How Apple and Google Can Destroy Microsoft's Office Business

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: GOOGL  ) 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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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2014, at 4:08 PM, johnestromjr wrote:

    Microsoft is destroying their own cash cow. People are tired of Microsoft and $Bill and would LOVE competition from Apple and Google to give them a run for their money. Microsoft will see a Tsunami of customers abandoning them. Me included, i HATE all things Microsoft.

  • Report this Comment On January 04, 2014, at 4:59 PM, AcuraT wrote:

    Actually, while this article focuses on tablets, why the no mention of phones? Is it because Microsoft's improvement in that sector does not support this wrtier's perspective? Last I read, Microsoft is up to a global maketshare of 10% now. Not killing the world, but making inroads. Apple has done well with 10% of all computer sales for years. I think Microsoft is here to stay in the phone/tablet market. How well they penetrate the tablet market is the next step of course. They do need to succeed in the future to have any chance at all. I don't "hate" any of the vendors, that is not rational. They all bring competition to the marketplace. Hating one means you are for a monopoly or duopoly.

  • Report this Comment On January 04, 2014, at 5:22 PM, lakawak wrote:

    NO real business is going to use iWords or Aps. And no real person is going to do use any office suite on a tablet.

  • Report this Comment On January 04, 2014, at 5:52 PM, CluckChicken wrote:

    "Apple and Google have been working hard to improve their rival Office applications (iWork and Apps, respectively)"

    iWork is junk, even reviews point out it got worse with the new version. Google's stuff is good but is not on the same level as Office.

  • Report this Comment On January 04, 2014, at 7:58 PM, daveshouston wrote:

    Office is so long of tooth. I haven't used those apps for about five years and they were over the hill before that.

  • Report this Comment On January 04, 2014, at 8:10 PM, techy46 wrote:

    Wow, how can you even mention Apple and Google joining forces at anything? Apple's iWork is a nice app for personal use but it's nowhere near but an Office competitor. Now, Google gdocs and gmail are OK shareware but they require using Google's web servers and I sure wouldn't want to trust my content not to be Screwgled by Google pun intended. How you guys heard about Microsoft's Office 365 for $99 per year that gets you all Office 2013 apps for up to 5 PC and mobile devices and 20Gb of SkyDrive storage. That's $8 per month for everything including Access. I turned off Google 2 years ago and would never ever trust my content to the socialists that are trying to destroy the real software software industry.with their Android ad and spyware virus.

  • Report this Comment On January 04, 2014, at 8:13 PM, Drichter wrote:

    Ha. Wow.

    Yes, Microsoft's tablet business is struggling. Never mind the massive growth in their market share over the holidays, or the fact that they are actually managing to make headway in an incredibly saturated market with mature competitors at all price points. That's irrelevant, because it doesn't support the author's viewpoint.

    Just watch. It's entirely possible that they're too late to the game, but the way things are going they'll wind up with more market share than Apple in a few years. Growth like this either drops off early or continues exponentially - and it hasn't dropped off yet.

  • Report this Comment On January 04, 2014, at 10:26 PM, symbolset wrote:

    Google also acquired Quickoffice, which is now included in Android 4.4. All tablets include an office suite by default now. That's just expected minimum utility. I bought a 7" Android tablet that has it that cost only $38. Certainly nobody thinks producing a letter, spreadsheet or slideshow is something special at this point.

  • Report this Comment On January 04, 2014, at 11:22 PM, TomB wrote:

    It seems that MS Office is almost entirely the domain of business, and it will take a long time for any other office suite to make serious inroads. I have many clients who's line of business applications use Office in one way or another. To a large extent, they are at the mercy of their line of business providers who will require them to have the next version of office in order to be compatible with the next version of their own application. This is something that will be very difficult to overcome with established businesses, and it a major force working in Microsoft's favor.

    With that said, these businesses are between a rock and a hard place because Windows 8 is instilling a strong desire to look at other options, none of which will run office.

    If Google anyone can provide that Office functionality on another platform, it is bad news for MS.

    Brand new businesses however, are another matter entirely.

  • Report this Comment On January 05, 2014, at 11:23 AM, ralphrainwater wrote:

    From my own little world of retail, I can tell the author the best selling tablet we had over this past Christmas season was all versions of Microsoft's Surface. Parents bought one for each child, thanks to Office being included on the RT version and the elegant keyboard that doubles as a cover. Professionals bought the Surface Pro because of it's high powered Core i5 processor, using it as a laptop replacement. Simply couldn't keep them in stock, either in the store, or even online.

