Microsoft's Office suite finally coming to iPad, may be too late

During the last decade, Office has generated about $180 billion in revenue for the company.

One of the most lucrative software franchises in history, Microsoft Office, has finally come to the most influential computing device of the last few years, the iPad.
Microsoft introduced the long-awaited suite of applications, which includes Word, PowerPoint and Excel, at an event in San Francisco on Thursday, where the company’s new chief executive, Satya Nadella, committed to making the software work on all major computing devices, including those made by its competitors. Microsoft plans to create Office apps for tablet computers running Google’s Android operating system, too.

To some, the move is a refreshing sign of a new Microsoft, one slowly unshackling itself from an era when its major decisions were made in deference to Windows, Microsoft’s operating system. But sceptics wonder if Microsoft has waited too long, giving people who use iPads, especially business professionals, years to get used to life without it and giving an opening to startups and Apple’s competing products.
Microsoft’s decision to bring Office to the Apple device comes after years of development and debate inside the company as it mulled the implications for its own efforts to make a tablet computer.

In his first public event as Microsoft’s chief executive, Nadella, who noted that it was his 52nd day as the company’s leader, provided a stark contrast to Steven A Ballmer, his predecessor, who was known for his fiery sermons in praise of Windows. Nadella struck a more humble tone and acknowledged that Microsoft must make its applications and services available wherever its customers want to use them, which these days is often on non-Microsoft devices.

“What motivates us is the reality of our customers,” he said. Timothy D Cook, Apple’s chief executive, and Nadella even engaged in a friendly exchange on Twitter, with Cook welcoming Office to the iPad and Nadella saying he was “excited to bring the magic of @Office to iPad customers.”

Critics say Microsoft waited far too long to bring office to the iPad, nearly 200 million of which have been sold. Until now, customers have relied on products from other companies, like Evernote, Quip, Smartsheet and Haiku Deck and Apple’s own iWorks suite.

Microsoft’s shares are trading near their highest point in 14 years, partly in anticipation of Office for the iPad. Microsoft said that its Office iPad apps will be free to people who want to use them in read-only mode. But to create files on the iPad, users will have to pay an annual subscription fee for Office 365, the name for the latest version of Office. It costs $100 per year for consumers.

It once bothered David A Levine, the chief investment officer of Artivest, a financial services start-up in New York, when he would go to conferences with his iPad, and he could not use Microsoft Word on the device. Instead, he would jot down ideas in the bare-bones note-taking app that comes with the iPad and copy all of the text to Word on his computer, a clumsy process.

Since last year, his company has done all of its word processing in Quip, an app that works on iPads, smartphones and computers through a web browser. The software lets employees work together on a document and see changes others are making in real time, on whatever devices they happen to be using.

“I don’t miss Word at all,” Levine said.

The new Office product will test whether one of the great successes of the PC era can thrive in the age of mobile devices. During the last decade, Office has generated approximately $180 billion in revenue for Microsoft, according to estimates by Nomura Securities.

Its growth during that period tracked the ascent of the PC business, in which Microsoft remains an influential player through Windows, the dominant operating system for PCs. For years, whenever someone bought a new PC for their home or business, they usually bought Office to go with it.

Sale difference

PCs are not selling as they used to, though. IPads and other tablets have become attractive substitutes for many PC functions, like web browsing, watching videos and reading emails. Last year, global shipments of PCs fell 10 per cent from the year before, while tablet sales grew 68 per cent, according to the research firm Gartner.
During the holiday quarter, Microsoft said, Office revenue from businesses rose 10 per cent while consumer revenue fell 24 per cent, partly because it now sells Office as a subscription, which affects its accounting.

While Microsoft no longer reveals how much total revenue it gets from the product, the company’s business division reported nearly $25 billion for the fiscal year that ended June 30; 90 per cent of that division’s revenue was from Office. Rick Sherlund, an analyst with Nomura Securities, says he believes that during the next year or so, Microsoft could add about $1 billion of additional revenue from Office for the iPad and other devices that do not run Windows.

While it would take more than that to make a big difference for a company of Microsoft’s size, he said investors believed that Microsoft was showing a greater willingness to create products for other companies’ devices. Adam Tratt, chief executive of Haiku Deck, a presentation app for the iPad that competes with PowerPoint, sees Microsoft’s foray into iPad apps as largely a defensive move, rather than a chance to generate incremental revenue.

“The opportunity is to not lose a $25 billion market,” said Tratt, who was an Office product manager in the 1990s. Microsoft’s previous chief executive, Steven Ballmer, said late last year that the company was working on Office for the iPad.
Microsoft has created software for other devices for years. It made Word for the Macintosh in the mid-1980s, and more recently released iPhone apps for its Bing search engine and other services. It offered an iPad version of OneNote, a note-taking application in the Office suite, more than two years ago.

But the iPad and other tablets represent a bigger potential threat to Windows than the Mac, which made bringing the most prominent Office applications to the devices a tough call.

For more than two years, Microsoft has had prototypes of Office apps for the iPad working inside the company, according to several people briefed on the products, who asked to remain anonymous discussing the internal development process.
The company was conflicted. It did not push forward with the apps partly because it saw the availability of Office for Windows devices, including Microsoft’s own Surface family of tablets, as a way to differentiate its operating system.

It turned out that Office did not help much with sales of Surface, which first came out in late 2012. That may partly have been because Microsoft did not do enough to make Office work well with touch screens.

To Brad Silverberg, a venture capitalist in Seattle with Fuel Capital and a former senior Microsoft executive, the company’s hesitation around bringing Office to the iPad is reminiscent of the early 1990s, when the makers of WordPerfect and Lotus 1-2-3, successful word-processing and spreadsheet applications, balked at making Windows versions of their products.

At the time, Silverberg said, he begged the companies to move faster to bring the products to Windows, but they didn’t want to see Microsoft’s software succeed. Microsoft exploited their hesitation.

“It gave Microsoft a huge opening to establish the Office franchise,” Silverberg said. “Microsoft is in danger of doing the same kind of thing now.”