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Microsoft Touches Sky with the iPad Suite

May 17, 2014 | About:

The first quarter for the current fiscal saw Microsoft (MSFT) something people had long waited for. The company launched its flagship productivity application - Office for Apple's iPad - on March 27 as part of its mobile first strategy. This seemed a perfect combination- best Saas application suite on the best tablet. The Office version for iPads, the iPad suite, reportedly hit has hit the 27 million download mark. This was popular with Wall Street and more importantly with consumers, who performed 27 million downloads in a matter of weeks. This number is more than twice the figure the company shared over a month ago. The hotly-anticipated group of apps rocketed to the top of Apple's iOS App Store charts one day after launch and held their high ranking positions for some time. As of this writing, Word is still the fourth most-downloaded free iPad app, while Excel and PowerPoint have dropped to number 22 and 26 in the rankings, respectively. Microsoft has been using the same “freemium” model with Office for iPad. However, to get the full editing and creation experience, users will have to subscribe to Office 365 by paying a monthly or yearly fee.

Performance Of The Office Market:

The Office productivity suite is Microsoft's biggest revenue driver and makes up 40% of its estimated value. According to estimated calculations, this segment generated approximately $24 billion in revenue in calendar 2013 and is expected to grow to $30 billion by 2020. Furthermore, this division has the highest profit margins (65%) for Microsoft primarily due to a dominant 93% market share in the productivity suite market. However, Google, with its Google Docs offering, is chipping away at this market share, especially in the iPad segment. Microsoft Office has a sticky user base that is reluctant to shift to other productivity platforms. As a result, since its launch on iPad, Office has been downloaded by 27 million times. Apple is taking the usual 30% cut of all subscription sign-ups, as is the company's policy for all in-app purchases. Office 365 subscriptions cost $99 per year or $9.99 per month.

However, the firm is struggling with hardware, and has just 3 percent of the global market share in smartphones.

Given that tiny market, some investors believe Microsoft should not waste time and money on the low-margin hardware business.

ValueAct Capital, which led the shareholder revolt last year which culminated in previous CEO Steve Ballmer's retirement, has lobbied against Microsoft's hardware effort, including its costly acquisition of Nokia's handset business. In recent quarters, much of the growth in Office revenues has been due to the growth in Office 365, which has an annual revenue run rate of over $2.5 billion.

To Conclude:

With the Office business going strong, the tech-giant is expected to increase the return on investment pretty soon. The best thing that could have bolstered the revenues or MSFT was definitely the iPad suite which the company successfully went ahead with. With this, I’d like to encourage the investors to buy the MSFT stock.

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