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Microsoft shows revenue hand with Office for iPhone

Gregg Keizer | June 18, 2013
Ties iPhone app to Office 365 subscription, but analysts unsure whether the carrot is enough to push customers to adopt the rent-not-own concept

Last week's release of Office Mobile for the iPhone nailed down one of the mysteries pundits had pondered — how Microsoft planned to generate Office revenue from Apple's iPhone and iPad.

The answer: As part of Office 365, the expanded set of rent-not-own subscription plans that debuted earlier this year.

But analysts were split on how effective the strategy would be in generating revenue for Microsoft's Office division. The most optimistic was Bob O'Donnell of IDC, but even he hesitated to call it an unqualified bonus to Microsoft's bottom line.

"It will push some to move to Office 365, but the challenge is that customers are not crazy about [subscriptions]. They're still tough for people to swallow," said O'Donnell.

On Friday, Microsoft released Office Mobile for iPhone, which lets customers run versions of Word, Excel and PowerPoint on Apple's smartphone. The app, Microsoft acknowledged, is primarily intended for document viewing, but users can also create new documents and with the app's basic tools, edit existing ones.

Microsoft also spelled out the tie to Office 365. While Office Mobile can be downloaded free of charge from the App Store, it only works when linked to an Office 365 account. Subscriptions range from the consumer-grade Office 365 Home Premium — which costs $100 annually — to several business plans that start at $150 per user per year and climb to $264 per user per year.

Although rumors of Office on iOS had circulated since the iPad's 2010 introduction, it heated up last November when reports claimed Microsoft would launch a mobile version of the suite this year and tie the software to Office 365. At the time, most analysts agreed that Office 365 was the smart move because it could boost interest in the subscription concept that Microsoft was betting would result in higher and more regular revenue from its Office cash cow. Linking Office on iOS to Office 365 would also let Microsoft avoid the Apple "tax," the 30% cut that Apple takes from all App Store sales.

Apparently, the experts were dialed into Microsoft's thinking.

"This assigns no revenue to the [Office Mobile] app per se," said Wes Miller, analyst with Directions on Microsoft, in a Friday interview, pointing out that because the app is free, Apple gets nothing.

The approach was not unprecedented in the App Store, as other developers, Intuit for one, give away their iOS apps while requiring that they be linked to a valid software license before they'll work.

But Microsoft's not completely cut Apple out of the revenue loop, as Miller observed. Consumers who haven't yet subscribed to Office 365 Home Premium can purchase a one-year subscription from within the iPhone app.


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