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Microsoft's big test: Deciding what stays, what goes in touch-based Office

Gregg Keizer | Nov. 6, 2013
How Redmond shrinks Office to fit tablets and touch will determine how it competes with rivals, how it rakes in future revenue, say analysts

Analysts don't doubt Microsoft's development acumen, but they wonder what choices the company will make, and how that will translate into customer reception. The latter is important because Office is important, not only to businesses worldwide, but also to Microsoft's bottom line.

A stripped-down touch Office — Hilwa's bet — would be impossible to sell at the same price point as the full-fledged desktop version, even if there wasn't enormous downward pricing pressure in mobile overall. Paid mobile apps seem to be fading, largely replaced by the "freemium" model, where the app is free and developers earn revenue from in-app purchases for additional features or tools.

So far, Microsoft has tied Office on non-Windows platforms — the versions it launched last summer for Android and iOS — to its Office 365 subscription plans, which start at $100 annually for consumers, and run $150 to $264 per user per year for businesses. Its strategy has been to push Office 365 adoption by dangling the carrot of Office on mobile devices.

But Rubin saw the Office 365 linkage as an artificial check on sales potential, and believed Microsoft would sell touch Office differently.

"I think, eventually, Microsoft will have to release native [Office] software," said Rubin, meaning minus the Office 365 connection. "Maybe they'd even release a free, or very low price app ... then offer in-app purchases for additional functionality." Rubin pegged the maximum price at $60, less than half that of the entry-level SKU, Office Home & Student 2013, not much more than half a year of Office 365 Home Premium, the consumer-grade plan. But he wondered if even that was too high.

Another analyst wasn't as sure. "Microsoft will invest in those who want to pay real money for the features available in Office," said Jack Gold, principal analyst at J. Gold Associates, "and point everyone else to online versions."

Microsoft currently offers Web-based versions of Word, Excel and PowerPoint free-of-charge, and uses them as the foundation for its lowest-priced Office 365 plans ($4 to $8 per user per month), which also feature hosted email and other Internet services.

A touch Office faces competition from two of Microsoft's biggest rivals, Apple and Google, which each now offer substitutes — iWork and Quickoffice, respectively — free of charge to either new device buyers (Apple) or everyone running Android and iOS (Google). While those free alternatives cannot compete with the current desktop Office, they may be competitive with a feature-limited touch-based Office, backing Microsoft into a monetizing corner.

There's a lot at stake. Office generates billions in revenue for Microsoft each quarter — $6 billion in the most recent, or 32% of total company revenue — and with the serious slump in PC sales and the concurrent climb in tablets, a touch-enabled Office will be increasingly important to Microsoft's future.


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