Analyst: Microsoft losing $2.5B a year on Office for iOS delay

Analyst: Microsoft losing $2.5B a year on Office for iOS delay

Summary: In a case of "not if, but when," Microsoft may be losing out on about $2.5 billion a year by failing to expand its Office offering to iPhones and iPads, according to one analyst.

TOPICS: Microsoft, iPad
Microsoft Office on the iPad, in what is more likely a case of "not if, but when." (Credit: CNET TV)

Microsoft could be leaving as much as $2.5 billion on the table by failing to get a version of Office for iPhones and iPads out the door, according to Morgan Stanley analyst Adam Holt.

The Redmond, Wash.-based software giant already has some software available for the iPhone and iPad in the pipeline—but as with Office, they have yet to make an appearance. It's now at the point where even Microsoft are "no longer bothering" to deny the rumors," according to ZDNet's Mary Jo Foley, but the company is far from being forthcoming about an expected release date or in what form a release may take. 

According to Holt in a note to investors, he said that Microsoft could generate a greater return on Office, by as much as close to half of what Office earns today. $2.5 billion, in fact.

At the last earnings call, Microsoft's Windows division took first place in divisional rankings by revenue. The Windows division generated $5.88 billion, while the Business division—which houses Office and other services—generated a second-place $5.69 billionOffice is worth a great deal to Microsoft and brings in around 90 percent of the division's total revenue, just shy of one-fifth of the company's overall quarterly revenue.

For some time, it was even bigger than the Windows division.

Holt estimates that if it were to release Office for iOS for around $60, just shy of one-third of iPad users would snap up the software. Should the current iPad cumulative sales trend continue to 200 million by the end of 2014, Holt believes that Microsoft could generate around $2.5 billion in revenue on Office for iPad alone, after Apple collects its commission fees, of course.

Holt also adds that around 30-40 percent of Mac users install paid versions of Office 2008/2011 as Windows PC users do. The figure is a bit skewed, considering that some Windows machines come with a basic version of Office already installed.

"The math is compelling, and may drive Microsoft to move Office," he wrote.

It's a rough estimate, but it's more of a point to show that not only Microsoft generate vast sums more in its Office business than it does now, but also that Apple could end up capitalizing on Microsoft's expected runaway success with the mobile software.

But here's where it gets even more interesting. Microsoft may not pay that 30 percent fee to Apple, by circumventing the need to go through the iPhone and iPad's app store altogether.

One of the problems with bringing Microsoft software to iPhone and iPad is that Apple will receive a 30 percent cut of every sale. Many Microsoft apps are available for iPhone and iPad already—not limited to OneNote, SkyDrive and Lync—and are free to download, so the company avoids paying a 30 percent cut to Apple.

Foley notes that in whatever form an Office version for iPhone or iPad may take, Microsoft will likely battle the 30 percent cut that Apple will take from an app store purchase.

The way Microsoft could get around it is by offering it as a subscription service as it has done with some versions of Office 2013, or even develop a non-app store version in HTML5 so the company can serve it up without needing to rent space in Apple's store.

But bringing Office to the iPad could ultimately lead to the death throes of Microsoft's own strategy, notably with Surface—which remains the only tablet on the market with a 'legitimate' (used carefully, granted) version of Office installed.

Office for iPhone or iPad may seem frivolous to some, but it's an important bridge for bring-your-own-device (BYOD) users as well as ordinary enterprise users alike.

The majority of businesses still rely on Microsoft Office—in whatever incarnation, including partially Web-based Office 365—and iPad remains popular in the enterprise thanks to its back-end mobile device policy management. 

Topics: Microsoft, iPad

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  • I really doubt it

    business users can rdp or citrix to real office program, home users use app wanna be's.
    • iPad is not for work

      Look at iWork. So few people use it that Apple does not even bother to ship new versions of it. Tablet Office revenue will come from Surface.
      • Re: iPad not for Work

        Apple doesn't make disc-based versions of its software. As far as I know everything is delivered over the web through the App Store. Regarding the Surface - I'm not sure how broadly this device will be adopted. Reviewers have been critical of the power demands of the Surface Pro on its battery and the basic Surface while being capable of longer battery operation only support a version of Office that is bare-bones.
        Gerard Plourde
        • Bare bones?

