Microsoft Office for the iPad Could Put Pricing Pressure on Windows 8
Microsoft (NASDAQ:MSFT) has sold more than 100 million licenses of Microsoft Office 10 to date, and we expect the next version of its franchise software, Office 15, to surpass this once it launches in 2013. In the meantime, the company is reportedly planning to launch a version of Office for the iPad, which will be the first time that Microsoft will launch Office on a tablet platform. [1] It’s also working on developing Office for the latest version of Mac OS X – Lion. As market leader in office productivity software, Microsoft competes with Google (NASDAQ:GOOG) Docs, Apple (NASDAQ:AAPL) iWork, as well as open-source alternatives like Open Office and Libre Office.
Office accounts for around 30% of Microsoft’s $32 Trefis price estimate, while Windows accounts for nearly 25%. Our Trefis price estimate for Microsoft stands nearly 25% above its current stock price.
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Should Microsoft launch Office on competing tablet platforms like the iPad?
Microsoft will likely launch the apps – Word, Excel, PowerPoint and One Note – separately, and price them at $9.99 per app, just like Apple’s Pages, Numbers and Keynote apps.
Since the iPad owns more than 80% of the tablet market, this could mean a significant source of revenue for Microsoft. On the other hand, Office Support is supposed to be one of the key selling points for Windows 8 that is expected to be launched in 2012. Windows 8 targets both the desktop and tablet operating system markets and will compete directly with Mac OS X, iOS, Android and Chrome OS. Launching Office on the iPad could lead to a potential decline in the sales of Windows 8 tablets as consumers flock to the iPad, which already has more than 100,000 tablet-specific apps and games.
It could also compel Microsoft to decrease the pricing of the tablet version of Office for Windows 8, negatively impacting its revenues and profit margins from the Office division, which is currently its most valuable business. Since Windows 8 will work on both tablets and PCs, it could also force Microsoft to bring down the average pricing of Office software licenses for PCs. You can see how a change in the average Office licensing pricing impacts Microsoft’s Trefis price estimate.
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