Microsoft (MSFT) continues its evolution in a post-PC age. But if the recent mobile strategy for MS Office is any indication, it will continue to lag woefully behind.
The news last week was that a pared-down version of flagship Office software from Microsoft has hit the Apple (AAPL) iPhone. On the surface, it’s an admission from Steve Ballmer & Co. that it has to do more with third-party mobile operating systems.
But MSFT isn’t giving the Office suite away, no sir. Right now you can only get the iPhone version by paying $100 a year for the cloud-based Office 365 software package — both for Windows and for iOS. And the Office suite still will not be available on the iPad or Android devices powered by Google (GOOG).
So those investors who think Microsoft is interested in new revenue streams are mistaken. As always, MSFT continues to be very concerned with owning its ecosystem of products — but this time, worrying about cannibalization of its Surface tablet instead of the already inevitable move away from PCs.
Microsoft has been pushing subscription-based Office 365 as a way to get customers to keep paying for the software that typically had been a one-shot purchase in the past. The efforts seem to have worked, with Microsoft’s Business division (of which Office is the flagship) recording a 5% revenue increase in Q1 over 2012 as sales increased 10% to businesses. That’s in contrast to flat performance for the Windows division of MSFT.
But unless Windows can figure out a way to get its hands on mobile revenue, these gains won’t last. You can’t offset declining PC/Windows sales forever simply by making people pay an annual fee for PC-based Office software instead of a one-time charge.
The foray into the iPhone App Store makes for a nice headline, but what’s the point? It’s still tethered to Office 365 subscriptions and it ignores the tablet market. And how many iPhone users are really going to squint at their iPhones to manage a spreadsheet?
An analyst with Edward Jones told Fox News that “Microsoft isn’t likely to offer Office on the iPad and other tablets until it sees sufficient adoption of Windows tablets first.” But Microsoft sold just 900,000 Surface tablets in Q1 — half the 1.8 million Kindles from Amazon (AMZN) that were sold and a fraction of the 8.8 million Samsung (SSNLF) devices and 19.5 million iPads sold.
Don’t hold your breath on that “sufficient adoption.”
Furthermore, a Nomura analyst warned that delaying a tablet version of Office does more harm than good.
“Office is a bigger business for Microsoft than Windows, so we see more urgency to preserve and extend the Office franchise cross platform,” he said.
In other words, if Microsoft is too concerned with keeping folks in its Windows/Surface universe and not concerned enough about getting its iconic Office software out there to remain relevant … well, it ultimately will wind up with less revenue and profit. That’s because keeping people in Office is much more important than keeping people on Windows, mobile PC or otherwise.
This is an uncomfortable moment for Microsoft. It’s seeing the end of its Windows empire and the dawn of something new. MSFT continues to hope that the brave new world is one where Windows Phone and Surface become dominant players, but investors need to understand that the company seems to be putting all its efforts into that worldview — and if it doesn’t close the gap on Google, Amazon or Apple soon, it might never do so.
If that reality plays out, then Microsoft needs to get whatever software it can onto the dominant players’ mobile platforms or risk the slow and inevitable decline of its entire business model.
- Big discounts for Surface tablets started a few weeks ago. Is it to prop up sales or a preface to a redesign/relaunch of the line? (Info World)
- In other news, Microsoft is pushing in-store stores — you read that right — within Best Buy (BBY). (InvestorPlace)
- Is Microsoft stock worth buying and holding, at least through year’s end? (The Street)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.