Microsoft yesterday made the surprising move to offer consumers more functional Office apps on the iPad after failing to drive Office 365 Home and Personal subscriptions, analysts said today.
"Microsoft is feeling pressure from the bottom end of the productivity market," said Wes Miller of Directions on Microsoft. "In reality, they are doing this because of low uptake on consumer Office 365."
On Thursday, Microsoft moved what independent analyst Ben Thompson called Office's "scarcity line — the line between paid and free" for the iPad by changing the rights consumers have when they run the free-to-download Excel, PowerPoint and Word apps.
Prior to Thursday, consumers without an Office 365 subscription could use the Office for iPad apps only to view documents. Under the new rules, those consumers may also create and edit documents, although with numerous restrictions on the latter — Microsoft called the missing pieces "advanced editing" — that may be useful to a minority of tablet owners.
Office on the iPhone and for Android smartphones — dubbed Office Mobile — went free for consumers in March on the same day Microsoft introduced Office for iPad, and so already came with those rights. Yesterday, Microsoft split Office Mobile on the iPhone into separate Excel, PowerPoint and Word apps; on Android, the collective Office Mobile app remained.
Because businesses must still pay to use Office for iPad — or Office on iPhones and Android smartphones now, as they likely will for the soon-to-be-released Office on Android tablets — for commercial purposes, yesterday's changes only benefited consumers, a fact that many seemed to miss.
Others agreed with Miller that Microsoft's carrot to consumers — subscribe to Office 365 Home (for $100 annually) or Personal ($70) and get full rights to Office for iPad — had not moved the needle on the consumer editions of the rent-not-buy model.
"The reality is that Office revenue is on the business side," said Jan Dawson, principal analyst at Jackdaw Research, in a interview. Previously, Dawson had pegged total revenue from Office — from both Office 365 and traditional perpetual licensing, with the latter dominant — at $24 billion for the 2014 fiscal year. Just $3 billion came from consumers, representing less than 13% of the total.
More to the point, consumer Office 365 revenue has grown much slower than subscriptions: Sales grew just 4% in the September quarter from the June period, while subscriptions increased 27% during that same time.
With Office on mobile failing to spark Office 365 consumer sales, Microsoft rethought its March strategy, which at the time most experts had applauded.
"The bifurcation of Office, with the free versions able to read documents but not do anything else, may have limited the uptake [of the iPad apps]," said Dawson. "The boundary between free and paid was very far toward the former because you could do almost nothing or you could do everything. I think Microsoft saw that the boundary was in the wrong place.
Sign up for CIO Asia eNewsletters.