Why Microsoft CEO Nadella intends to talk lots about Apple

Satya Nadella, who took over as Microsoft's CEO less than two months ago, is expected to use his first press conference to talk about Apple.

Specifically, Nadella, hosting an event in San Francisco Thursday, may announce that Office 365 will be available on Apple's iPad. The decision to make Microsoft's cash cow available on a product sold by one of its arch rivals not only breaks with a long Windows-centric history, it also sends a signal from the new boss that more big changes are in store. [TUNE IN: Catch our live blog from Microsoft's event, which starts Thursday at 10 a.m. PT.]

"If nothing else, it would be an important statement that Microsoft is serious about offering its services on platforms other than Windows, even potentially at Windows' expense," said Michael Silver, a research vice president with Gartner.

For years, investors expressed dissatisfaction with the refusal by Microsoft's previous CEO, Steve Ballmer, to adapt Office to run on newer, faster-growing computing platforms from Apple and Google. At Microsoft's September analyst meeting, Ballmer mentioned a version of Office that would run on tablets powered by Google's Android operating system, but he didn't provide specifics. But now that he's calling the shots, Nadella, who formerly ran Microsoft's cloud services division, is free to push harder for a serious cross-platform strategy as the world's largest software maker retools itself into a mobile first/cloud-first company.

In the company's last fiscal year ended in June 2013, the Office-dominated business division accounted for more than $16 billion of Microsoft's nearly $27 billion in operating profits. If Microsoft extends Office to iPads and Android tablets, as expected, it potentially sacrifices some sales of its own Windows-based tablets. That may be worth the risk if enough iPad users dump free alternatives to Office, such as Google Docs and Apple's free iWorks software, and decide to sign up for Office subscriptions. That's already leading some to wonder whether this marks the first step in abandoning the company's all-Windows-all-the-time past but the pluses may outweigh the potential negatives.

Wall Street has anticipated something like today's news ever since Nadella's appointment on Feb. 4. Investors have since bid up the company's stock as high as $40.99. Microsoft shares last reached the $40 level in July 2000. The iPad news has the potential to generate billions of dollars in new revenue. How much, though, remains unclear. Nomura Securities' analyst Rick Sherlund believes Microsoft could reap about $1 billion "over the next year or two" from corporate users. Ross MacMillan of Jefferies estimates that Microsoft could generate as much as $4 billion in additional annual revenue. It's a nice chunk of change either way, though still a relatively minor contribution to the coffers of a company generating about $25 billion in quarterly revenue. And that suggests this might be one product announcement where the symbolism is more significant than the details.

Moving Office beyond PCs

While many iPad users already use inexpensive products that offer features similar to Office, a product from Microsoft would be expected to provide better compatibility with Office on PCs than any third party can provide. The question is how much customers will be willing to pay. Office 365 offers different subscriptions at different prices for access to things like office applications and file storage and sharing. A subscription for users of Windows Surface tablet currently costs $99 dollars a year.

"Anyone who thinks they'll get Office for iPad for a few bucks from the App Store will be seriously disappointed," Silver said. "Microsoft has been pretty clear that its strategy is all about Office 365. Office for iPhone and Android phones are only available to Office 365 subscribers, and Office for iPad is likely to follow suit."

Microsoft is enjoying some success selling Office 365 in organizations, often with significant discounts as incentives, Silver added If these organizations provide Office 365 to their users, it could be a significant win for Microsoft because once they start using the products, it may be hard to give them up. The prospect of Microsoft embracing rivals to push a cloud-based offering could be just the ultimate end game. If he's right, Nadella will have even more reason to accelerate the move to faster-growth platforms and cloud services.

Given his background, Nadella understands how closely Microsoft's future is tied to the success of its cloud platform. It also offers a handy answer to the questions about how Microsoft will find its future source growth in a world where the glory days of Windows and PCs are far, far behind them.