Microsoft missing massive Office for iPad revenue stream

Report from analyst Morgan Stanley reveals the software giant could be losing up to $2.5bn a year by its refusal to work with iOS

Editor’s note: As part of our special editorial partnership, CRN UK is publishing this recent article from Channelnomics

Apple sold more than 22 million iPads in the last quarter of 2012 and has more than 150 million iPads in circulation.

It is under increasing competitive pressure from rivals such as Samsung, but few individual tablet vendors or platforms are challenging Apple’s 53 per cent market share.

And that is the reason analysts are scratching their heads over Microsoft’s avoidance for releasing a version of its popular Office productivity suite for Apple’s iOS, the operating system powering iPads and iPhones.

Morgan Stanley analyst Adam Holt estimated Microsoft is leaving $2.5bn (£1.6bn) annually on the table by not offering Office for iPads.

To put it in perspective, Holt says Office for iPad would roughly increase the revenue for Microsoft’s Business division – currently about $5.7bn annually – by half.

The reason Holt is high on iPad is the Office attach rate sales for Macs. Between 30 per cent and 40 per cent of Mac owners buy and install the Office suite for the Mac platform.

At a retail price of $60 per unit, Holt believes Microsoft would rake in billions in net-new sales that are currently going to low-cost, low-feature apps that emulate Office functionality. Other observers agree with Holt’s analysis, but do not blame Microsoft for holding back.

The reason: To get Office on the iPad would require going through the Apple apps store, which would require cutting Apple in for 30 per cent of the sale. The actual value of Office for iPads may be significantly higher if Microsoft’s massive channel network is taken into consideration.

Apple is notoriously difficult for resellers to work with, and it routinely shuns overtures by solution providers to resell and support its products. Microsoft, a substantially more channel-friendly company, could enable channel sales by giving its partners a product they can sell, install and support.

Already, many resellers will assist their customers who use Apple products even if Apple does not officially recognise their efforts. Microsoft is probably not oblivious to the opportunity, as rumors are circulating that it is working on a version of Office for the popular Google Android tablet platform.

That package could come as early as May, if the rumors prove true. The Microsoft answer to Apple and Google tablet dominance is Windows 8, its first operating system designed specifically for touch-interface devices.

Microsoft released Surface, its first computing device, as well as helped develop Windows-powered tablets by Dell, Lenovo, Samsung, Hewlett-Packard and Acer. Microsoft sold between 750,000 and 900,000 Surface units since its launch in October, which is a pittance of what Amazon, Apple and Samsung sold during the same period.

Holt and other analysts may push Microsoft to start supporting Windows-alternative tablet platforms because the numbers are not working in Microsoft’s favour.

While Microsoft says it is committed to building its share of the tablet market and becoming a major player, it has a long row ahead.

According to IDC, Microsoft’s share of the 2012 tablet market was 2.9 per cent, compared to Apple’s 53.8 per cent and Android’s 42.7 per cent. Over the next four years, Microsoft’s share will climb to 10.3 per cent, a 69 per cent CAGR increase.

However, Apple’s market share will remain around 50 per cent and Android will only lose three per cent of its share.

Microsoft last week released Surface Pro, a version of its tablet running Windows 8 Professional. While Microsoft is steadily increasing distribution of its tablets through its own retail stores, third-party retailers and direct online sales, it still has not announced plans for allowing channel partners to sell or support Surface.