With Office for iPad, Microsoft pushing subscription-first future

Microsoft's "freemium" switch for Office on iOS is one of the last remaining keys to the company's biggest pricing change in years.

Nick Statt Former Staff Reporter / News
Nick Statt was a staff reporter for CNET News covering Microsoft, gaming, and technology you sometimes wear. He previously wrote for ReadWrite, was a news associate at the social-news app Flipboard, and his work has appeared in Popular Science and Newsweek. When not complaining about Bay Area bagel quality, he can be found spending a questionable amount of time contemplating his relationship with video games.
Nick Statt
4 min read

Microsoft Word for iPad. Microsoft

It's been a long battle, but Microsoft seems to have conceded the fight to keep Apple's hands off proceeds from its mobile software.

Today marks the announcement of Office for iPad, Microsoft's core productivity suite that, slightly different than on iPhone, exists on tablets as standalone "freemium" apps. In doing so, Microsoft has pulled the most asked-for platform into its Office 365 umbrella, tying its effectiveness to that $99 annual subscription service, but choosing not to lock out Apple from the 30 percent cut as it has attempted to in years past.

"Microsoft is offering a $99.99 one-year subscription to Office 365 through in-app purchase. We are taking our standard 30 percent cut," an Apple spokesperson confirmed to CNET. The news was originally reported by Recode's Ina Fried.

Office 365 can still of course be purchased on the Web, bypassing Apple and thus keeping it from collecting the 30 percent App Store cut.

However, the bigger picture here is not that Microsoft has given in to the App Store ecosystem's most-avoided stipulation, but that the company has finally looped the powerful platform pull of the iPad into its most aggressive software strategy shift in years.

Buying standalone Office products for iOS is impossible, as it was on the iPhone. Access to that software on Apple's tablets now represents yet another reason why Office 365 should be the only cost-effective way to access Microsoft software.

"The 30 percent cut is the least of it, although significant. The issue is how to get users that pay for their product every two years, three years, to pay every year," said Michael Silver, an analyst at research firm Gartner.

"This is definitely Microsoft's future. If they don't get folks to subscription, it's a bigger issue," he added.

Long live Office 365

Normally, Apple's 30 percent take across the board for any purchase in the App Store -- for the app itself and any in-app items -- would create the most irritating conundrum for companies selling expensive software. That means Microsoft.

And that's been a core issue for the company on iOS in the past. Dialing back to the days before Office 365 became the de facto purchase option for Office -- the shift occurring primarily with the release of Office 2013 -- SkyDrive was the battleground over which Microsoft quarreled with Apple about subscriptions and in-app purchases.

Starting in December of 2012, Apple blocked an update for the SkyDrive iOS app over a dispute with Microsoft on the subscription storage plans it was trying to sell via the app. Not until many months later did Microsoft concede to pushing SkyDrive purchases to the Web.

A closer look at Microsoft's Office Suite for the iPad (pictures)

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Microsoft has neatly sorted out all the trouble as it expanded on iOS, using Office for iPhone as a testing ground. The log-in interface across the board is now necessarily native by Apple requirements, but no longer can Microsoft attempt to either set up Web-based purchases or link out from its iOS apps to facilitate those.

Instead, every Office app at long last offers an in-app purchase line item -- Office 365 Home -- for $99.99, 30 percent of that going to Apple.

The in-app purchase Microsoft included for Office apps on iPad. Screenshot by Nick Statt/CNET

There were other changes to iron this out across platforms. A "Buy Now" option on Office for iPhone was, even prior to today, already rendered useless by that disagreement and, thanks to an update that was pushed out following the iPad announcement this morning, no longer appears to exist. In its place, as on iPad, is an option that requires a Microsoft account sign-in to access a read-only mode in the absence of a 365 subscription.

It's the same limited functionality that's forced upon the desktop version of Office software if your 365 subscription expires.

The message is clear: you'd be an idiot to not use Office 365 and keep paying for it. Purchasing standalone Word software costs $110, a single-install Office package $140. None of your workflow on that software can be transferred to any other device with 365.

With standalone software installs now overtly expensive, Microsoft makes it painfully clear that Office 365 is the way to go.

That's because there's is no standalone full product version of Office software available for iOS. You must use 365, for $99 per year, which nets you five desktop installs and five mobile device installs. Before 2013, Office packages included more than one install. No longer is that case.

Microsoft is not likely to change this strategy up any time soon. "Even if they offered this [Office apps] through the App Store, they wouldn't be able to charge $10, $20 like all the other vendors," Silver said, noting that the feature set of Office is too large to justify a competitive mobile app price similar to that of Pages. "If they sold it through the App Store, it would definitely eat into their traditional Office sales."

All of this amounts to a very deliberate shift Microsoft has been planning for years, even if today's long-rumored announcement illustrates a "late to the party" mentality. "Anytime you're dealing with a billion-dollar product, its certainly fraught with uncertainty over how you're going to price it," Silver said.

With Microsoft, price tags are no more. Office for iPad is, above all else, just one more way to keep users singing up for a subscription.

Correction at 3:13 p.m. PT: A previous version of this article mistakenly noted that Microsoft was not selling subscriptions to Office 365 with iPad Office apps. Microsoft is in fact selling those subscriptions, and this article has been updated to reflect that.