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Microsoft remains noncommittal on Office plans for Windows 8 tablets

Daniel Eran Dilger

While eager to demonstrate next year’s Windows 8, Microsoft has been reticent to make any promises about a tablet friendly new version of Office sporting the new Metro look, a clear departure from Apple’s strategy of presenting the original iPad with a suite of new iWork apps, but only after both were finished and ready to sell.
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Microsoft has outlined plans to bring the iPad’s exclusive App Store software model to Windows 8, at least for the new Zune-inspired Metro apps that Windows 8 tablets will run. However, it hasn’t announced parallel plans to bring its own Office apps. Instead, the company has said only that it is still only thinking about its Office options in the tablet arena, despite revealing plans to get Windows 8 itself to market within a year.

Speaking with financial analysts, Microsoft’s chief executive Steve Ballmer answered questions about a Metro Office release by saying, “you ought to expect that we are rethinking and working hard on what it would mean to do Office Metro style.”

Ballmer then revealed that Microsoft was still in the early stages of exploring the concept by saying, “the question is Metro interface for Office. How critical is it to Windows 8 adoption to have software that takes full advantage of Office with Metro?”

Office now more important to Microsoft than Windows

The lack of an articulated direction for Office on tablets is notable because many Windows enthusiast observers are hoping Windows 8 will do to the iPad in tablets what Windows 95 did to the original Macintosh in graphical desktops.

However, Office isn’t just the icing on top of Microsoft’s Windows cake. Microsoft’s revenues from its Business Division (90 percent of which come from Office, according to the company) have now exceeded its Windows & Windows Live Division (representing desktop OS licensing). Office also earns Microsoft more profits than Windows.

Windows is also experiencing stagnating growth, while the company’s Office revenues and profits continue to grow at a healthy pace. And while Microsoft has emphasized its Xbox 360, Kinect, Zune and similar consumer devices, its Office group makes more than 100 times the profits of its entire Entertainment and Devices Division. Office is currently Microsoft’s biggest cash cow, and it has long been near the top.

Office was the reason for Windows

Office has long been a key pillar of Microsoft’s business. In fact, Office wasn’t created for Windows; Windows was created as a way for Microsoft to sell its successful Macintosh Office apps on the DOS PC.

The main attraction of the Windows PC was initially that it could run Excel, and later Word and PowerPoint, three apps Microsoft had created or acquired to build its Office suite on the Macintosh. Alternative PC operating systems, including IBM’s OS/2, couldn’t run the Mac’s Office apps and Microsoft demonstrated no interest in porting Office to support alternative platforms it did not own.

At the same time, Microsoft had encouraged the developers of popular or even critical apps for DOS users, including Word Perfect and Lotus 1-2-3, to port their software to OS/2. When Microsoft subsequently abandoned its OS/2 partnership with IBM and began selling Windows on its own, it was also left with the only productivity apps available for Windows.

Microsoft subsequently co-marketed Windows 95 and its matching set of Office apps, almost instantly killing off rival desktop software and making Windows and Office paired standards for PC users. In the years since, Microsoft has deftly outpaced third party developers’ attempts to bring Office competitors to Windows, even as it rolled new functionality into Office to take over new markets (such as messaging with Exchange Server and Outlook).

Apple and Office

While Apple’s original graphical computer, the 1983 Lisa, was too expensive to reach the mass market, early reviewers were more impressed with its complete suite of productivity apps than they were with the system itself.

Lisa’s bundled Office System software suite was criticized by developers as eating into their potential market. When it released the Macintosh, Apple was so worried about offending third party developers that it allowed them to deliver most of its software without any significant first party competition.

Office 2008
In fact, it was originally Steve Jobs who invited Microsoft to write its Office apps for the Macintosh, observing that Bill Gates’ company was struggling to find a market for its Multiplan spreadsheet (a clone of VisiCalc) in the DOS PC world dominated by Lotus. Microsoft also began porting its MultiPlan Word software, based on the Bravo word processor from Xerox PARC, to the Mac.

After being renamed as Excel and Word on the Macintosh, Microsoft’s apps began to take off. Apple’s chief executive at the time, John Sculley, recently noted in a presentation that “Microsoft made more money on Microsoft Office per Macintosh than Apple made on the Macintosh.”

In its battle with IBM’s OS/2, Sculley explained that Microsoft was able to license Windows for cheaper because it was making its money on Office apps, which supported the development of Windows itself.

