Microsoft may be forgoing more than US$2.5 billion in revenue per year by not offering its flagship Office suite on Apple’s iOS platform, according to Morgan Stanley analyst Adam Holt, reported by Fortune Thursday. While Mr. Holt argues that disappointing sales of the company’s Surface tablet and large estimated demand by iOS users for Office may be too financially compelling for Microsoft to continue avoiding Apple’s mobile platform, the implications of moving Office to iOS may doom the company’s mobile strategy.
Office for iOS has been rumored for years, with renewed focus occurring in late 2012 as Microsoft was preparing to launch its Surface tablet line. In late January, however, Microsoft CEO Steve Ballmer downplayed the rumors that Office would arrive on iOS soon, if ever.
Many speculated that Microsoft would limit the mobile version of Office to Windows 8, providing an incentive to business users to choose a Surface or other Windows 8 tablets over an iPad. With disappointing sales of ARM-based Windows RT tablets and limited supply of x86-based Surface Pro devices, however, Mr. Holt argues that Microsoft’s gamble isn’t likely to pay off.
Mr. Holt’s logic is as follows: when not including basic versions of Office that come bundled for free on some Windows PCs, Mac users pay for Office at a rate that is three to four times higher than Windows users, with 30 to 40 percent of Mac users having purchased Office at some point compared to only 10 to 15 percent of Windows users. If Microsoft could capture the same roughly 30 percent of iPad users, and assuming an average Office selling price of $60, the company would generate $2.5 billion in revenue each year after Apple’s App Store commission.
While these figures make a compelling case for Microsoft to port Office to the iOS platform, it is not clear that 30 percent of current iPad users would pay for Office at any price, with fewer still willing to pay $60. After three years on the market, many iOS users have discovered alternatives to Microsoft’s productivity offering, and the absolute “need” for Office is not as strong as it was when the device first launched.
Where Microsoft could benefit, however, is with an increasingly large number of business iPad users, who would still find value in complete compatibility with Office file formats. While this could generate many potential sales for Microsoft, it would also significantly help Apple gain additional market share in the enterprise space, and may preclude any level of success for Windows 8 tablets.
Mr. Holt summarizes his position: “The math is compelling, and may drive MSFT to move Office.” Unfortunately for Microsoft, as compelling as the potential revenue is, the implications of moving Office to iOS are equally risky.