Microsoft's Office for iPad: A cloud revenue boon

Microsoft's Office for iPad: A cloud revenue boon

Summary: No matter how you add it up, it appears that Microsoft has threaded the business model needle with Office on iPad and transitioned itself for cloud and mobile revenue going forward.

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Microsoft's move to launch Office on Apple's iPad is expected to boost the company's total addressable cloud market, boost Office 365 subscriptions and position the company more as a services player.

You could argue that Microsoft's move to put Office on the iPad is late. You could argue there are plenty of competitors that'll limit the Office appeal. You could even argue that Microsoft's freemium model could be construed as desperate.

007excelataglance

But one thing that's hard to argue is that Office for iPad makes a lot of sense on the business model front.

Among the key moving business parts:

  • The freemium model (Office docs are viewable only to non-Office 365 subscribers) almost ensures upgrades to paid versions because the price point isn't a big hurdle.
  • Given that freemium model, Microsoft will drive subscriptions—even though the profit won't be great because Apple will get a cut of the revenue from the App Store. Mary Jo Foley said Office on the iPad may even be a loss leader in the grand scheme of things because it'll drive subscriptions.
  • All the money is on the back-end anyway. Note that Office on iPad was just one part of Microsoft CEO Satya Nadella's coming out party. Microsoft launched and Enterprise Mobility Suite (EMS) for enterprise looking to manage Windows, Windows Phone, Android, iOS, and Mac OS users. That bring-your-own-device play will bring in a ton of revenue for Microsoft's enterprise business, which carries the team anyway.
  • The Office on iPad increases represents a $3 billion to $5 billion total addressable market, according to FBR analyst Daniel Ives. "Office for iPad (and eventually other devices) adds a long-awaited gateway to enterprise users, finally capitalizing on BYOD trends," said Ives in a research note.
  • Microsoft can grab a piece of the mobile pie via software and services instead of a grand bet that consumers will run to Windows Phone and Nokia.
  • A 15-percent attach rate for consumer Office 365 would drive revenue growth. Here's a look at Ross MacMillan's, an analyst at Jefferies, projected for Office on iPad.
jefferies office on ipad

No matter how you add it up, it appears that Microsoft has threaded the business model needle with Office on iPad and transitioned itself for cloud and mobile revenue going forward.

Topics: CXO, Microsoft, Mobility, Operating Systems, Windows

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22 comments
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  • Apple's cut?

    ...not sure if they would get anything. MJF noted that if users sign up for a 365 subscription from within the apps, Apple would get a cut. If they already have the subscription or buy it outside of the apps, Apple would get nothing. If Apple does get a cut, would that only be for the first year or perpetually? Also, full use of Office on the iPad is only part of what you get with a 365 subscription. Even with the $70 a year personal subscription, that gets you use of Office on the iPad and one PC or Mac. Does Apple only get a portion, say 30% of $35 (the half of the subscription that give users full access on the iPad. Certainly Microsoft has this all worked out, but they will probably never divulge the details. Curious to know.
    toph36
    • Business

      It is mainly aimed at businesses, they cannot sign up for Office 365 on the iPad, they would need to go to the MS handler and get the Enterprise licences for their employees.

      For private individuals, it is a risk worth taking, many will probably already have Office 365, or they will probably look around - I got mine on Amazon for 25% less than MS's official price...
      wright_is
    • Great!

      Its a smart move by MS to prevent any cut going to Apple since they want one. Having the apps free and view-only is the entry point. Apple is not making a dime from any of this because users have to sign up for the service online and sign into the Office iPad app with their Hotmail/outlook account used in signing up online to get the features subscribed to. The best execution to avoid feeding a competitor's bank account.
      techiegz@...
      • Apple will get commissions

        http://recode.net/2014/03/27/microsoft-is-selling-office-365-within-ipad-apps-and-apple-is-getting-its-30-percent-cut/
        KPOM1
    • Apple Gets the 30%

      Apple confirmed to Re-Code that they are getting their standard 30% commission on any subscriptions purchased from within the apps themselves. That's most likely the personal user who decides to purchase a subscription. Microsoft probably did the math and realized that a) a lot of people who download will be using their enterprise subscriptions from their employers, and b) some personal users will already have, or will purchase subscriptions from outside the app.
      KPOM1
      • Microsoft probably found they could justify it at their finance meetings

        as the retailer/distribution cut for boxed copies of "sold Office" is probably that or more.
        Mac_PC_FenceSitter
  • I think Microsoft did the right thing

    But the coin as two sides. Microsoft will make money from office on iPad, but they are also reducing the dependency consumers and businesses have with Windows, and they are also reducing the chances of becoming an important player in mobile.

    I doubt the global revenues coming from office to skyrocket, but I do believe that at least they are not going to become out of the office productivity tools train.
    AleMartin
    • Agreed

      Someone else might be able to chirp in with the figures for Windows Division, but it certainly seems that MS is definitely pushing it's services ahead of Windows OS.
      Boothy_p
      • Writing is on the wall

        if people are less willing to buy physical servers and running their own services, but are still willing to buy your product(s), then why should the downturn of the physical server business mean you're out of the business, too? They've been quite smart about this transition.
        Mac_PC_FenceSitter
    • Office on Mac

      Microsoft has offered Office on Mac for years. That never had a huge impact on demand for Windows. Windows OS for tablets and phones is a small marketshare, but is growing, and will continue to grow independently of Office and where it is offered.
      whitezb
      • Keep in mind the share numbers though...

        Mac OS's share of the computer market was much smaller than iPad's share of the tablet/mobile market.

