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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

"That's pretty significant," Miller said of the Office 365 Home Premium offer. Significant because under the App Store rules, that subscription payment is considered an "in-app purchase," thus earning Apple its 30%, or $30 per Home Premium sub.

Most analysts figured Microsoft would circumvent the App Store 30% entirely, but Miller was one of the few last year who thought that the company might pay Apple its split to get Office onto the iPhone and iPad.

In fact, Microsoft is using a hybrid model by keeping the Office Mobile app free, but letting potential customers, at least consumers, buy into Office 365 via the app.

It's possible that the in-app purchase was part of a deal Microsoft and Apple struck during their negotiations, which reportedly were hung up as long ago as late last year over submission and payment issues. Microsoft's handling of its SkyDrive online storage service, which in its iOS app form was stripped of an earlier in-app purchase option, suggests that the offer in Office Mobile wasn't its idea.

Microsoft and its customers can circumvent payments to Apple, however. Because Microsoft also sells Office 365 Home Premium subscriptions directly to consumer — via its online store as well as at retail — not all consumers who want Office Mobile will be filling coffers at both Microsoft and Apple.

Business-grade Office 365 accounts will be outside Apple's reach, since they're sold only by Microsoft or its channel partners.

Renewals of subscriptions originally bought from within the app, however, will award Apple 30%, as the in-app purchase results in automatic renewals, also through the App Store. As Miller noted, the only way for a customer to avoid contributing $30 to Apple would be to cancel the subscription at renewal time, then sign up for a new account using Microsoft's alternate options.

While analysts saw the Office 365-Office Mobile connection as consistent with Microsoft's strategy to promote the Office-by-subscription model, most were unsure the iPhone app would significantly boost Office 365's sign-up and retention rate.

"I think [additional revenue from Mobile Office sign-ups] will be incidental," said Miller. "Microsoft's mostly back filling a need that's been there for a while."

"I don't see this as a powerful incentive for companies to get to Office 2013," said Frank Gillett, an analyst with Forrester Research, referring to the version of the locally-run software suite that Office 365 customers can install on up to five desktop and notebook computers.

Like O'Donnell, Patrick Moorhead, principal analyst Moor Insights & Strategy, portrayed Office Mobile as an interesting carrot, but not one to tip large numbers onto the sub side. "Office Mobile takes away an objection for enterprises that are looking at Google Apps rather than staying with Microsoft," said Moorhead. "This is more about keeping existing Office customers happy."


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