Microsoft Loses on Tablet Market, Turns to Apple

Source: Office.com

According to tracking firm App Annie, the top iPad app is currently... Microsoft (NASDAQ: MSFT  )  Word? Yes, Microsoft has brought its top productivity products to Apple (NASDAQ: AAPL  ) . Microsoft has fallen behind both Apple and Google's (NASDAQ: GOOGL  ) Android in the tablet wars, and needs this chance to woo more Office subscribers. But what does Apple get from the deal -- and are the terms worth it for Microsoft?

Microsoft launched versions of Word, Excel, and PowerPoint for the iPad. The basic versions are free to download from the App Store, and allow users to read those types of files. But in order to actually use the programs, users have to sign up for an Office 360 subscription that starts at about $100 a year. And Apple takes 30% off of each subscription completed through its system.

Does incurring that loss make sense for Microsoft in the long term? 

Microsoft loses tablet share 
Microsoft designed Windows 8 so that it would look harmonious when moving between a PC and a touchscreen device such as a laptop. But that experience isn't as harmonious when relatively few people own Microsoft tablets. Gartner recently released the worldwide tablet sales numbers for last year, and Microsoft trailed far behind Apple's iOS and Google's Android. 

Operating System

2013 Sales

2013 Market Share (%)

2012 Sales

2012 Market Share (%)

Google Android

120,961,445

61.9

53,341,250

45.8

Apple iOS

70,400,159

36.0

61,465,632

52.8

Microsoft

4,031,802

2.1

1,162,435

1.0

Worldwide Tablet Sales to End Users by Operating System, 2013 (Units) Source: Gartner

Microsoft's holding on to barely more than 2% of the tablet market. Google was able to shoot above Apple's iOS because a high number of low-budget tablets run on a version of Android. But Apple's numbers are still nothing to sneeze at considering that the last new traditional iPad model was released in late 2012. 

Microsoft's tablets aren't selling, but the company still has other products that were reimagined around the Windows 8 launch. And those products include the subscription program for the Office suite. Microsoft still needs to sell those subscriptions, so the company was forced to turn to the competition. 

Bringing Office to the iPad 
Apple has its own proprietary productivity software, but many people have become accustomed to Microsoft Office -- or have to use Office because of a work requirement. So, the inclusion of Office might prove a deciding factor to those who wanted an iPad, but needed better productivity software. There isn't an optimized version of Office for Android tablets yet, so that could grant Apple another advantage. 

But while Apple would celebrate more iPad sales, the real cause for celebration -- and Tim Cook's tweeted welcome to Microsoft -- comes with the 30% that the company can skim off each subscription made through the App Store. And it's costing Apple nothing to make that money; Microsoft's doing all of the heavy lifting.

How much does the Office 360 subscription cost? The Home version is $99.99 per year, or $9.99 per month, and allows for installation on up to five devices, which can include any combination of PCs, tablets, Macs, and smartphones. Business versions start at $5.00 per month for each user in a Small Business, and go up to an Enterprise version that costs $20.00 per month per user. But it's the Home version that will likely see the most subscriptions through the iPad, because businesses would use more traditional means to enroll employees in the subscription. 

Apple's cut will likely take about $30 per annual subscription away from Microsoft. It's a steep price for Microsoft to pay, but well worth the effort if the move better drives Office subscriptions. 

Foolish final thoughts
Microsoft missed the mark with Windows 8 because the company doesn't sell enough tablets to focus on a touchscreen model. And the similarly redesigned Office 365 would languish back with the new OS if Microsoft didn't allow the software to appear in the app stores of its competitors. But Apple's the real winner here, taking 30% from each sale without having to break a sweat.

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Read/Post Comments (6) | Recommend This Article (2)

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 March 31, 2014, at 10:18 AM, jdmeck wrote:

    Was there really ever any doubt that MS would fail in tablets?

  • Report this Comment On March 31, 2014, at 10:37 AM, CharlesThe3rd wrote:

    Android doubled, Apple went up by 15%, and Microsoft quadrupled tablets sold. I'm not understanding why you're an idiot. But you obviously are. Microsoft has seen huge success in the tablet market over the past year. Windows RT tablets are a staple now in the Windows 8 tablet market. Other vendors are barely staking claims. Only Microsoft license Android is popular. Other vendors without Microsoft licensing are falling by the wayside. And PS - You're an idiot.

  • Report this Comment On March 31, 2014, at 10:47 AM, Cintos wrote:

    Office comes full circle. Word, Excel and PowerPoint debuted in the 1980s on the Apple Mac platform, bringing a new era to productivity at a time when Microsoft DOS users were slogging away on the IT world's "Standards": Lotus 123, Harvard Graphics and Word Perfect. Yecth!

    It is almost cosmic that Office debuted in the Cloud on touch-driven interface of the iPad.

  • Report this Comment On March 31, 2014, at 12:02 PM, bobbyedwards wrote:

    Since the only place I know of where you can purchase Office 365 is through the web ports, I think you are wrong on the 30%.

    During the stage show to announce the product there was no mention of getting a subscription from the Apple Store, nor through the office apps. The only they mentioned and showed, was that is you had an Office 365 subscription, and signed into it through one of the apps, then write and edit would be turned on.

    Also knowing what Microsoft partners get for selling a seat in Office 365, it would make no sense to give Apple a further 30% just because 1 user added an iPad.

    So while I have seen this reported several times, I have yet to see any media person prove it to be true, in fact I have yet to see where you can even sign-up through Apple.

  • Report this Comment On March 31, 2014, at 12:14 PM, bobbyedwards wrote:

    "And those products include the subscription program for the Office suite. Microsoft still needs to sell those subscriptions, so the company was forced to turn to the competition. "

    Do you really believe this to be fact, or did you just make it up? Office 365 is one of the fastest selling programs ever sold by Microsoft. And if you go to the forums for the user community, you will see that many have asked when an iPad version of some of the tools may be available. So since existing users wanted to add an iPad, that does add sales, they already have the product, they just wanted to use on another device.

    And so now they can, I would hardly call having to turn to the competition to make sales.

  • Report this Comment On March 31, 2014, at 5:31 PM, CsPPP wrote:

    Can someone please tell me if this site is supposed to be Silicon Valley (SV) journalism satire?!? I honestly can't tell because every article I read from them is utterly ridiculous to the point that it makes me laugh! If not then I can I can confirm through modus tollens that they are owned by Apple:

    Not owned by Apple implies SV journalism satire

    Not SV journalism satire

    Therefore, owned by Apple

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