        I don't think you can look at it that way, but keep in mind MSFT has a number of tablets on the market that run full windows (Dell Venue Pro, Asus VivoTab) which will also help them stabilize the base.

        I am glad I am long MSFT right now, they are making many good decisions these days...
        dcristof
  • Personally I'm not paying $5,000

    For any version, of Office. Sure you don't pay it up front, but subscriptions get expensive really quick.
    I hate trolls also
    • I think you need to give the subscription model another look

      A personal subscription for Office 365 is $70 per year. Sure after some 71 years this might add up, but it is doubtful that this will be more than buying the product the traditional way.

      Office is definitely the exception, as I agree with you that most of the time subscriptions will add up to higher costs over time, with a lower initial investment, but Office has been priced so low (for the moment) that this just isn't a problem.

      I wonder how many companies would still use the subscription model if they did their budget over a five year period instead of just one.
      jebailey1120
      • Considering that Office 365 HP is $99/yr

        with 5 PC/Mac licenses and 5 mobile non-Windows licenses, the cost savings for that many computers adds up really nice even after 5 years.

        The cost for Office 365 for businesses is actually pretty good too. For non-profits it is nearly outrageous, as it is free for Exchange/Lync/SharePoint Online and then $2/user/month for 5 PC/Mac licenses and 5 mobile.
        grayknight
  • I personally think that freely-available "Office" applications...

    ...will still ultimately undermine Microsoft's subscription model with Office 365, IF those freely-available, cloud-based office suites achieve near-feature or complete feature parity. That's particularly true if that feature parity is achieved for applications or features that most current Microsoft Office users need or want to use.
    CHIP72
    • Maybe, but they haven't been keeping up

      I do not see Open/Libre Office keeping up. And so far they just don't have it.

      I've tried these tools off and on and I've given up.

      Part of the problem is there is very little money in it for people to put the time and effort into developing and testing them
      MeMyselfAndI_z
  • Microsoft has been more a marketing firm for a while

    To any tech who's gain serious familiarity with Microsoft's products and their many (*many*) bugs, shortcomings, and never fixed design problems over the years, it becomes clear that a lot of their problems stem from them trying to stem people leaving to other platforms, most notably businesses. You want your 64-bit Windows 7 PC to access a ahred HP LaserJet attached to an XP machine, good luck with that if you are not comfortable with Google. Is this just sheer incompetence on Microsoft's part or a deliberate "gotcha" to push people to get new Windows-based PC's?

    Average people, especially students, just want something that works when they want it to, and without much fuss or requiring TLC. They are the ones who feel no real loyalty or ties to Microsoft products. Companies, though, usually have a lot invested in a Microsoft-centric infrastructure that they've built up over the years, deliberately or unwittingly, so they feel like they have no choice but to stick with Microsoft and its products, no matter how dated, insecure, and high maintenance they might be. Can't print to that printer attached to that XP PC? Well let's just replace that old XP PC.
    JustCallMeBC
    • Mostly a Marketing Company...?

      "You want your 64-bit Windows 7 PC to access a ahred HP LaserJet attached to an XP machine, good luck with that if you are not comfortable with Google. Is this just sheer incompetence on Microsoft's part or a deliberate "gotcha" to push people to get new Windows-based PC's? "

      Oh, I don't know...maybe it is a bad idea to run ancient versions of any OS. No software company on the planet (or I'll say very, very few for the sake of the trolls) supports dated versions of their software and backwards compatibility the way MSFT has.

      Run current OSes, and you get the best security available and all the perks as well.

      "Average people, especially students, just want something that works when they want it to, and without much fuss or requiring TLC."

      You mean like a Mac? I have had 4 MBPs over the past 7 years and they absolutely require TLC.

      And Apple's answer to people who want to run old versions of their operating system? Be ready for your support to be dropped. And let's not even get into Apple and security. They have been nothing but lucky so far, and time is running out on that as well.

      "Companies, though, usually have a lot invested in a Microsoft-centric infrastructure that they've built up over the years, deliberately or unwittingly, so they feel like they have no choice but to stick with Microsoft and its products, no matter how dated, insecure, and high maintenance they might be. Can't print to that printer attached to that XP PC? Well let's just replace that old XP PC."

      Yes, they have a lot invested in their infrastructure with directory services, application development and support and training. They stay for the most part with MSFT because there are very few options that offer what they offer in the way of security and support which would not drive a complete retraining of the workforce and an expensive transition, and not without the risk of that other company moving away from supporting them as a business customer (fickle Google comes to mind; what happens when cloud services aren't profitable enough for them and they wind it down? Lots of people will be wishing they went with AWS or Microsoft Asure).

      MSFT needs more credit for what they have managed to do, even if they missed the boat on mobile and don't have a perfect track record. Apple has made many modern day mistakes. MobileMe, Ping, AppleTV v 1.0, iFlippingTunes, the list is long.
      dcristof
  • Thinking in many businesses that can take advantage on this.

    iPad has always been popular on consumer market, but not on the corporate businesses.
    Large businesses still depend on laptops and productivity Office provides.
    With Office for iPad this will attract a lot CIOs to begin transitioning their employees laptops which are expensive, to much less expensive devices like tablets with Office 365 installed, this will make employees much more productive with these tablets.
    Gabriel Hernandez
    • Can't see it

      Most folks who use Office at home barely acratch the surface of its capabilities, and would be fully satisfied with a free suite. Most people in business will use it to review work done on desktops, not to create sophisticated documents… and those people will probablh occupy executive suites.
      If any real needs analysis is done by businesses before signing up for Office on iPads, it won't gain much traction. But real needs analysis seems to be becoming a thing of the past for American businesses, who these days seem to swayed by advertising and internal entusiasts.
      radleym