Analysts have long criticized Microsoft's (NASDAQ: MSFT ) failure to release its Office software suite for rival mobile platforms, notably Apple's (NASDAQ: AAPL ) iPad and tablets powered by Google's (NASDAQ: GOOG ) Android. Morgan Stanley analysts argued last year that by not releasing a native iPad Office app, Microsoft was losing out on billions in potential sales.
But soon it could be much more than that. Apple and Google have been working hard to improve their rival Office applications (iWork and Apps, respectively), and a new wave of devices debuting in 2014 could soon give them the edge over Microsoft's Office.
Microsoft has used Office to sell Windows
Perhaps in an effort to keep its operating system relevant, Microsoft has tied Office to Windows. If you want full Office on your tablet, you'll have to buy one running Windows 8. Microsoft uses this as a key selling point in nearly all of its advertisements for the Surface and other Windows tablets.
Admittedly, subscribers to Microsoft's Office 365 cloud service can access a stripped-down version of Office on their iPad, iPhone or Android smartphone, but it's quite limited compared to the Office you'd find on a Windows PC. The Verge, writing about the version of Office available to Android handset owners, remarked: "It's designed to simply be used for correction, formatting, and comments. Basic formatting ... options are supported, but beyond this it's rather limited."
Microsoft's tablet effort continues to struggle
But keeping Office confined to Windows tablets hasn't done much to boost sales. Microsoft took a $900 million writedown on Surface hardware last July, and even though it says sales have improved, Microsoft isn't selling anywhere near as many tablets as Apple. In October, research firm IDC said Windows tablets were still struggling.
Apple and Google come after Office
Meanwhile, Apple and Google are slowly positioning themselves to better compete with Office. Alongside the iPad Air announcement in October, Apple made iWork -- its Microsoft Office competitor -- free for all buyers of new iOS devices.
Google's alternative to Office, Google Apps, has always been free for consumers, while business users have to pay a modest fee. But unlike Apple, Google has been aggressively targeting business users, perhaps making Apps a far more menacing threat. Google's enterprise chief told AllThingsD that the company aimed to eventually steal 90% of Microsoft's Office customers. That hasn't happened yet, but Google continues to work on making Apps better -- most recently announcing a number of improvements to Google Sheets, its Excel competitor, in December.
The coming wave of large tablets
But as anyone who works in an office environment knows, Microsoft Office is well ingrained -- getting business users who may have relied on Office for the last 20 years to switch is no easy task. But that isn't to say it's impossible: One way to do it would be to replace Windows PCs with tablets; specifically, hybrid tablets -- larger iPads and Android tablets with bigger screens and keyboards better suited to office work.
Those devices look set to make their debut later this year. Apple has been rumored to be working on a 12- or 13- inch "iPad Pro" for months, and on Friday, analysts at Evercore Partners projected that this forthcoming, larger iPad will launch in the fall of 2014. Many businesses already use iPads in various capacities, and though a 9.7-inch screen is too tiny for productive work, 12- and 13-inch Ultrabooks are fairly common.
Google's hardware partners should follow suit; indeed, Samsung is widely believed to be working on a 12.2-inch "Galaxy Note Pro." If the devices catch on, similar-size Android tablets from LG, Sony and Hewlett-Packard, among others, should be expected.
Will Microsoft's obsession with Windows 8 doom its Office business?
Microsoft's Office is nothing short of a juggernaut, and the real cash cow among Microsoft's various businesses: Back in July, Microsoft's last earnings report before its recent reorganization took effect, Microsoft's Business Division (composed mostly of Office) brought in more than one-third of its revenue and about $4.8 billion of its $6 billion quarterly profit.
But Microsoft's insistence on tying Office to its Windows tablets has given Google and Apple an opening -- and in 2014, it looks like they will try to capitalize on it. Enterprise-focused, larger tablets running iOS and Android are clearly a threat to Microsoft's Windows business, but paired with much improved Google Apps and Apple's iWork, could ultimately be far more damaging to Microsoft's Office.
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