Is Microsoft really losing billions without Office for iOS?
Last week an analyst at Morgan Stanley released a report estimating that Microsoft could make up at least $2.5bn in annual revenue by offering the Office suite on the Apple iPad, a substantial amount that could add to Microsoft’s $73.72bn revenue (2012).
It’s an interesting angle, no doubt, for the investors and traders of the stock, but a short-term one. Techies are aware that Microsoft is transitioning Office into a subscription-based product, encouraging adoption with incentives when buying that way instead of the traditional shrink-wrap product we’re all used to owning. We’re also anticipating the eventual release of O365 for the iPad, since a downloadable single-license Office would necessarily be reduced by Apple’s 30% cut, as it would have to be released from the App Store.
As if to reinforce the strategy, Microsoft just raised the prices of Office on Mac by 17% for the single-license software package, and completely discontinued multi-license packages for the Mac, making the subscription O365 the better deal in the long run (assuming full-price purchase). If you didn’t believe them yet, Microsoft also no longer permits you to move your single-license Office from one PC to another (in reality, they never have). Now add to that the nerfing of some Office products in 2013, and you can see the very plain writing on the wall. Office as a packaged, single-license software application is dying, and will not be resuscitated.
On the plus side, Microsoft continues to update the web product portfolio, recently adding features like enabling the editing of Skydrive documents without logging in, a feature that was much requested by users for collaboration. This is the type of responsiveness Microsoft must show to win over a world that has free choices in Google Docs and other office style applications. While an enterprise would have no problem buying subscription Office (as they have for years), home users aren’t used to this model. Only with an aggressive update strategy can Microsoft demonstrate their long-term commitment to a web based product. If there’s one thing we’ve learned from online applications, it’s that users want their updates.
It’s a gamble on subscriptions that Microsoft is willing to take, and I believe a reasonable one. Consumers have grown more accustomed to subscriptions, they’ve given up cable and satellite to buy multiple cheaper, net-based subs to services like Netflix and Hulu Plus. $10 for TV, $10 for music, $10 for Office… still less than the $95 they spent on just cable last month.
Short story – yes, of course Microsoft is losing money by not releasing Office for iOS – but the long game isn’t a few billion dollars in the next year or two, it’s a long-term Office in the cloud subscription for all users, all platforms, under the Office 365 banner. Until a real contender to the entire Office suite emerges, especially in the business world, Office will continue to drive Microsoft’s revenue stream, and it will do so with a subscription-based service.