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After Apple pushed its 25 billionth app this weekend there was nothing especially surprising about the list of all-time paid apps for the iPhone: games and novelty apps dominated it. But the list of all-time paid apps for the iPad was somewhat revealing. Pages, Apple’s word processing app, was up there at number one. Numbers and Keynote were on the list as well, as well as Penultimate, QuickOffice Pro HD, Notability and Splashtop Remote Desktop. Almost 25 percent of the list was comprised of productivity apps.

It’s not surprising that the business casuals have embraced the iPad — that’s been clear for a while now if at any time in the past 18 months you’ve stepped into the local branch of a coffee shop chain where the Banana Republic set feels most comfortable. But what is interesting is just how strongly and quickly they appear to have embraced it. QuickOffice Pro HD is especially telling: it’s a replacement set for three of the most popular applications in Microsoft Office, with a 4.5 rating for the current version on the App Store.

At this point, if you still believe that the iPad is primarily a consumption device you’ve probably got a netbook to sell me. And while PC sales aren’t quite fucked yet, clothes are definitely being shed. This is all, pretty clearly, a problem for Microsoft. Office was roughly 30 percent of Microsoft’s revenue last quarter — and almost all of that was from traditional computing devices. And while releasing Office for the iPad is the right move for Microsoft, it raises serious questions about Microsoft’s future Office revenues.

Microsoft’s Business Division, which is where Office is siloed, reported revenues of over $6 billion last quarter. Over 90 percent of that was from sales of Office products. Microsoft didn’t break out the difference between enterprise and consumer sales in their 10-Q, but looking at their data it appears that roughly 75 percent of Business Division’s revenue comes from the enterprise and 25 percent from consumers. To think about it another way, that’s 23 percent and 7 percent of all of Microsoft’s revenue for their last quarter.

This is where the iPad comes in, scissors in hand, and prepares to give the Business Division a haircut. It’s not clear if it’s going to be a Sweeney Todd situation or more like Supercuts, but a lot of it is going to be due to pricing.

Right now, consumers can pick up Office for PCs for around $125. Per-seat pricing for the enterprise is a little trickier, but it’s estimated to be around $50 and predicted to drop further.1 Office prices have always seemed relatively fair, because the core products — especially Word and Excel — are bundled. Customers think that they’re getting a lot for their money — and if they didn’t, well, everyone needs Office, right?

But pricing on the iPad is a totally different situation. The Office competitors and complements on the all-time list are all priced under $20. Pages, Numbers and Keynote are under $10. Even if Office for the iPad is released as a bundled app — which seems like a UX boondoggle — what can they possibly price it at to stay competitive? QuickOfficePro can view and edit Word, Excel and PowerPoint documents and you get the whole shebang for $19.99. If they release standalone apps — which seems the most likely, but who knows — will customers be willing to pay more than $30 for Word on the iPad? Will they be willing to pay more than $20?

Unbundling Office for the iPad creates an additional problem for Microsoft revenues, especially on the consumer side. I can’t find a breakdown of how Office products are used, but it’s a safe bet to assume that many people who bought Office have never even opened PowerPoint. If Microsoft unbundles Office, there’s a good possibility many people aren’t going to be buying Microsoft Office. They’re going to be buying Microsoft Word.2

None of this is considering versioning and paid upgrades — which Microsoft loves — and are still relatively untested in the iOS market.

I could be totally wrong about the price people are willing to pay for Office on the iPad. Maybe it is that important and people are willing to pay $125 for a suite of Microsoft products on a device that costs $500. But the adoption of the iPad has not just shown that consumers use the iPad to get work done but that those same consumers have learned that they can get work done without using Office.

This was made especially clear to me by a series of retweets by John Gruber over the weekend showing just how quickly people are adapting to the iPad. George Howard:

Maxim Harper:

Anecdotal evidence, sure, but illustrative of the systemic changes the iPad is bringing unto computing. Not only does Microsoft have to compete in a crowded market where the brand value of Office is significantly diminished, they have to compete against products priced at $9.99. That’s not a price point Redmond has much familiarity with.

1 This is why Microsoft has to bet big on Office 365. It’s not just an answer to Google Docs, but they’re also trying to increase per-seat pricing by moving towards a software as a service model.

2 Though with Microsoft’s deft marketing hand, I wouldn’t be surprised to see it called Microsoft Office Word for Tablets Home Edition 2012.

Amit Runchal blogs at Interactioned. 

[Image via aveoree.]



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