While investors seem to have focused on what this could mean for Microsoft (shares rose significantly in the wake of the report), what appears to have been ignored is what it could mean for Apple, particularly in the context of its ongoing battle with Google's (NASDAQ:GOOGL) Android.
Apple's tablet business isn't as robust as it seems
It would be grossly unfair to categorize Apple's tablet business as struggling -- Apple sells more tablets than any other company -- but its dominance of the market has dramatically lessened in recent quarters.
Last October, Apple reported that it had sold just 14.1 million iPads in the fourth quarter -- basically unchanged from the prior year. That continued a troubling trend that saw iPad sales basically flatline for most of 2013.
In January, iPad sales rebounded as new models helped reignite growth. But then, earlier this month, Gartner reported a major shift in the market: Last year, for the first time, tablets powered by Android outsold iPads. Once, iPads accounted for more than 90% of the tablet market -- today, that figure is down just 36%.
Why Microsoft might never release Office for Google's Android
If the tablet market is anything like the smartphone market, Android should continue to grow, taking market share at the expense of iPads. In the long run, the iPad could become even more of a niche item than the iPhone as most tablet buyers don't get the benefit of carrier subsidies.
But with Microsoft's help, Apple could beat back the competition from Google's operating system. Assuming Microsoft doesn't release Office for Android tablets, the iPad would have a unique killer app, one that tablets powered by Android simply couldn't offer. Of course, it's possible that Microsoft could bring Office to Android tablets. It might eventually, but for a number of reasons, Microsoft is highly incentivized not to do so.
For starters, Microsoft and Google compete in a completely different manner than Microsoft and Apple. While Microsoft and Apple are competitors, they target different market segments: Apple remains committed to the high end; Microsoft has been aggressively targeting the low end, offering cheap Windows-powered smartphones and tablets to compete with devices running Android.
Then there's web services: Microsoft is really the only company that challenges Google in that arena, and its desire to displace Google is easily seen in its Scroogled advertising campaign. Office for Android tablets would be an entirely different part of Microsoft's business, but the animosity between the two firms appears to run quite deep.
Of course, most menacing is the threat posed by other Android-powered PCs. Both Hewlett-Packard and Lenovo, the world's top PC vendors and Microsoft's biggest hardware partners, unveiled Android-powered desktops earlier this year. While the iPad may never replace a traditional desktop workstation, an Android-powered desktop could, at least in theory. Putting Office on Android, then, threatens not just Microsoft's tablet business but its Windows business as well.
Apple and Microsoft win, Google loses
Bringing Office to the iPad is a win both for Microsoft and for Apple. By offering Office to iPad owners, Microsoft is opening the door for more Office revenue, while Apple's tablet could be about to gain a killer app that rival devices running Google's operating system might never get. Investors in all three companies should follow Microsoft's event on Thursday as whatever Nadella announces should affect all three firms immensely.