Beating Microsoft in Software

In the early 1990s, Apple briefly experimented once again with building its own productivity software for the Macintosh under a subsidiary named Claris.

Its flagship product, ClarisWorks, immediately became the most popular integrated office suite on the Mac, outselling Microsoft’s Works in its first year. Claris even went to court to force Microsoft to remove advertising calling Works the “Best-Selling Integrated Application for the Macintosh,” because it wasn’t true anymore.

The beleaguered Apple subsequently allowed Claris to fall apart, and by the time Jobs returned to lead the company in 1997, very little of the subsidiary’s software was deemed worthily of salvaging. Instead, Jobs started work on a series of new productivity apps that eventually became the iWorks suite: Keynote, Pages and Numbers. Apple used the suite to lessen the Mac platform’s need for Office and to sharply lower the price Microsoft could charge for Office.

When it launched the iPad last year, Apple also launched mobile iOS versions of all three iWorks apps, which it later also brought to the iPhone. Apple’s iWork apps have remained in the top ten highest grossing iPad apps since their release. However, Microsoft has been almost completely absent from the iOS market, offering only free OneNote and Messenger clients for the iPad related to its Office suite.

Without a significant application presence on iOS, Microsoft will be earning no external revenues to support touch-based productivity apps on Windows 8 in the way the massive revenues from Macintosh Office apps literally paid for the original development of Windows.

Ribbon vs Metro

Last year, Microsoft released mobile Metro versions of Word, Excel, PowerPoint, OneNote and Outlook for Windows Phone 7, but those apps (which ship on every WP7 phone) haven’t attracted significant interest in the company’s mobile platform, even from enterprise users heavily invested in Office and Exchange Server.

And because the apps are bundled on WP7 phones, rather than being sold separately, they are earning Microsoft no additional revenues. The overall lack of interest demonstrated in Windows Phone 7 portends bad news for similar Metro-style Office apps on Windows 8 tablets, even if Microsoft does indeed decide to release a “Metro-fied” Office suite for tablets.

In addition, the company’s efforts to make Office Ribbonized beginning with Windows Vista (largely a strategy to differentiate Office from free knockoffs such as StarOffice/OpenOffice) set the company’s productivity apps in a completely different direction back in 2007 when Apple was preparing to launch iOS on the iPhone.

Apple’s iPad look comes to the desktop and the cloud

Office users were just beginning to accept the new Ribbon interface (and Office for Mac users were just getting the first sight of the Ribbon) when Apple released its multitouch versions of iWork apps for iPad. Rather than putting more buttons and controls into a busy toolbar, Apple stripped complexity from the iWorks interface to make it more useful to mobile users. At the same time, Apple began work on iCloud, enabling iWork users on Macs and iOS devices to keep their document changes updated across all their devices.

When Microsoft debuts Windows 8 on new tablet devices sometime a year from now, it will need to bridge the chasm between its animated, Zune-like Metro interface and the complex Ribbon interface it uses on the conventional Windows desktop.

Apple has already released efforts to bridge the iPad and desktop interface with Mac OS X Lion, where apps such as Mail have inherited a very iPad-like experience. Forthcoming versions of iWork for the desktop are likely to similarly incorporate iPad elements. iCloud also brings an identical, cohesive interface to Apple’s portfolio of web apps.

Microsoft’s mobile strategy for Office

For years, Microsoft has taken a year or two longer to bring its Office for Windows updates to the Macintosh. After promising to bring its apps to Symbian in a high profile deal with Nokia back in 2009, Microsoft spent two years on the project. This suggests that the company will take more than a year to develop an entirely new Metro version of Office parallel to its planned release of Office 15 for desktop users.

With Apple’s iWork apps now available from the Mac App Store for a total of $60, the potential market of Office for Mac is shrinking alongside the plateauing market for Windows PCs themselves. The cost of Office for Mac has imploded from its former $500 to a starting price now around $75.

Growth is occurring among mobile devices, primarily iOS and Android on smartphones and the iPad among a small minority of other tablets. Microsoft isn’t selling its Office apps on any of those growing platforms. So far, it has only released significant portions of its Office suite for the stillborn WP7 and Nokia’s left for dead Symbian platform.

Whether Microsoft can deliver Metro Office apps interesting enough to spur demand for Windows 8 tablets, or whether Windows 8 tablets will find a market without critical apps such as Office, are critically important issues Microsoft’s chief executive leaves completely unanswered.

