Microsoft’s new CEO Satya Nadella yesterday took wraps off an Office suite (client) for iPad broadening its horizontal cloud, software and services strategy. Let’s look at some metrics for Microsoft’s Windows, Office & Cloud properties:

Microsoft Metrics 2014 - Counterpoint Research

What Office on iPad means for Microsoft?

  • Looking at the above metrics for the Windows & Office properties the opportunity for Office to scale is tremendous for sure within the Windows ecosystem itself and even bigger outside the Windows ecosystem
  • Unlike Windows which is an OS/platform, Office clients across different platforms stitched together and powered by cloud is the way to go for Microsoft to make it scalable which is the premise of Office 365
  • Office 365 enables greater revenue generating opportunities for Microsoft switching from standalone software suite sales model to a subscription based licensing model
  • In spite of big opportunity within Windows ecosystem, Microsoft’s consumer standalone office products declined 8% in Q4 2013 excluding the impact of consumers switching from Office standalone to Office 365, otherwise it was down 24% YoY
  • This depicts that Office product cannot grow banking only on Windows platform growth which anyways has slowed down in this post-PC era
  • Realizing all of the above taking Office to fast-growing segments such as ‘mobile‘ is the key and tablets is the segment (form-factor)  in-between laptops and smartphones which is growing in traction as an important personal computing device compared to laptops even in enterprises with rising BYOD trend
  • Hence bringing Office to tablets and preferably Apple iPad is imperative.  According to our our Market Outlook service installed base (or TAM) for iPad alone has grown to more than 160 million units in last three years
  • Office 365 is already on track to become  $1.5 Billion business leveraging Windows ecosystem alone and now with cross-platform clients it should grow further and lock-in existing subscribers
  • However, going cross platform will come with its share of costs as Microsoft will have to share a cut of revenues generated by in-app sales on the respective platforms.
  • It will be critical for Microsoft from now on to view Apple, Google not only as a competitor but also as an ‘agent’ or ‘partner’ or ‘medium’ to sell its software and services
  • Further by offering the cut of revenues, Microsoft has to make sure for Apple and Google to promote the offering which is beneficial for these companies in a two-fold way i.e. revenues & enterprise traction.
  • While its easy to say that Microsoft is shooting on its own feet bringing Office to competing platforms, however, Microsoft is clever enough considering its soon going to become a vertical player as well
  • Microsoft has been smart releasing a lighter version of its suite (No Microsoft Outlook either) particularly tailored for iPad-centric use (enough for iPad users) and keeping many features closer to the chest which might make way into the  Office version for the modern touch-centric (or Metro!! UI based) Windows platform
  • If even 20% of iPad user base subscribe to Office 365, Microsoft could rake in minimum net US$2+ Billion in revenue after giving away Apple’s cut. Similarly, Apple could make almost a billion+ dollars commission for the same. Big opportunity!!

What Office on iPad means for Apple?

  • Apple has a rich ecosystem in terms of iOS in mobile and tablet space. As highlighted above, Apple’s global iPad installed base is more than 160 million units at the end of 2013
  • Apple is showing great promise and traction in enterprise space with iPad. Almost 98 percent of the Fortune 500 and 93 percent of the Global 500 are as well are using Apple iPad
  • iPad has transformed into “the second screen” for enterprise and even first screen for lots of consumers over the last three years to communicate, consume and share the content on the go
  • However, iPad lacked the killer professional Office type suite solution which is critical for work and with Office clients now on iPad it further strengthens Apple’s tablet offering for enterprise as well as verticals such as education
  • Furthermore, Apple will get 30% cut out of its competitor’s revenues for selling Office 365 subscription through Office for iPad, an additional bonus
  • This completes iPad’s profile as a killer tablet offering and will allow Apple maintain an edge until Microsoft releases an Office for Android tablets version

In this world of ubiquitous computing, Microsoft has made a much needed move to step outside of Windows ecosystems with its offerings to enable its newer vision as a cloud, software and services company of “Cloud for Everyone and Every Device“. With the breadth, width and depth of properties Microsoft possesses in software and services space, going horizontal leveraging cloud will be the key strategy to grow. However, with integration of Nokia devices arm once the acquisition is through it will instantly become a vertical player and it remains to be seen how Microsoft can manage two different corporate models approaches at the same time in longer term. 

 

 

 

About Author

Neil is a sought-after frequently-quoted Industry Analyst with a wide spectrum of rich multifunctional experience. He is a knowledgeable, adept, and accomplished strategist. In the last 11 years he has offered expert strategic advice that has been highly regarded across different industries especially in telecom. Prior to Counterpoint, Neil worked at Strategy Analytics as a Senior Analyst (Telecom). Neil also had an opportunity to work with Philips Electronics in multiple roles. He is also an IEEE Certified Wireless Professional with a Master of Science (Telecommunications & Business) from the University of Maryland, College Park, USA.