Impending crisis for Microsoft: Office tablet pricing

Impending crisis for Microsoft: Office tablet pricing

Summary: If Microsoft is readying a version of Office for the iPad, it better be prepared for the ripple effect in its other business.

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ZDNet reported yesterday that Microsoft is getting a version of Office ready for the iPad. The new versions of Word, Excel, and Powerpoint will be aimed at bringing a "real" office suite to the iPad, to compete with Apple's iWorks suite. The interesting rumor has Microsoft pricing the Office apps at $10 to compete directly with the apps from Apple. This leads to the realization that Microsoft faces a dilemma when it comes time to price the Office apps for its own Windows 8 tablets coming down the pike.

Microsoft is busy up in Redmond getting Windows 8 ready for the masses. The company has taken a lot of heat from the press for being late to the tablet party, even though it invented the tablet a decade ago. The Tablet PC never impacted the market, as the market apparently wanted nothing to do with full computers and all the price, bulk, and bloated software that came with them.

That is being addressed with the ARM version of Windows 8 that is being specifically created to take another pass at the tablet. The Metro UI of Windows 8 looks pretty good for touch tablets, and coupled with the ARM architecture the new tablets may be able to seriously break into the tablet space.

During frequent conversations I have with those holding off on buying a tablet to wait for these Windows 8 slates next year, the primary reason I am given is to run a full (not mobile) OS, along with the need to run Microsoft Office. The stated desire is to make no compromises to use a tablet over using a PC. Windows 8 is exciting these folks and they are not buying tablets now to wait for them.

The reality of what Microsoft eventually brings to the tablet may not be quite what these folks expect. The ARM version of Windows 8 won't likely be the full desktop version of the OS, due to the difference in the hardware for tablets. There won't be the large storage of a PC on the tablets for one thing, and that alone will force the ARM version of Windows 8 to be slimmer than its bigger OS. Microsoft is putting a lot of development effort into the ARM version, and I am confident it will handle this properly.

Where the big difference will lie between the full and tablet versions of Windows 8 will be the apps. Mobile apps must be free of the bloat that is common in desktop versions of similar apps, and that means the tablet (ARM) version of the Office apps will need to be "lite" versions. That means less features, and designed from the ground up to be touch optimized. This special version of Office for the tablet will need to fall between the full desktop version and the old puny Windows Mobile version of old. Tablet versions don't need the full feature set of the former but needs a lot more than that of the latter.

Microsoft should be able to pull off an adequate tablet version of the main Office apps, that shouldn't be a big concern. What is up in the air is the pricing for this, and that's why the rumored iPad version of Office is so significant. It makes sense that tablet versions, iPad or Windows 8, should be priced competitively to similar apps in the app stores. Too highly priced and the Office apps will be poorly received and Microsoft will not compete well. That will result in the failure to recoup the heavy development/support costs this suite will require.

While it makes sense for the iPad/Windows 8 tablet Office apps to be competitively priced, the dilemma for Microsoft is how this affects the bottom line for its cash cow, desktop Office. If Windows 8 tablet users discover they don't need all the fluff in the full suite, a very real possibility, Microsoft could see a significant loss of Office revenue to the tablet side. This would be a permanent desertion, as once you realize a $10 app is as good for your needs as a $100- $200 app, it is game over.

Microsoft may be planning on this rumored iPad version of Office as a dry run for its upcoming Window 8 tablet version. That may backfire if so, as it could force a much cheaper price point for Window 8. I can see the Apple ads already-- $10 for Word for iPad, or $30 for Windows tablet?

This looming pricing dilemma is going to be one of the biggest threats Microsoft has had to deal with in a long time. It is unusual for a company to confront the damage it might do to a major segment of its own business, but that's what it is facing. The company can't (or shouldn't) release a version of tablet apps for the competition (iPad) at higher than competitive prices, but pricing them properly could permanently affect a big portion of its core business. There should be some Microsoft executives having some late-night meetings in Redmond dealing with this.

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Topics: Windows, Hardware, Laptops, Microsoft, Mobility, Tablets

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131 comments
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  • Ripple? Seismic shift!

    One can see now that Steve Ballmer knew what he was up against when pronouncing Windows 8 the most dangerous project for M$.

    The tectonic plates of the ARM architecture; the suitability of the tablet form factor and 'lite' apps.; the shift to cloud computing; the channelling of products (and their advertising) through a platform ... are all combining to marginalise M$ going forward.

