution to this second type of compatibility challenge: the Compatibility Pack for 2007 Microsoft Office System File Formats. This is a free download that adds Open XML support to Word, Excel and PowerPoint 2000, 2002 and 2003. Install the compatibility pack, and then you'll be able to standardize on the Open XML formats and collaborate with people using all of these various versions of Office.
By the way, one thing that's not well known about the Compatibility Pack is that it adds conversion functionality to the Windows shell in addition to the Office client applications themselves (Word, Excel and PowerPoint). After you install the compatibility pack, you can right-click on a file and convert it between the Open XML and binary formats, even if you don't have Office installed, as long as you're running fully patched current versions of Windows 2000, XP, 2003 Server, or Vista.
I attended Gray Knowlton's excellent session on Open XML File Formats compatibility considerations last week at TechReady3, and had a chance to learn more about how the compatibility pack works. There are many details regarding the various conversion scenarios it supports, and I'm not going to get into all of that here, but I want to explain a key concept that's just plain cool: rehydration.
Rehydration Example
Consider the SmartArt sample shown here. This is a typical example of the kind of graphics you can create in Office 2007 with just a couple of clicks. You can change color schemes easily, and you can edit the text easily -- just click on any text section and start typing. Note that the "Editable Text #1" component of this diagram is selected in this sample.
So what happens when you open this document in Excel 2003 with the Compatibility Pack installed? The document opens, and it looks and prints the same, but the SmartArt is just an uneditable image in Excel 2003. Makes sense, because Excel 2003 doesn't support SmartArt, right? That's really the only option (the uneditable image), and it's probably what you would have done to create the same document in Excel 2003 anyway: create an image and insert it into the document.
In a real-world scenario, though, you might want to save this document as Open XML after you'ved edited it in Excel 2003. And what do you think happens when you re-open that twice-converted document in Excel 2007? You might expect to just have an uneditable image, but instead the original SmartArt can be rehydrated, and you have a flexible, editable SmartArt graphic in your document, just like when it was created!
Rehydration Limitations
Note that I said the original SmartArt "can" be reyhdrated. By default in Word, that doesn't happen (it remains an uneditable image). This is a limitation of version 1.0 of the convertor, and may change later.
Rehydration is a very powerful technology, but it's worth nothing that it's not a cure-all. Not all content can be rehydrated, and some content can be lost when downgrading to the older formats. There are also some differences between how rehydration is handled in the binary formats and the pre-2007 XML formats. For example, in Word rehydration can occur through the binary format. If you have an Open XML Format docx in Word with SmartArt and save it as a binary DOC, the SmartArt will be converted to an image. The binary doc can be sent to users with older versions of Word for editing, and then when the binary document is brought back into Word 2007, users are able to rehydrate the SmartArt image by selecting the command “Convert”.
If you're creating documents that do fancy things with SmartArt and need to allow multiple people to collaborate on the editing of those documents, upgrading everyone to the 2007 Office System is the most powerful and flexible solution. But in cases where you need to do limited types of collaboration with people who aren't yet running Office 2007, rehydration can give you the best of both worlds: all the powerful document-editing capabilities of the 2007 versions of Office, and the ability to view, print and edit those same documents in older versions of Office.