Edit Office Files From The Dropbox Mobile App
Office 365 and Dropbox will finally play nice together. Source: Microsoft.

CEO Satya Nadella is getting rather aggressive with Microsoft (NASDAQ:MSFT) Office 365, the online version of Microsoft's productivity suite. Last week, the company announced it would provide unlimited cloud storage to Office 365 subscribers in an effort to court more subscribers, especially businesses with lots of storage needs.

Last week, I noted that consumers likely aren't that interested in unlimited cloud storage. Very few individuals have more than a few gigabytes of data they'd like to backup to the cloud. And when it comes to consumer cloud storage, Dropbox is at the top of the list. Despite the two competing for individuals and businesses for cloud storage services, they've put aside their differences to make Office 365 play nice with Dropbox.

Solving one of the biggest complaints
With this partnership, Microsoft is solving one of the biggest complaints about Office for iPad. Previously, users had to keep documents in Microsoft's OneDrive.

The reason this is a problem is because a lot of consumers have already set up and uploaded all of their documents to Dropbox. Dropbox has grown rapidly during the last couple of years through its clever referral program, which incentivizes users to sign up their friends. Six months ago, Dropbox surpassed 300 million users, and it's likely closer to 400 million users today.

With the introduction of unlimited storage for Office 365 subscribers, Microsoft has much less incentive to onboard users to OneDrive storage. There's no opportunity to upsell them to more storage. Office 365 has become the cloud storage product; if consumers want to use another service, Microsoft should be happy to let them, as long as they subscribe to Office.

Why investors should care
Office is, by far, the biggest revenue generator for Microsoft. With Windows sales decreasing as PC sales decline, and the aggressive pricing Nadella has put in place, Office is becoming an even bigger part of Microsoft's business.

Last quarter, Office 365 Home and Personal subscriptions increased 25% sequentially, to 7 million. Since introducing Office for iPad, Home and Personal subscribers have increased by more than 50% in just more than six months.

But the opportunity for Microsoft is much bigger. Microsoft says Office has 1 billion users worldwide, including consumers and businesses. The end goal for Microsoft is to transition all of those users to Office 365 subscribers.

Last year, after Office revenue declined with the introduction of Office 365, Microsoft CFO Amy Hood noted her belief that the lifetime value of an Office 365 subscriber is much greater than a user who purchases the software suite. As a whole, Microsoft's Office systems revenue increased 5.8% in fiscal 2014, indicating the transition is already working.

Considering that Office accounts for 28% of Microsoft's total revenue, and it's one of its most successful products ever, the company should do everything it can to keep customers and transition them to Office 365. Meeting Office users where they already are -- i.e. Dropbox -- increases the odds to transition Office users -- some of whom may not have upgraded for years -- to Office 365 subscribers.

Businesses and now consumers
Microsoft is protecting its cash cow from all angles. Last week's announcement that Microsoft would provide unlimited storage for Office 365 subscribers was far more appealing to businesses than consumers. This week's announcement that Office 365 will work with Dropbox is very appealing to consumers.

Nadella stated upon taking over as CEO of Microsoft in February that his concentration will be on cloud and mobile. Office 365 -- and Office for iPad and Android by extension -- is one of the biggest pieces to Microsoft's cloud and mobile business, the future of Office, and Microsoft's biggest revenue generator. Therefore, Microsoft needs to do everything it can to maintain its position as the No. 1 productivity suite, and grow revenue.

The last two weeks have been very exciting for Office's prospects.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of 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.