Will Google Docs for the iPad Trump Microsoft's Office 365?

The success of Microsoft's  (NASDAQ: MSFT  ) Office for iPad has apparently forced Google  (NASDAQ: GOOG  ) to offer stand-alone app versions of its popular word processing and spreadsheet apps with a take on its presentation software coming soon.

Previously customers could only access those apps through Google Drive, which made using them a little harder than simply clicking on an icon. The stand-alone apps offer that convenience, and while Google isn't saying so, they are likely an answer to Microsoft finally making Office available on iPads and iPhone. The company acknowledged that making customers use Drive was perhaps not the best possible user experience in a blog post announcing the stand-alone apps.

"And while the Drive app is a convenient place to store your stuff, we want to make it easier for you to quickly find, edit and create documents, spreadsheets, and presentations on the go," wrote product manager Brian Levee. 

The stand-alone apps also make it possible for people to work while offline. Google has made the apps available for download in the Google Play Android store as well as Apple's (NASDAQ: AAPL) app store. The blog post heralding the launch made no mention of whether a version would be offered for Windows users, but that seems unlikely as many Windows 8 tablets -- including Microsoft's Surface line -- come with Office already installed for free.

A brief history of Google's apps

When Google first offered its free suite of productivity apps it was pretty clear that the company was knocking off Microsoft Office and attempting to disrupt a market by offering free tools that did things consumers had always previously paid for.

That was a sensible strategy. While Google's apps weren't quite as good as Microsoft's software package, they were a reasonable combination of good enough and free.

Google's apps were also usable across the Windows, Android, and Apple operating systems, making them an obvious choice for users when the iPad created the tablet market. Though Apple offers iWorks, its own knockoff set of Office-like tools, until late 2013 those apps weren't free nor were they pre-installed on iPhones and iPads (they are free now). That gave Google more than three years from iPad's release in April 2010 when its word processor, spreadsheet, and presentation apps were the logical choice for iPad users -- there was no iPad version of Office, and Apple's own apps were not well-regarded enough for most people to be willing to pay for them.

Google was able to register a lot of people for its services because it was really the only game in town for iPad users. Google's productivity apps were also introduced at a time when customers were shifting away from the idea of buying expensive software like Office and becoming more comfortable using free apps. 

That virtual monopoly finally changed when Microsoft made its Office 365 service -- a web-based version of Office -- available for iPad.

How successful has it been?

Office 365 is a web-based service offered as a subscription package or a one-time purchase that allows subscribers to use Office across a variety of computing platforms. A basic plan costs $99.99 a year, which lets the user install the Office apps/programs across five different devices including iPads and iPhones. 

In its first week of availability for iPad Microsoft sent out a tweet celebrating 12 million downloads. That however does not mean 12 million subscribers -- the apps themselves are free and allow viewing of Office documents. To edit existing files or create new ones people are required to subscribe. 

Microsoft has not released sales data specific to Office for iPad but 12 million downloads in a week suggests there was a pent-up demand.

How much is the market worth?  

Microsoft and Google have different business models for their tools -- Microsoft sells its software and Google has an ad-supported model. Though Office has suffered a little in recent years as the PC market has been decimated, it's still a huge source of revenue for Microsoft.

In an earlier piece, Did Microsoft Office for iPad Come Too Late?, I wrote that according to Microsoft over one billion people -- one in seven on the planet -- uses Office. Over the last decade, Office has generated about $180 billion in revenue for Microsoft, The New York Timesreported and it remains the standard for business use. 

Microsoft does not break out revenue for Office, but the company in its third quarter 2014 financial report, CEO Satya Nadella said, "This quarter's results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world. We are making good progress in our consumer services like Bing and Office 365 Home." 

While Office for iPad was only available for a few days in March and the reporting period ended March 31, the company reported that "Office 365 Home now has 4.4 million subscribers, adding nearly 1 million subscribers in just three months." It's reasonable to assume that with 12 million downloads in the first week -- some during the company's third quarter -- that Office for iPad deserves some credit for the growth.

Google reacted quickly

Microsoft certainly came late to the party but the company has such a large base of users who use Office at work that there was clearly demand for Office for iPad. Those customers may even have already had Office 365 subscriptions but were forced to use Google's apps or some other alternative on their iPads. Users already paying for Office who install it on their iPads are likely lost to Google for good. Where the company can protect its turf and even gain users is with people not already using Windows who would prefer a free service.

Offering stand-alone apps and not forcing people into Drive gives Google a chance to compete. If someone can download the Microsoft Word app for free but needs to pay to make it useful or can download Google Docs and just start using it, that's a powerful argument in favor of Google. The search giant also deserves credit for reacting so quickly to the threat to its business that Office for iPad represents.

Google may not have wanted to offer stand-alone apps but it needed to and in doing so the company's offering remains a good enough free alternative to Office. That should keep it a player in the space because many people won't pay for something they have grown accustomed to getting for free. 

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