  • Report this Comment On January 05, 2014, at 4:23 PM, emilykulish wrote:

    Windows tablet is gaining market share like crazy. The latest statistics already shows Microsoft Surface tablets have outsold Google's Nexus tablets.

    Now what's more interesting is: Microsoft does not have Surface at 7" or 8" yet. If it had a 7" / 8 " Surface, the units sold would increase by at least 100% to 200% - just check how few Nexus 10 tablets Google has sold.

  • Report this Comment On January 05, 2014, at 5:53 PM, GaryDMN wrote:

    Google's is basically an old fashioned terminal network, with the browser being the terminal. Chromebooks and tablets are simple low cost terminals, where MSFT and Apple offerings started as single user computer applications. Google's apps is similar to other open source "office" offerings.

  • Report this Comment On January 05, 2014, at 6:17 PM, saphirantcross wrote:

    Depends on your use case:

    Simple: You write a letter, an occasional list, you keep a journal, maybe a budget. Google Drive (Formerly Google Docs) is the way to go. For free, you'd be ridiculous buying Microsoft Office. Also: for non-tablet users, OpenOffice and LibreOffice are still options, both free of charge as long as you don't mind installing Java (depends on who you are: School Districts pretty much have to install it for online learning programs from Pearson or BlackBoard, but business IT departments might block it from the horror of maintaining Java's archaic update system).

    Small Office: You need to have more than Google Drive offers. They're adding new features, but the bulk of it is in Google Sheets. If you're not in marketing or finance, this means the rest of Google Docs comes up woefully short. Apple's iWork is a good middle-of-the-road between Google Drive and Microsoft Office, with most of the layout features, good templates, and ease of use well improved with iWork 2013. There's a number of things that iWork can't do as well or won't do that Office can (mail merge is weird, document layout isn't as robust), but there's a longer list of what iWork can do that Google Drive can't.

    Moderate to Heavy Use: You use anchors on drawing objects, you use z-index placement on text boxes, and your reports have a lot of graphics, not just a pie chart at the end of the document in an Appendix. Office would be a good choice, since you will get your money's worth out of it but the pricing has changed: MS prices Office 365 at $99 annually for 5 computers, versus Home and Student for $139 for one computer. It's almost as if Microsoft is writing future headlines ("Due to low sales, we're discontinuing Home and Student..."). Weak. Basically, if you want the full suite, you cough up for Pro, pay for Office 365 yearly knowing that you'll never own the program, or forget it.

    Interoperability: Thing of the past. All three can save in the MS Office format in existence since 2007 (.docx, .xslx, .pptx, etc.) Any choice works.

  • Report this Comment On January 05, 2014, at 9:32 PM, StephenBB81 wrote:

    Sam I question if you've ever had to extensively use an office suite. iWork and Google Docs spreadsheet options don't hold a candle to Excel.

    While I can see the world of word processors is getting closer and closer Spreadsheets are what Office Dominates.

    I'm not a Windows Phone or tablet fan. but I am a BIG Office fan. I've used every mobile OS in the last year, I've spent time trying them all and none of them have an office suite worth doing real work on outside of Windows 8 Pro tablets.

    Office 365 is an excellent move by Microsoft to become a SaaS provider to make budgeting easier for their product in business and it is within reach of students through their school programs.

    I don't think unless Apple and Google Joined forces to push a single product they have a chance to unseat Office as the defacto standard.

  • Report this Comment On January 05, 2014, at 11:09 PM, ZannyBlowzsteve1 wrote:

    iWork sucks. It always has. It is a joke to any real user. Any business will demand Office .doc's . Same as always. Google is fine for gMail & that's about it.

    The author is obviously a biased Apple fanboi.

  • Report this Comment On January 05, 2014, at 11:31 PM, bugmenot wrote:

    I've tried to use Google Docs. I haven't succeeded in figuring it out. Too little documentation and the UI presents a very limited capability.

  • Report this Comment On January 06, 2014, at 2:12 PM, kellenbmiller wrote:

    Google is only willing to so called, give you anything because they attach themselves like a virus. But when I am having PC problems I just click Chrome off and things run smoother. ??? To use the google docs you have sign into Google plus. Facebook does not make you join facebook. But they are not attaching themselves in order to make money in that respect. Its crazy that they are even allowed to force you to join a money making enterprise Whilst disguising

    themselves as free.

  • Report this Comment On January 08, 2014, at 11:04 AM, GirlsUnder30 wrote:

    A central server operating system is only attractive for non-personal use so I doubt we'll see Microsoft fading into the sunset. When push comes to shove, privacy will prevail. Read who Microsoft is planning on partnering with:

    http://caps.fool.com/Blogs/neon-may-brighten-your-future/909...

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