16 comments

1 TheMacAdvocate { 09.19.11 at 5:06 pm }

Microsoft bundled free versions of Office on their DOA Windows 7 Phone platform, which their Metro UI is virtually identical to. But they can’t bundle Office as Metro apps without charging for them because Windows 8 is more than just Metro: it’s their next OS. Do they offer a version of it on the ARM tablets that probably won’t run anything but Metro? That leads to a situation where cheaper devices are offering a distinct advantage over their more expensive “full Windows” counterparts.

Microsoft really screwed the pooch on this one.

2 gus2000 { 09.19.11 at 6:40 pm }

I actually have a leaked screenshot of beta Office for Metro, and it is all kinds of awesome! Check it out:

http://robots.org.uk/stuff/WordToolbars.jpg

Suck on THAT, Apple!

3 roz { 09.19.11 at 7:45 pm }

@gus2000 LOL

4 John E { 09.19.11 at 9:37 pm }

MS is kinda boxed in here.

Office, as DED notes, is one of its two main cash cows (the other being Server and related enterprise software). but that depends on the absurdly high prices MS can still charge for the versions that businesses buy. and the the $100+ prices most consumers pay for Home, etc.

Consumers are not going to pay anything like that for stripped-down “lite” tablet versions. all most need is Word and Excel. to get Pages and Numbers costs $20. to get Google Works is $-0-. maybe MS could get $50, tops, for those two combined. but once they set such a low price, that puts pressure on the desktop versions. most consumers don’t ever use all their extra bells and whistles, and would resist paying extra.

so i think more likely MS will instead bundle the “lite” Office tablet apps with the desktop versions of Office. for just $10 more each, or maybe nothing extra. but you can’t buy them stand alone at all. that would continue the dominance of Windows/Office more than any other approach i think.

and they could do the same with iOS versions bundled with OS X Office for the same reason. but they won’t release the iOS apps (or Android) until after the W8 tablets with Office “lite” have been on the market a while. because they think Office will be one of the big – if not the biggest – unique selling points for W8 tablets.

the big risk is, by the time they offer iOS and Android Office apps in, say, late 2013, iOS and Android users may not care anymore.

5 eyez00 { 09.20.11 at 2:07 am }

I seem to remember MS buying it’s way to Office hegemony. PCs were being advertised & sold with the 3 applications (they weren’t yet branded as “Office”) discounted down to zero.
For Big Enterprise the discount went below zero. For example the Global Accountants & Consultancies with 1000s of spreadsheet power users spread across the world weren’t going to drop Lotus 1-2-3 without a great deal of internal fuss and external bribery. And it wasn’t quick or cheap to convert either, even with the Excel function of a Lotus macro “converter”. A senior partner’s time is expensive & even hiring a tech like me to do it wasn’t exactly cheap.
IT weren’t yet the dominant corporate software buying department for PCs at that stage. Finance had put DOS –based PCs onto the desktop by demanding platforms to run Lotus. Man Years, billable Man Years, of macro development were tied up in Lotus & accountants aren’t by nature embracers of Change anyway.
Only by bribing IT to place Win3.1 and Excel onto the desktop did Office gain it’s stranglehold. Yet to be honest when you compared Excel in Win to Lotus in WYSIWYG (GUI emulator) under DOS, Lotus was doomed.
The version of Lotus in Win3.1 I was given to use was just too buggy to run & the keyboard shortcuts, like Cntrl-C, Cntrl-X, etc weren’t as intuitive or natural as the MS-from-Mac shortcuts, so they slowed to a halt, user adoption of the GUI version. I saw an attempted demo of Lotus in OS/2, but it wouldn’t load.
I remember Lotus & WordPerfect fighting back with their own “Discount to Zero” schemes. Word v WordPerfect didn’t matter, the last of the big secretarial departments had already been made redundant & anyway I’ve seen accountants using spreadsheets as word-processors, so even though AmiPro was in a class of it’s own, back in the day, the cheapest WP beat out all others.
MS doesn’t do “new tricks” in my experience, so watch for them offering loss-leader W8 Office products at below cost discounts to Enterprise again, hoping I assume, that the power of unpaid for support from the local IT guy at the office will drive consumer users to purchase W8 products at monopolistic price points.

6 Berend Schotanus { 09.20.11 at 4:57 am }

Great reading!

Apparently Microsoft suffers heavily from internal struggles.

