With all publicity around Apple's (NASDAQ:AAPL)free software push with both Mavericks and iWork, Microsoft (NASDAQ:MSFT)is firing back pretty aggressively against the iMaker -- but it should probably be more concerned about what Google's (NASDAQ:GOOGL)doing.
Fighting the wrong battle
Microsoft has taken aim directly at the iPad lately, pitting it up against its Surface tablets in commercials and more recently in a blog post on its website. Frank Shaw, Microsoft's corporate vice president of communications, wrote earlier this week that the Surface tablets are much more of workhorses compared to iPads. He said giving away iWork for free won't have any impact on Office's productivity dominance. This is largely true because of Office's dominance in businesses and enterprise, but that doesn't mean Microsoft doesn't have anything to scared about.
Google just won contracts with the Army and the Department of Defense for its cloud-based apps. Google wrote this week: "The Army's rollout of Google Apps is part of a transformational program to improve collaboration, information sharing and mobile access for an initial group of 50,000 Army and Department of Defense (DoD) personnel ."
A few contracts won't come close to killing Microsoft Office, or Office 365, but it does mean the company's software is no longer the obvious choice. Signing up for Google Apps was a way for the Army and DoD to cut expenses and move across platforms and devices seamlessly.
That's bad news for Microsoft considering Office was the biggest generator of operating income in fiscal 2013, far surpassing Windows. The division that includes Office brought in about $16 billion in operating income, compared to about $9.5 billion for Windows.
Productivity apps are in the process of shifting to cloud-based apps, with Gartner believing the real shift will begin in latter part of 2015 . Microsoft knows this and that's why it's fighting hard to hold on to what it has with Office and Office 365.
A recent report by Forrester Research said that Office is expensive to license and has more features than many business employees need, but that many IT decision-makers have been using Office for so long that it makes it difficult to switch .
At the beginning of this year, about 8% of business people used cloud-based office systems, but Forrester expects that number to hit 60 % by 2022. For now, it seems Microsoft still holds a significant lead in this space and isn't likely to be unseated any time soon. In fiscal 2013, Microsoft said it won back 440 customers who tried Google Apps and then moved back to Office. But as the shift to cloud-based apps increases over the next few years, Microsoft investors should be on the lookout for any major gains Google Apps make on Office. Google has a nasty habit of figuring out how to disrupt industries.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.