Office on iOS, Android would be a big winner, analyst says
Microsoft could rake in more than $1 billion in revenue in the first year after launching a version of Office for Apple's iOS and Google's Android platforms, an analyst said.
Gerry Purdy, principal of MobileTrax, did a back-of-the-envelope calculation with several assumptions to arrive at the $1.25 billion, then added that with tablet shipments doubling this year, Microsoft could squeeze as much as $6 billion annually from mobile down the road.
"These are rough estimates," Purdy acknowledged in a recent interview. "But this is an issue because the numbers are getting so big with the iPad and Android tablets that Microsoft can't continue to ignore it."
Tipped by the tablets
Purdy came to his $1.25 billion estimate in the first year by assuming that 25 percent of iOS and Android tablet users would buy Office, that the net to Microsoft would be $50 per copy, and that iOS and Android tablets are selling at a clip of approximately 100 million units annually.
According to a recent forecast by IDC, total tablet sales in 2012 exceeded 128 million, and should top 190 million this year, virtually all of them powered by either iOS or Android. If IDC's prediction is on the mark, this year's number world nearly equal the estimated 194 million PC and Mac notebooks expected to ship in 2013, but fall well short of the total personal computer market—notebook plus desktops—of 336 million.
Unlike other analysts, who believe that Microsoft will tie an eventual mobile Office to its Office 365 subscription plans, Purdy believes that Microsoft will sell Office rather than include it as part of a software rental deal.
But that means Microsoft would have to give up revenue to its Apple. The Cupertino, California rival controls the iOS App Store, the sole distribution channel for iPhone and iPad apps, and takes a 30 percent cut of all sales.
To come away with $50 net from each copy of Office on the iPad, Microsoft would have to charge around $70, more than double the combined price of Apple's three iOS productivity apps of Pages, Numbers and Keynote.
The company could, however, deal Office for Android itself: Google does not demand that all apps go through its Google Play e-market.
The $1.25 billion could grow to as much as $6 billion annually, Purdy said, citing a higher uptake rate of 40 percent and tablet shipments of 300 million.
Strong Office sales posted
That 300 million figure is in the cards, IDC said this week, pegging global tablet shipments in 2017 at 352 million. The 40 percent of owners who buy into Office could be explained as well if one assumes that as tablets mature, more are used as one-for-one replacements for notebooks to create content, and fewer strictly as personal computer companions utilized only for content consumption.
Forty percent of 300 million tablets equals 120 million tablets; at $50 net a pop, 120 million copies of Office would generate $6 billion a year for Microsoft.
That's not chicken feed for the Redmond, Wash. developer, even for its Business division—the one responsible for Office—which has been the company's top revenue generator every quarter since 2010's second. In the fourth quarter of 2012, the most recently reported by Microsoft, the Business group brought in $5.7 billion. For the 2012 fiscal year, which ended June 29, 2012, the division's sales totaled $24 billion.
The biggest fly in Purdy's ointment isn't the decision between Office on iOS and Android launching separately or as part of Office 365, but the tussle between the Windows and Business groups. The former is responsible for the Surface line of tablets, including the Surface RT, which comes with a pared-down version of Office.
Would Microsoft strip the Surface RT of one of its prime selling points, that it's the only tablet able to run Office?
Other analysts have said "Yes," and Purdy is in their camp.
"Its similar to the decision they made to do Office on the Mac," Purdy argued today. "Microsoft asked itself, 'Do we want to help the competition?' and that was when most of the money was in operating systems."
Microsoft did create Office 98 Macintosh Edition as part of larger deal under which the former bought $150 million of Apple stock, and the two companies struck a five-year patent cross-licensing agreement and put to rest lingering issues from Apple's 1988 copyright infringement litigation that accused Microsoft of stealing its graphical user interface.
Combine the money to be made from selling Office to iPad and Android tablet owners with the precedent of Office 98 on the Mac, Purdy argued, and it's a clear call for Microsoft.
Purdy wasn't the first analyst to pose significant revenue to Microsoft from a tablet edition of Office.
Last month, Morgan Stanley's Adam Holt estimated Microsoft was losing out on $2.5 billion per year by not making the move. Holt took heat for his estimate, including from Computerworld blogger Preston Gralla, who believed that Microsoft was far more likely to boost Office 365 subscriptions by leveraging Office on iOS and Android.
"It's still a fluid environment through at least 2015," countered Purdy. "About then it starts to get blurry, the lines between tablets and notebooks."
In other words, he believes there's an opportunity now, and for several years, for Microsoft to sell Office outright to tablet owners. It could later, of course, decide to stuff the suite into Office 365.
How soon could Office for iOS and Android appear? Previous speculation—going back years, actually—had most recently claimed that Microsoft would launch a mobile suite in late February or early March, dates that have already come and went.
Purdy declined to be pinned down on a launch timeframe, but did assert that—with the work Microsoft's already done to produce Office for the ARM processor-based Surface RT—it could be ready to ship within six months of getting a green light from CEO Steve Ballmer and the corporation's board of directors.
"I think there's an opportunity to have something in the fourth quarter, if [Microsoft's leadership] gave it the go-ahead," Purdy said.
Not surprisingly, the company has dodged questions about its plans for iOS and Android. A month ago, Kurt DelBene, the president of the Office division, sidestepped a question about his iOS plans during a Morgan Stanley-hosted technology conference.
"We don't take it from the point of view of, 'Do we need to have the PC software that's running on a PC running on every single device?'" said DelBene at the time. "We look very much at what is the experience that we're looking to have on those devices."
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