Will Bringing Microsoft Office to Android Be a Win for Microsoft?
The transformation of Microsoft under Satya Nadella continues as the company prepares to launch its popular office suite for tablets running Google's Android operating system. The move comes a few months after the release of the software for Apple's iPad.
In bringing Office to other operating systems, Microsoft has changed a long-running policy where it used the software -- the business standard for word processing, presentations, spreadsheets, and email -- as a way to lure people into buying Windows-based machines. That strategy perhaps made sense in the early days of tablets, before it became clear that iPads and Android devices would dominate. It's now clear that withholding Office was not going to force customers into buying Windows laptops, desktops, or even tablets.
People like Office, but tablet users have learned to live without it. Giving in and selling iPad and Android versions is a smart defensive maneuver. As more people use tablets as a primary or secondary device, there's a greater chance they will find that cheaper or even free solutions are good enough, causing Microsoft to lose the customer forever.
Waiting this long has likely cost the company some one-time customers. But as we saw when Office launched for iPad, there is likely some pent-up demand. There is also a good chance that people who are using Android tablets for work will be encouraged to add Office in order to better integrate with what their colleagues are using.
How did the iPad launch go?
Microsoft launched Office for iPad with a free version that allows users to view -- but not edit -- documents, and a paid version that offers all the normal functionality. To get the paid version, users must subscribe to Office 365, which charges a monthly or annual fee. This service made Office for iPad essentially free for some users who were already subscribers, as one of the subscription offerings gives customers the right to install Office on five machines for either $9.99 a month or $99 a year.
Though Microsoft has not announced overall sales figures for Office on iPad, the free version got off to a roaring start: "More than 12 million downloads of Word, Excel, PPT & OneNote for #iPad from the @AppStore <3 #OfficeforiPad," is what Microsoft posted to Twitter a week after the product was introduced. It included this graphic:
It's not just the free versions that are doing well -- subscriptions sold well during the early days as well, according to BGR.com.
"It's not surprising that Microsoft's Office apps are a hit on the download charts but the revenue success really is remarkable," wrote BGR's Tero Kuittinen. "Word is competing successfully against casino games and puzzle apps that have literally 5 million to 20 million active users in America and millions in markets like Germany and the United Kingdom. Generating this kind of first-day gross performance is a real achievement."
Microsoft does not break out Office 365 sales by OS, as many subscriptions are likely used by the same person across multiple operating systems. But the overall sales numbers have been strong. Office 365 Home now has 4.4 million subscribers, adding nearly 1 million subscribers in just three months, the company reported in its first-quarter 2014 financial release. On the business side, Microsoft did not give specific numbers, instead saying that Office 365 revenue grew by more than 100%, and commercial seats nearly doubled.
The success might be bittersweet for Microsoft because there once was a day when keeping Office all to itself was a viable business strategy. But changing allows the company to profit even when people choose to not buy Windows devices. It was a mistake by former CEO Steve Ballmer to wait so long to bring Office to iPad, and Nadella deserves credit for embracing his company's changed future.
How big is the tablet market?
There were 195 million tablets sold in 2013, according to Gartner. Android took nearly 62% of the market, selling 121 million tablets, while Apple sold 70 million iPads for a 36% share. That is a reversal of 2012, when Apple led the tablet category with nearly 53% of sales on 61 million units, compared to Android at nearly 46% with 53 million tablets sold. There were a little over 4 million Windows tablets sold in 2013. That means that before Microsoft launched for iPad, Office was available for only 2.1% of the people who bought tablets last year.
The PC market last year shrunk around 10% to about 316 million -- still bigger than what tablets sold, but declining and expected to fall around 4% this year.
The expansion onto Android tablets allows the company to reach nearly 200 million Android users, and that only counts devices sold in the last two years.
How well will it work?
The success of Office for iPad seemed pre-ordained, as Office has long been offered on Apple's Mac computers. In addition, Apple's own line of Office knock-offs never gained traction, even though they cost very little -- they now come free on some Apple devices.
Android, which is tightly tied to Google's free Office-like productivity tools, might not be as fertile a market. Google has succeeded in building a line of good-enough tools that many of its customers use moving between PCs, Chromebooks, and Android devices. It's possible some of those people have learned to live without Office.
Still, it's hard to imagine that there won't be huge demand for Office on Android tablets because most businesses, schools, and non-profits use the Microsoft product. The company should have made this move sooner, but late is better than never, and having Office available across Windows, iOS, and Android makes a Windows 365 subscription even more appealing.
Nadella likely has a home run here. The only question is why the company waited so long.
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The article Will Bringing Microsoft Office to Android Be a Win for Microsoft? originally appeared on Fool.com.Daniel Kline is long Microsoft and Apple. He does not care for Android but owns a tablet running the OS. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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