Apple 2.0

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Microsoft Office and Apple's iPads: Money left on the table?

February 14, 2013: 10:04 AM ET

Putting Office exclusively on Windows tablets may be a costly mistake, says analyst

Microsoft's Steve Balmer with Office for Surface

Microsoft's Steve Ballmer with Office for Surface

FORTUNE -- Two and a half billion dollars.

That's how much Morgan Stanley's Adam Holt estimates Microsoft (MSFT) may be leaving on the table by not offering a full version of its Office suite (Word, Excel, etc.) on Apple's (AAPL) iPads.

Here how he gets that number.

For starters he estimates that Microsoft probably sold fewer than 1 million Windows-based tablets last year and will be hard pressed to capture 10% of the tablet market this year -- especially with stalwart partners like Hewlett-Packard (HPQ) reportedly choosing Android over Windows 8 for its forthcoming mobile devices.

He also reports that three to four times as many Mac users (30-40%) install paid versions of Office on their machines as Windows PC users (10-15%) do -- a difference that feels too high unless he's not counting the discounted versions of Office Home edition that come bundled with new PCs.

Assuming a similar 30% attach rate in 2014 on roughly 200 million iPads at an average selling price of $60 comes to more than $2.5 billion in extra revenue per year, even after Apple takes its 30% cut off the top.

That's more than Holt forecasts Microsoft will make from selling software (Windows and Office) on all Windows-based tablets in 2014.

"The math is compelling," he concludes, "and may drive MSFT to move Office."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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