Posted by: Diana Hwang
Microsoft’s decision to purchase Nokia this week is another example of the company buying its way into a market because it couldn’t develop a competitive technology on its own.
Unfortunately, Microsoft missed the boat on major mobile trends like smart phones and tablets just because it wanted to be seen as an innovator. Microsoft put the kibosh on innovative products like Office for the iPad because it allegedly didn’t want to squash sales of its own Surface tablets. Surface has yet to “surface” as a major tablet player. Remember Microsoft’s Tablet PC efforts a few years ago? That went nowhere. Remember Windows CE and Pocket PCs? It became an epic failure once the iPhone took over. (Although, I hear the embedded Windows CE is still in use today for specialized applications.)
As Steve Ballmer’s reign comes to an end sometime within the next year, perhaps Microsoft’s attempts to be a true innovator for mobile technology will also come to an end if it continues to make some poor decisions in the mobile space. Microsoft had to buy its way into the smartphone market with the Nokia deal and we’ll have to see how that story plays out. It’s the execution and merger of the two companies that will be vitally important if Microsoft expects to become a serious competitor in mobile.
Microsoft could have been a better mobile software provider if it was more open to embracing mobile technology trends. If Microsoft had jumped to support iOS and Android for its flagship Office software suite, it wouldn’t be viewed as playing catch up. Microsoft might be on the map already, especially in the enterprise, with the BYOD movement and millions of Office knowledge workers who want an app that extends their work model to a tablet.
I devised a simple spreadsheet model to see how much revenue Microsoft might have made if the company sold an Office for iPad application suite since Apple launched the iPad in 2010.
Using Web research I estimate 215.3 million iPads have been sold. (Mind you, that’s sold, not shipped into the channels). Upon its launch, I assumed not many people would really purchase Office for the iPad. But in 2011, once end users started seeing the tablet’s value for data creation (not just for data consumption) the picture gets much more interesting.
I made certain assumptions about market trends and end user behavior. So with that, here are the numbers.
Starting in 2011, if one calculates conservatively that 10% of iPads sold installed Office for iPad, all the way up to 30% in 2013, and the Office suite costs $30, that’s an estimated $1.35 billion. However, Apple takes a 30% revenue cut for selling apps through the iTunes store, to drop potential revenue to nearly $1 billion worth of tablet sales that Microsoft has left on the table (Hmm…that’s enough to cover the $900 million Surface RT inventory charge from Microsoft’s fiscal fourth quarter).
Now assume the Office for iPad suite sold for was $50. Microsoft’s accumulated revenue might have crested $1.6 billion up to this year, and that takes into account Apple’s iTunes charge.
Personally, I don’t think customers would pay $50 for an iPad application software given many users think even $4.99 is too much for an app. A conservative $30 for Office for the iPad is more realistic. Microsoft could adopt the Apple model and pull apart the software to price out each app at $10. This would give Microsoft even more incremental revenue from buyers who may want to cherry pick one or two apps from the Office suite.
I didn’t calculate potential iPhone revenue. I doubt end users would be inclined toward performing serious productivity work on such a small screen – whether it be a Word document, PowerPoint presentation or Excel spreadsheet. Other than reviewing a doc and making a light edits, real productivity work happens on an iPad with add-on keyboard. And, because customers buy Apple’s productivity software once and it works on all devices, paying extra for the software to work on an iPhone will not fly.
Now, could one calculate how much total Microsoft could have made if we include the Android tablets? Sure. There is probably an effort somewhere deep inside Microsoft to create an Office for Android suite that hasn’t seen the light of day. And that, my friends, is even more revenue lost.
So let’s hope eventually Microsoft gets its mobile strategy right. For now, I’ll just settle for having a copy of Office for the iPad.
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