    2012 will be a historic year for the company.
    jacksonjohn
    • RE: Impending crisis for Microsoft: Office tablet pricing

      @johnfenjackson@... maybe this is the end the Aztec calendar foretells
      redking44
      • I think you mean Mayan?

        @redking44 I don't think this is going to really affect Microsoft negatively, because lets face it, Microsoft isn't making the majority of their money form home users - the people using these tablets. They're making the majority from the professional versions. This means that they can go head to head with iWorks at $10 dollars offering even more functionality.

        Then there's the professional version that offers advanced features like external data source integration, etc. These will continue to sell at premium prices.

        The major problem for developers isn't the initial cost of the software, but the fact that updates are expected free of charge. So instead of buying a new version every 3 or 4 years, people expect free updates to keep on coming. Recurring revenue goes down the crapper.
        General C#
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @General C# "Microsoft isn't making the majority of their money form home users - the people using these tablets."

        You really need to rethink that statement.

        Microsoft made a Profit of US$ 23.15 billion from an Operating income of US$ 27.16 billion, on Revenue of US$ 69.94 billion (FY 2011) - with total domination of the corporate/enterprise market and somewhere around 95% user base.

        Apple made a Profit of US$ 25.922 billion from an Operating income of US$ 33.790 billion, on Revenue of US$ 108.249 billion (FY 2011) - with allegedly virtually no presence in the corporate/enterprise market and somewhere around just 5% user base!

        And Apple achieve these numbers with just 60,400 employees, compared with Microsoft's 92,000.

        But that's not even half the story. Microsoft's production costs for its main products: software, are [or should be] negligible, with the rest coming fromand PC manufacturer licence fees. Whereas Apple makes most of its profits not from software but hardware - all of which is subcontracted and retailed direct online, via its own stores, resellers and other outlets.

        From this we see that Microsoft makes less money than Apple, with more employees, lower production costs, income for no effort [licenses], and 95% of the market that Apple is barely present in - yet!

        Apple's threat to Microsoft is therefore MASSIVE, and it will be decisive in the destruction of the entire Redmond house of cards. Here's how it will play out:

        Apple will continue to benefit from user approval of iPads, to gain a foothold in the corporate/enterprise market - without needing to set up an enterprise marketing force, or even mimic the massive network of Windows Approval clowns Microsoft relies upon to evangelize their products and services.

        And here's another number to think about: 5%. Although user base numbers on their own are of dubious real significance, assuming Apple's global user base is just 5% today, all they have to do is increase it by 5% to double its profits! Anything beyond that is just a bonus. And it's profits that really matter in the final equation.
        Graham Ellison
      • Apple's primary business isn't computers

        @ Graham Ellison

        Talking about Apple's tiny share in the computer market in the same breath as its impressive overall revenue/profit is misleading at best, and dishonest at worst.

        Apple's primary business isn't computers, and hasn't been for some years now. If it were, Apple's revenue, profit and market capitalisation would all be much lower than they actually are. Moreover, even in the computer market, Mac sales are often driven by iOS device sales (which was the original purpose of the iPod, before the i-devices eclipsed the Mac).
        WilErz
    • RE: Impending crisis for Microsoft: Office tablet pricing

      Check out a couple of programs that fulfill both needs .. LibreOffice and AbiWord. Both are free. Obviously LibreOffice is heavier as it's full featured. People already have access to some cloud-based office suites like google's and zimbra.

      Microsoft makes far more of the cash flow from their Office package than from Windows. So they have some hard thinking to do.
      jvin248
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @jvin248 - I've tried both. While each are pretty capable as stand-alone office apps, they're a poor substitute for Microsoft Office if you want/need to exchange documents with anyone else running MS Office.

        I've had Libre crash on me inumerable times and when it doesn't crash, its handling and rendering of Office docs is appalling at best.
        bitcrazed
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @bitcrazed - Ah, isn't that the point? MS Office is the only suite in the world that just plain isn't compatible with anything else? It's high time people started using software that works well with their other software. It's not a game console, it's an office suite.
        symbolset
    • RE: Impending crisis for Microsoft: Office tablet pricing

      @johnfenjackson@... Cool, will they have a version that runs on LinuxMint?
      james.vandamme
    • RE: Impending crisis for Microsoft: Office tablet pricing

      Those who want full fat Windows on a tablet won't be interested in an ARM based tablet or Office for tablets. They'll be getting Windows 8 on Intel based tablets with Desktop Office.

