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For a company that's expected to generate $84 billion in sales in fiscal 2014, asking whether software titan Microsoft (NASDAQ: MSFT ) is doomed might seem a bit melodramatic, and it is to an extent. However, Microsoft's recent introduction of its Office productivity software to tech giant Apple's (NASDAQ: AAPL ) ecosystem speaks volumes about Microsoft's shifting mobile strategy under newly-minted CEO Satya Nadella.
As one of the most important companies in all of technology, there's little doubt Microsoft's software empire is likely to remain intact, at least to some extent, well into the foreseeable future. However, Microsoft had been dragging its feet in porting its multi-billion dollar software into Apple's ecosystem for some time, and for good reason. Because while aligning Office with Apple's iPad should help to maintain Microsoft's grip on productivity software, it also carries a less positive implication for Microsoft's other key financial driver – Windows.
Let's take a look at what that could mean for Microsoft investors in the years to come.
Maintaining Microsoft's monopoly
Pretty much no matter how you skin this cat, moving Office over to a third-party mobile ecosystem like Apple's should result in more money for Microsoft shareholders.
Tablets are the next big thing as far as workplace productivity is concerned, and Apple's sold roughly 195 million iPads since it first unveiled the device in 2010. So by rolling out Office to Apple's iPad with a sticker price of $99 per subscription, Microsoft has in theory created a roughly $20 billion market opportunity for itself overnight. Of course, it is safe to say Microsoft won't capture that entire segment, but the opportunity is huge.
But considering that both Apple and Google have been aggressively pushing their own productivity application software in the absence of Microsoft's Office, this is a move that justify itself. Microsoft will now be able to defend its hugely-profitable Office brand, while making more money in the process.
So while this move will certainly prove accretive to Microsoft from an EPS standpoint, investors should also be focusing on what this "unbundling" of services means for Microsoft's prospects to ever get the other half of its financial empire – Windows – onto tablets.
The real risk to Microsoft
Microsoft's dominance of PC software is instructive in considering possible future implications for the tablet market. Microsoft famously beat Apple in the battle for PC supremacy through its willingness to decouple software and hardware. By working with any PC hardware manufacturer, Microsoft was able to establish Windows as the de facto global OS. And as you can imagine, controlling the overall OS environment on PCs gave Microsoft an almost unbeatable platform to subsequently peddle Office to PC makers and consumers alike.
Fast forward to today and Microsoft would clearly love to replicate this same model in mobile. However, alternative mobile operating systems like Google's Android, and Apple's iOS to a lesser extent, already dominate the market, leaving Microsoft's Windows late to the party and out in the cold. The ability to use Office on Windows-based tablets like the Surface was one of the few incentives consumers had in possibly favoring a Windows-based tablet over more-popular alternatives, until last week.
Now, this isn't necessarily awful for Microsoft because Windows is still likely to dominate the desktop operating system landscape. And although tablets are expected to continue to provide a headwind to global PC sales in the years ahead, the PC is by no means going away anytime soon. However, by moving Office onto Apple's iOS and presumably Google's Android some time soon, Microsoft very well may have discarded its last bargaining chip it had in its efforts to bring Windows into the tablet age.
So is Microsoft doomed? Certainly not. However, as we're seeing with its recent Office-related moves, Microsoft might not be on as firm of a strategic footing as it might have you believe, and that's certainly worth noting.
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