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This article was published on December 11, 2012

The Apple-Microsoft spat over App Store fees could shape the future of both Office and iPad

The Apple-Microsoft spat over App Store fees could shape the future of both Office and iPad
Alex Wilhelm
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Alex Wilhelm

Alex Wilhelm is a San Francisco-based writer. You can find Alex on Twitter, and on Facebook. You can reach Alex via email at [email protected] Alex Wilhelm is a San Francisco-based writer. You can find Alex on Twitter, and on Facebook. You can reach Alex via email at [email protected]

A disagreement over subscription fees in the iOS App Store has Microsoft and Apple snipping at each other behind closed doors, and, increasingly, on the pages of the technology press.

What was initially thought to be a disagreement over SkyDrive, Microsoft consumer cloud storage product, has become known as a more existential disagreement over a much more core Microsoft product: Office. Office 365, to be precise, the firm’s cloud-powered version of the Office brand.

How could Office 365 come between Apple and Microsoft, as the former has no competing product, and Office 365 has yet to land on iOS? As TNW reported moments ago:

Imagine the following scenario: an iOS user signs up for Office 365, giving Apple a 30% cut of the monthly or yearly fees. However, if that user leaves iOS, and begins to use their Office 365 subscription elsewhere – assuming that Office 365 remains portable – and abdicates Apple’s ecosystem, Apple would continue to receive a 30% cut of that person’s fees, regardless.

Microsoft, presumably, isn’t a fan of this, whilst Apple most certainly is. Interestingly, how the situation resolves itself, or doesn’t could be key to both the Office, and iPad lines.

TNW, in internal discussion, came to varied views on the potential impact of the possible partial or full exclusion of the Office line of software from iOS. The following question is key: will Office for iOS be a collection of standalone applications, a collection of standalone applications and an Office 365 option, or only Office 365?

We’ll work through each in turn.

No Office 365 for iPad

This situation sounds nonsensical at first: if Office 365 is at the heart of the current Apple-Microsoft argument, why wouldn’t it be coming to the iOS platform. Well, Microsoft could decide that it doesn’t want to vend the product for iOS, as it doesn’t want to pay the cut, and thus simply not do so.

Thus, if Office is to come to the iPad in this situation, it would have to come as a collection, or bundle, of standalone applications. This would limit the enterprise palatability of the iPad, as even in a BYOD environment, it would be crippled at a workplace that is moving to the cloud version of Office.

Aside from potentially limited iPad sales, could the move harm Microsoft? Perhaps, but again to limited impact: Microsoft could miss out on revenues and momentum for its Office 365 product, a key piece of Office’s future. It would rather have more folks on it than on a ‘desktop’ Office build.

Office 365 and standalone applications

In this scenario, either Apple has caved and offered Microsoft a better rate, or Microsoft flat capitulates.

In this case, both players win, but Apple a touch more. By having the most critical productivity suite come to its platform in all its glory, Apple’s mobile products can continue their migration into the enterprise sans hitch. This could lead to increased device sales. Also, it gets to pick up a firm chunk of the revenue, on a continuing basis, that Microsoft has worked to earn. Not bad, in other words.

Here Microsoft does just fine, but not as well as it would like. It can vend apps to users who just want Word, and sell subscriptions to those who want them. Also, people can bring their Office 365 subscription to the iPad or iPhone and not pay a fee. Yes, it loses money that it wanted to keep, and feeds its chief rival directly, but it does manage to grow its new Office product uninhibited, from a user perspective.

The company is determined that Office 365 succeed, and thus to have it on the most popular tablet platform is quite important.

Apple wins this round, but Microsoft doesn’t lose more than money it wanted to hang onto.

Office 365 only

It is TNW’s opinion that we will only see an Office 365-only option for iPad if Apple grants Microsoft a special rate, or perhaps a deal in which it collects its full fare, but only for the first year of an account. There is likely some sort of deal to be made.

However, neither side has yet blinked. TNW suspects that Microsoft had been planning an Office 365 only launch for iOS, but when the 30% cut scenario came to the fore, things got hairy. If Apple refuses to give in, as we noted in scenario one, Microsoft could perhaps not bring Office 365 to the platform at all.

That isn’t likely appealing to either company, as each would like to profit as much as possible.

The rub to all of this is that Apple wants to sell iPads, as they make it buckets of money, and Microsoft wants to sell productivity software on a subscription basis, as doing so makes it buckets of money. Therefore, Apple won’t do something that would harm its ability to sell more iPads, and Microsoft won’t take a hit that endangers Office from its perch atop the productivity pyramid.

The exclusion of Office 365 from iOS would be a material negative to both companies goals, given the above paragraph, and therefore a deal is likely. What form it will take remains to be seen.

Top Image Credit: Debs (ò‿ó)♪

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