Microsoft’s Office For iPad Gains Traction

by Trefis Team
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Microsoft (NASDAQ:MSFT) launched its flagship productivity application – Office for Apple’s iPad – on March 27 as part of its mobile first strategy. The recent announcement at the TechEd conference on Monday indicates that Office for iPad is fast gaining traction. According to Julia White, Microsoft’s general manager for Office, the iPad suite, which includes Word, Excel and Power Point applications, has hit the 27 million download mark. This number is more than twice the figure the company shared over a month ago. In this article, we will discuss Microsoft’s offering and how it can impact Microsoft’s top-line and market share, going forward.

See our complete analysis of Microsoft here

The Pricing model

Microsoft is using a “freemium” model with Office for iPad. Under this model, Word, Excel and PowerPoint can be downloaded free of charge to view documents, spreadsheets and presentations. However, to get the full editing and creation experience, users will have to subscribe to Office 365 by paying a monthly or yearly fee. [1]

Trend Indicates Office Market Share To Stabilize

The Office productivity suite is Microsoft’s biggest revenue driver and makes up 40% of its estimated value. According to Trefis calculations, this segment generated approximately $24 billion in revenue in calendar 2013 (this number is calculated based on the quarterly results declared in 2013), and we expect this to grow to $30 billion by 2020. Furthermore, this division has the highest profit margins (65%) for Microsoft primarily due to a dominant 93% market share in the productivity suite market. However, Google, with its Google Docs offering, is chipping away at this market share, especially in the iPad segment.

Microsoft Office has a sticky user base that is reluctant to shift to other productivity platforms. As a result, since its launch on iPad, Office has been downloaded by 27 million times. We expect this trend to continue as more users shift to Office on iPad. We believe that this launch will help Microsoft stem the decline in market share to around 90% by the end of our forecast period.

Offering To Boost Revenues

In recent quarters, much of the growth in Office revenues has been due to the growth in Office 365, which has a annual revenue run rate of over $2.5 billion. With the number of free Office downloads expected to increase in the coming months, we expect some of these users to adopt Office 365 subscription services. As a result, we believe that the revenue run rate from Office 365 will increase further in the future. If annual revenues for the office division were to increase to $35 billion by the end of forecast period, our price estimate will increase by 5%.

Opportunity To Cross Sell Other Products On Apple Devices

Office 365 currently bundles SkyDrive storage and Skype services. Some other variants of Office 365 bundle LYNC and Exchange at higher price points. We think that Microsoft can boost its revenues by seamlessly integrating its other products with Office and offering these bundled services to iPad users.

At present, we have $41 price estimate for Microsoft, which is approximately 2% above the current market price.

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  1. Announcing the Office you love, now on the iPad, March 27, 2014, []
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