I thought (and still think) the Metro team came with an appealing vision. And why shouldn’t they: Microsoft has the money to hire talented people. But this same vision likely causes a lot of internal opposition too.

Publicity is a weapon in internal struggles. The fact that Metro now gets so much attention weakens the chances of proponents of the old desktop metaphor. Maybe – with the help of some Appleinsider publication – the Windows people might now even convince the Office people to finally start develop a credible tablet version;-)

But in the end it is a sad story. The task of a ceo is to make sure that Metro-guys and Ribbon-guys put their effort in one shared strategy. There is some more work to do for Steve Ballmer, than having lunch with M&A Bankers, who try to sell him expensive companies.

7 duckie { 09.20.11 at 9:18 am }

If they do bundle a “lite” Office with Win8 tablets it’s going to have to be a hell of a lot better than what they provided for Phone 7. With Word you can, um, change text fonts (a bit) and, erm, change text colours. And that’s about it. Wowzer.

8 Maniac { 09.20.11 at 10:17 am }

@ John E re: “MS is kinda boxed in here.”

Exactly. Apple has let the market set a low price for iOS apps. Just a few bucks. That works to Apple’s advantage. The App Store, with its vast number of high quality, affordable apps, is part of the massive ecosystem that adds value to Apple’s hardware. And Apple’s profits come mostly from their hardware sales.

On the other hand, Microsoft needs to sell their software for as much as the market will bear. They’re a software company. But the market is expecting mobile apps to become cheaper and cheaper. Apple has set the price expectation, and it’s too low for Microsoft. That’s the second headache Ballmer has to deal with, and it’s the real killer.

Ballmer says “we are rethinking and working hard on what it would mean to do Office Metro style.” Yes, the first problem wil be a huge engineering and design effort to make Office run on x86 and ARM and with a vastly different GUI. It’s huge, but it’s manageable.

But the bigger long-term problem is economics. MS will burn up thousands of man years between now and late 2012 on the project. But will they make money on it after that? Doubtful. Small installed base + high development cost = red ink. There’s no way MS can sell their apps for more than Apple. Office can’t cost more than the iWork suite.

And we’ve seen the price of traditional desktop OS apps drop too, thanks to the Mac App Store. Not to mention that OS X “Lion” itself is only $29. This is a scary trend for Microsoft. Good luck trying to maintain your margins, Ballmer.

9 SkyTree { 09.20.11 at 10:20 am }

Daniel,

Thanks for the analysis. I think that you are able to offer a better insight into Microsoft’s risks and opportunities, and their future, than most “Windows Enthusiast” bloggers or even anyone inside Microsoft.

As Berend Schotanus notes, Microsoft employs many brilliant people who suffer from “internal struggles” and a lack of vision from the top down.

Perhaps the “Windows Enthusiast” bloggers who criticise you for what they view as an anti-Microsoft bias should ask themselves this: since Daniel Eran Dilger has been commenting on technology since the days when Microsoft was expected to succeed, and Apple was expected to fail, on all fronts, and since generally over the years after then the things that those bloggers expected Microsoft to succeed at and Apple to fail at have instead resulted in Microsoft failing and Apple succeeding, more or less as predicted by the DED analysis, what has DED been doing right that they have been doing wrong? Microsoft employees likewise.

Meanwhile, as a consumer, I have not been keeping count, but I have spent a lot of money on Microsoft products over the years, including various Windows OS’s and Office software for both the Mac and Windows PC’s. If a version of Office had been available for the iPad I would probably have bought it. Instead I have been using the iWorks versions and learning the workarounds, including how to prepare Office files for a trip to the iPad. If it takes another year before Microsoft introduces a version of Office for the iPad, I probably won’t care enough to buy it.

I believe that Microsoft probably has a great future, one that involves becoming a leader in business and server technology. Whether that future overlaps into the consumer space depends on how far it can extend the Office software to other platforms, such as the iPad. Does Microsoft have much of a future with the Windows OS? That is also a possibility, if the image presented by “Metro” can become a reality, and if it can be extended across the PC desktop, the tablet and the phone.

It is not, however, a certainty.

Keep up the critical viewpoint. If anyone at Microsoft has any sense, they will pay you for it. If not …………………..