          I have RT and I can assure you this is a fully featured version of the Office program. Macros are not supported, but just about everything else is. Office on WP is a bare bones version.
          • Uh, do you know what "fully featured" means?

            "Macros are not supported, but just about everything else is." Well, then it's NOT really FULLY featured, is it? It may be close, but "fully featured", like unique, denotes an absolute. I'm not saying Office on Surface RT isn't good, but I AM saying you can't call it "fully featured."
          • In business, Macros are a really big deal

            That's why so many businesses stick hard with Office - they've built whole apps on top of it.
          • it is close to Office on Mac rather than Office on Windows

            Ram U
          • Maybe not fully featured

            But it sure ain't bare bones either.

            The main problem with Office on RT is licensing. It's Home & Student version, so in theory it should not be used for work unless you buy another license which is good for work (but it doesn't change functionality, so macros still don't work). And it doesn't have Outlook. And it's desktop version. MS should really have made real tablet version for RT.
          • They will make a Office version

            Specifically for RT. It takes alot of time and resources to develop software, despite what most non-developers think.

            They will make an office version for RT long before they completely rewrite/port the code to objective c. Not to mention office for ipad is really unnecessary with more robust and usable devices being released almost daily. People will move away from ipad when they realize how much better the alternatives are, so the 2.5 billion/year "projected" profit would be rather short lived and not worth the effort long term.
          • Really?

            "IF" MS was smart ( that is a huge question) they would have had this ready to go the day RT tablets shipped, period.
      • I don't think so

        Historically, Apple customers love and have always bought Office. The article says more than a third of Mac users have Office, but in my experience it is higher. I have not seen too many Macs without it.

        And since the CocoaTouch APIs for iPad are so similar to Cocoa, porting it to iPad is a lot easier than coding from scratch. It is an unfathomable decision, not to release.

        As to Surface - the Pro maybe. Nobody wants RT, from what I can tell. It does less than an iPad, by virtue of just not having the ecosystem.
        • A third bought it

          Doesn't mean only a third have it :-)
        • I disagree with that...

          I don't think most would have an issue with Windows RT if it weren't abusing the hardware it runs on... My Nexus 7 runs on nearly identical hardware and I never have the lag and graphics issues RT has.

          I bet if MS Optimizes RT a little bit more and releases a new surface running on Tegra 4, people will want it.
      • I hate to burst your bubbble

        But there are a great many companies that have already proven your theory that the "ipad is not for work" wrong. I stopped reading your post after that bit of FUD.
  • No Way

    iOS devices are for entertainment mostly. If anything Microsoft should port some XBox games.
    Sean Foley
  • Maybe

    Maybe they want to persuade the iOS users to WP8 or Win8 perhaps.
    • This.

      This "analyst" is clearly high. It makes less than no sense for Microsoft to take its best-selling App and put the full version of it on a competitor's device, where it is required to give that competitor 30% of the price of every sale. Every penny they make in Office sales will be lost in Windows sales to people who otherwise might have said, "Well, I need Office so I'll get a Windows device."
      • Of course it makes sense

        that 30% take is no different than a boxed copy of Office for Mac in the Apple store. Their margins would not change.

        it has to be remembered, Microsoft is a software company, and always has been. Office's programs for the most part came out on Mac before they were made for Windows.
        • Precisely.

          Forgoing $2.5B of revenue is just daft.
          • @ rahbm - But you're only looking at half the picture...

            This isn't a case of Microsoft idly forgoing revenue that is just sitting there waiting to be picked up. In order to chase this revenue, Microsoft would have to abandon one of the key differentiators between a Win8 device and an iPad - the argument that you can't do "real" work on an iPad because you can't get Office on an iPad. I'm not saying that the argument is right, but it's one that a lot of businesses believe. By selling Office to iPad users, Microsoft is basically saying "You don't need a PC". That wouldn't make any business sense at all.