      In reality, I don't see what you envision happening. The majority of Office purchases will still be the Intel Desktop version. A tablet version for Windows 8 is likely to only be for the ARM version which will A: Won't be selling in anywhere near the numbers Office Desktop will be or B: Will only compete against the Desktop ARM version.

      Which brings me to the point, can you see Microsoft releasing a tablet version of Office running on Metro and also one running on the Desktop? If they do, it'll be the same purchase (so not competing with itself anyway). We know a full fat ARM version is coming, so I'd expect at most you'll get both when you purchase it (cut down when you're using the Metro UI, full fat on the Desktop). With the Intel version only being Desktop, as it's always been.

      It makes sense to release an iPad version, not to make any money to keep Microsoft Office still relevant (which it very much is). The numbers will be so small compared to the sales of Desktop Office on the Intel platform, I doubt Microsoft are concerned.
      bradavon
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @bradavon So after 17 years, next year will finaly be the year of Windows on a tablet? Just like last year, and the year before. It's not getting closer any faster than fusion power.
        symbolset
    • RE: Impending crisis for Microsoft: Office tablet pricing

      @johnfenjackson@... MSoft is heavily invested in the cloud, Azure powers parts of Amazon cloud and iCloud. Delivering "Apps" to an iPad is basically another way of getting people to use MSoft software, which will be tieing back to Azure. Azure is their new cash cow, and it will allow them to make money out of Apple, and iPad users alike...Their new model makes a lot more sense...The books will not have all that office money in one line, rather it will be spread over desktop office, office 365, office apps and Azure income...
      AndrewOneDegree
  • RE: Impending crisis for Microsoft: Office tablet pricing

    The answer to the price dilemma is already available and it is called Office 365. Microsoft knows that it needs to add value to Office by providing the stuff that most businesses and individuals can't cost effectively do themselves. I can imagine MS applying the Salesforce model to a great many of there products and making them work seamless together then charging a teared pricing model for the various different features. Ultimately it won't matter if you use a PC, an iPad or a phone as long as you keep paying the monthly fee.
    alecfoundry
    • Insufficient

      @alecfoundry

      As I have tried to persuade all cloud 'experts' on ZDNET, this won't fly. Office365 is $6 per month, $72 per year, ..., so I might as well have bought the software. The global corporates will NOT pass on cost benefits to customers.

      When AMAZON give me a tablet ... and I can buy Office 'lite' for $10 ... you, my friend, are out of business! (Yes, I will still retain some workstations.)
      jacksonjohn
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @johnfenjackson@...
        It'll depend on a person's needs. [You] might as well have bought the software. I already did ... but I'll be signing up for Office365 in addition shortly for its integration with Windows Phone and anywhere accessibility through the browser, as well as ability to share files easily with people in remote locations. There's value in 365 that you can't get on the desktop, and it and its competitors will be a logical choice for many people. It wasn't that long ago that plenty of people would have laughed off the idea that they'd want to have a phone they can carry with them wherever they go.
        WebSiteManager
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @johnfenjackson@... Might as well have bought the software, eh? So for the price of one copy of Office Home and Business ($200) you could have almost 3 years of office 365 access. Remember that you can use 365 on more than one device whereas Home and Business is licensed for one PC only. Another thing to remember is that when office 2013 or whatever the next version will be comes out, you will not have to buy it again if you were using office 365.
        mdshann@...
      • RE: Impending crisis for Microsoft: Office tablet pricing

        I'm still using office 03. Why would I care about office 20xx or pay monthly for aomething else? Works fine with my docs to go on my phone and tablet.
        crogs
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @crogs - because you will soon be unsupported. If (when?) support expires completely in 2014, if any malware comes along that attacks any unpatched vulns in Office (or XP), then you're on your own!

        Frankly, the cost of just one day's downtime due to such an outage is FAR more costly than buying a new version of Office once every 2-3 years.

        FWIW, Office365 makes it brain-dead simple to not only keep up to date with your office suite, but also gives you world-class cloud email (Exchange Online), document & collaboration (Sharepoint), communications (Lync) and a host of other benefits.
        bitcrazed
      • RE: Impending crisis for Microsoft: Office tablet pricing

        @johnfenjackson@...

        LibreOffice $0
        Alan Smithie
    • Yeah, "crisis" was a poor choice of words

      @alecfoundry

      Microsoft knows how to package things different ways.

      It might be revealing, though, when people try to run a serious spreadsheet without a suitable processor. That will send them running to the cloud (Office 365) or off looking for a tablet with an i5 processor.
      Schoolboy Bob