10 jbarker71 { 09.20.11 at 10:41 am }

I liked Word when it fit on a floppy and ran on my Mac LC. If a 25MHz machine can run all I need with word processor, why has word processing become so cumbersome and difficult? Even OpenOffice is bloated. MS can create and sell solutions to problems I do not have.
Visicalc ran nicely on a 2.8MHz apple ][+. Excel is the least worst of the offenders. And dealing with a client who only communicates via PPT docs- I’d like to pitch that out the window.
I only need something stupid-simple like TextEdit. If I want to style it, I’ll use Illustrator. Just can’t get a OSX version of Word 5.1a.
I’m curious how much share OpenOffice has taken from MS.

11 John E { 09.20.11 at 12:14 pm }

Big picutre, MS has two lines of business: Business software and extensive services, and Consumer software and limited services. the Business line accounts for almost all the profits (esp. if you include what consumers spend on Office).

Many have suggested splitting MS into two companies like this, to better focus each. the Business side would be a very strong company, like IBM. but the Consumer side would be very weak – it needs the Windows OS global monopoly to prop it up.

Metro/Live is MS strategy to pull all its consumer software together. but will it be well executed, or another Vista? will it be popular, even tho 2 years behind the competition, or will a majority of Windows users bypass it or switch instead? and even if it is popular, will it be profitable at long last?

and if it is a disappointment, will Ballmer finally get fired and the company split in two? 2013 will be the Big Showdown.

12 jmfree { 09.20.11 at 12:38 pm }

Only DED could make me divert any attention whatsoever to Windows anymore.

I have told friends that getting off of Windows (well, starting with DOS in 1984) was like having a large tumor removed. It’s the kind of thing you just want to leave behind and forget about.

There are no fond memories of the endless weekends lost tweaking, optimizing, and reinstalling; the years trying to figure out why USB devices would drop off of hubs arbitrarily; the way too many times of running out of battery when I could least afford to; and upgrades, upgrades, upgrades that really only succeeded in putting me back where I started.

Microsoft could shit gold bricks labeled “Windows” onto the sidewalk and I’d steer clear.

Yeah, it’s great I can boot into Windows on my Macbook Air, and run a couple of Windows-only apps when I absolutely need to, and far better than ever possible before on any other hardware. But I feel like taking a shower afterwards, like I’ve been snuggling up to Bernie Madoff.

But, as Dan points out, I am very happy to have (and pay for) Word and Excel for OS X. They are good tools that have nothing whatsoever to do with the whole Windows boondoggle.

They also have nothing whatsoever to do with a mobile strategy. Oops.

13 lahaina { 09.20.11 at 1:14 pm }

I had not paid any attention to Windows 8 until I heard DED’s delightful commentary on Tech Night Owl Live and read this blog. I got curious about Windows 8 Metro and looked at some screen shots. I have to agree with Snowman at:

http://forums.wincustomize.com/412009

who shows how Windows 8 borrows A LOT from Windows 1.0. Can’t imagine how they are going to strap a ribbon onto this mess and market it. Guess they can’t either.

14 spuy767 { 09.22.11 at 5:10 am }

The reason that Apple can release a near constant stream of hits is that when Steve returned as CEO, he formulated a way that the best ideas rise to the top in as efficient a manner as possible. In Microsoft, i get the sensation that there is more of a middle management CYA thing going on.

15 mrBitch { 09.29.11 at 8:06 am }

Windows 8 – Microsoft’s last hurrah, when it comes to the demise of Microsoft, Steve Jobs already called it a while back :

Steve Jobs: Apple had a monopoly on the graphical user interface for almost 10 years. That’s a long time. And how are monopolies lost? Think about it. Some very good product people invent some very good products, and the company achieves a monopoly. But after that, the product people aren’t the ones that drive the company forward anymore. It’s the marketing guys or the ones who expand the business into Latin America or whatever. Because what’s the point of focusing on making the product even better when the only company you can take business from is yourself? So a different group of people start to move up. And who usually ends up running the show? The sales guy… Then one day, the monopoly expires for whatever reason. But by then the best product people have left, or they’re no longer listened to. And so the company goes through this tumultuous time, and it either survives or it doesn’t.

BusinessWeek: Is this common in the industry?

Steve Jobs: Look at Microsoft — who’s running Microsoft?

BusinessWeek: Steve Ballmer.

Steve Jobs: Right, the sales guy. Case closed.

16 mrBitch { 09.29.11 at 8:08 am }

Forgot to leave a link, this was an interview with Steve Jobs in 2004 :
http://www.businessweek.com/bwdaily/dnflash/oct2004/nf20041012_4018_db083.htm

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