Microsoft (NASDAQ:MSFT) generates most of its revenue and profits from Office and Windows, which bring in billions of dollars in net profit each year. However, Office is more valuable than Windows, thanks to Microsoft’s almost complete domination of the enterprise in the office productivity software segment. Google (NASDAQ:GOOG) has been nipping at Microsoft’s heels since the last couple of years, and has managed to get the ball rolling with Google Docs and Google Apps that offer a web-based productivity software suite to enterprises looking to move to cloud-based software. Microsoft countered by releasing Office 365, but Google continues to gain traction in the space by bundling all its services together and offering them to enterprise clients. 
Microsoft seems to have recognized that Google and other competitors like Zoho and Open Office could pose a significant threat to its primary cash cow, Office. It is aggressively targeting Google Apps customers and has slashed the Office pricing to lure them to its own offerings.
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With the launch of Office 15 in 2013, Microsoft will not only offer lower pricing for the desktop software suite, but also offer cheaper tablet versions and will also offer better integration with its cloud-based Office 365 offering. It also plans to ramp up its marketing efforts and maintain its dominant position in the office productivity software market.
We currently have a $40 Trefis price estimate for Microsoft, which stands nearly 30% above its market price. Office is its most valuable business, accounting for almost 35% of its overall value.Notes: