It's clear that Microsoft's (NASDAQ:MSFT) Office for iPad has been a success in Apple's (NASDAQ:AAPL) App Store since launch. Even at the time of this writing, more than a week after it launched, Word, Excel, and PowerPoint sit among the top three free app downloads in the App Store. But it wasn't until yesterday that we knew exactly how well Office for iPad is doing. Apparently, pent-up demand for the world's best productivity suite on the world's most popular tablet is substantial. Microsoft tweeted that Word, Excel, PowerPoint, and OneNote for iPad have been downloaded over 12 million times.
Revenue, however, remains a mystery
How much revenue is Microsoft generating from these downloads? That's difficult to tell. While the apps are all free to download, only the redesigned OneNote is free to actually use. Word, Excel, and PowerPoint for iPad all require a qualifying 365 subscription. Further, those with existing Microsoft 365 subscriptions can utilize their current subscription to use the new apps, not forking up any new cash. Making matters even more complicated, 365 subscriptions made within the app require Microsoft to pay a 30% cut to Apple yet subscriptions can easily be made outside the app, too.
But investors shouldn't fret. The pent-up demand at least illustrates that Microsoft is either providing greater value or making initial 365 sales to a total of 12 million customers. Even the added value for existing customers is important; Office for iPad strengthens the ecosystem of Microsoft's productivity suite and its OneDrive cloud service to which the new apps seamlessly sync. The move makes Microsoft's most profitable product incrementally "stickier" in a time when free productivity software on the iPad is not only rampant but also becoming increasingly better.
When Microsoft reports fiscal 2014 third-quarter earnings on April 24, investors should look for more clarity on Office for iPad's impact on Microsoft's financials. Hopefully, management will discuss the performance of the new apps in Apple's App Store in greater detail in the question-and-answer portion of the earnings call.
The pent-up demand illustrates opportunity in the cloud
Twelve million downloads for the new version of Office offer more evidence that the company's transition to the cloud could turn out to be lucrative over the long haul. First, it suggests customers using the iPad haven't given up on Microsoft Office. Second, as a recurring revenue stream, the cloud solution for its productivity suite is a more reliable stream of revenue that will likely boost retention -- especially as Microsoft effectively builds out its productivity suite for other platforms.