When it comes to business productivity tools, Microsoft (NASDAQ: MSFT) and its Office 365 suite rule the roost, and have for as long as many of us can remember. And based on last quarter's results, it appears Office 365 sales, particularly to consumers, continue to shine.
Office 365 consumer subscriber adoptions jumped about 25% last quarter, and after factoring in currency headwinds, even sales of Microsoft's commercial Office unit grew despite a tough business PC market and the pending release of Windows 10.
As it happens, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) knows a little something about dominating markets. With the vast majority of the world's smartphones and mobile devices running its wildly popular operating system (OS) Android, and most of those users opting for its search engine as the need arises, Alphabet has become a $455 billion behemoth. Now Alphabet plans to use its size and influence to directly target Microsoft on its own turf: Office 365.
When the then-Google introduced its office productivity app Docs nearly a decade ago, the plan was to build a tool that would "enable people to work together in new ways." But for the Microsoft Office-entrenched businesses around the world, Google's productivity solution was scarcely looked at. Instead, medium to large-sized companies were inking enterprise agreement (EA) deals with Microsoft that generally tied them to Office for three years.
Naturally, getting Office users to make a switch to any competing business app in the midst of an EA with Microsoft wasn't easy unless an Alphabet rep happened to catch them near the end of their contract's term. Now, as part of Google Apps for Work, Alphabet thinks its "productivity powerhouse" is ready to take on Office head-to-head. But what about all those EAs that Office customers are tied to? Not a problem, since Alphabet will now pick up the tab.
Time to play hardball
Alphabet and its Apps for Work product suite, which includes new features like voice typing and an explore function that gives users the ability to create data-driven charts and graphs, thinks it's ready for primetime, and will give its solution away until an existing EA deal expires. That's right, Alphabet said in a blog post this week that it would "cover the fees of Google Apps until your contract [EA] runs out."
Once a customer's existing EA runs its course, Alphabet will then offer its own, "simple" apps for work contract that it claims has the potential to "unlock savings of up to 70%." Whether that kind of savings is real or imagined, Alphabet's aggressive play to make a name for itself in Microsoft's world of office productivity solutions is no longer in doubt given its willingness to bite the EA bullet today, to gain market share tomorrow.
As it stands, Alphabet's deal to give its apps at work solution to existing Office 365 and other providers' customers for free is strictly for U.S. and Canada enterprise users. But stay tuned, says head of global sales Rich Rao, because Alphabet is working to bring the "use now, pay later" deal to the rest of the world.
Making a dent in Microsoft's still-growing Office 365 market share may seem like a far-flung notion, and it probably is. But then, who would have thought Microsoft's Bing would take a bite, albeit a small one, out of Alphabet's dominant search market share, as happened last quarter?
Of course, with nearly two-thirds of the search market, a mobile OS leadership position Microsoft can only dream of, and a fast-growing app store that helped drive a 17% jump in "other revenue" last quarter, Alphabet is winning most of the competitive markets in which the two giants cross paths. But winning over enough Office users to warrant giving its own apps at work solution away, for what could be years?
With nearly $70 billion in ready cash on its balance sheet -- and that's just here in the states-Alphabet can certainly afford to bite the apps at work financial bullet to gain some traction. But investors shouldn't expect much in the way of tangible results to come from Alphabet's latest effort to dethrone Microsoft's business dominance, at least not for years to come -- if ever. But obviously that won't prevent Alphabet from giving it a valiant, though probably futile, effort.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). 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.