Analyst: Microsoft forfeiting $2.5B a year by keeping Office off Apple's iPad

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Microsoft (NASDAQ:MSFT) is leaving billions of dollars on the table by not offering a full version of its Office productivity suite optimized for Apple's (NASDAQ:AAPL) iPad, according to a new estimate from Morgan Stanley analyst Adam Holt.

In a note to investors, Holt estimates that Microsoft sold fewer than 1 million Windows-based tablets in 2012 and will struggle to capture 10 percent of the tablet market this year, especially given reports that longtime Windows partner Hewlett-Packard will turn to Google's (NASDAQ:GOOG) Android to power its forthcoming mobile devices. Holt also calculates that three to four times as many Mac users (between 30 and 40 percent) install paid versions of Office on their desktops as Windows PC users (10 to 15 percent) do.

Assuming a similar 30 percent adoption rate across an installed base of more than 200 million iPads, Holt estimates that Office for iPad priced at $60 would generate more than $2.5 billion in additional Microsoft revenues in 2014, even after Apple claims its standard 30 percent App Store sales cut. "The math is compelling," Holt concludes, "and may drive MSFT to move Office."

Citing sources familiar with ongoing negotiations between the two companies, AllThingsD reported late last year that discussions to bring Office to iOS stalled over how Microsoft and Apple will share proceeds. Insiders say Microsoft is balking at giving Apple 30 percent of revenues from Office-branded, native iOS apps allowing users to access Word, PowerPoint and Excel documents on the go: Because Office is a perennial cash cow, Microsoft does not want to hand over such a large chunk of its profits. Microsoft also contends that Office's value and utility will bring significant benefits to the iOS platform as a whole, meriting an adjustment to the 70/30 split.

Apple has declined to comment on talks with Microsoft, but indicates it will not bend on App Store revenue sharing. "Apple provides customers and developers the largest selection and safest way to discover apps with our curated App Store," Apple spokesperson Tom Neumayr told AllThingsD in December. "We've designed our rules to be fair and consistent for every developer. Free apps and services are distributed for free, paid apps and services provide a revenue share to Apple. We've paid out over $6.5 billion to our developer community who have created over 700,000 apps."

Asked about Office for iPad at this week's Goldman Sachs Technology and Internet Conference in San Francisco, Microsoft CFO Peter Klein hinted the possibility still exists. "We have a history of cross-platform delivery broadly in productivity, whether it's Office on the Mac, or e-mail, communications, note-taking," Klein said. "And with our Web applications you can access Office documents, do some light editing on any device and on any browser. So there's a lot of things that we're already doing to meet that need. And we'll continue to think about other things going forward."

For more:
- read this Apple 2.0 article
- read this All Things D article

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