For years, Microsoft was powered by two cash cows: Windows and Office.
But in the past three years, the Windows business has stalled.
After peaking in the first fiscal quarter of 2011, Windows revenue has gone sideways.
Office, however, remains a juggernaut.
The last time Microsoft reported its Office sales, the numbers were impressive. In the September 2013 quarter, revenue to Microsoft’s “Business Division” was $US24.7 billion. Sales at the Windows division were $US19.2 billion.
But according to some of Silicon Valley’s most outspoken venture capitalists, this will not, this cannot, last. To them, Office is just as doomed as Windows.
“The future of Office is pretty bleak,” says Keith Rabois, VC at Khosla Ventures, and the former COO of mobile payments startup Square. “The only people that use Office are people that use laptops, and that’s a dying breed.”
Rabois says that when was COO at Square, he used a traditional PC once a month. The rest of his time was on an iPad or iPhone. He also says he knows people running entire companies that never use computers. They’re on smartphones and tablets.
To Rabois, this is the future of computing — PCs will die away, and they will take Office with them.
“I don’t see much of a future for Office,” he says before ticking off the pillars of the Office bundle.
“Word has no future. Google Docs has replaced it. Quip and other things for tablet are better.”
“Then there’s keynote, all of Silicon Valley has moved to Keynote,” he says. Keynote is Apple’s answer to Powerpoint. And if you want investment from Rabois, you better use Keynote. “Pitching us on PowerPoint would be a negative — a character flaw.”
“Excel,” says Rabois, “has real adoption, but I suspect that’s out of fear.” He says Excel, with its power-user features, is the most useful program in the Office suite. Still, he thinks it’s only needed for “corner cases” and that in the long run, it’s toast.
Silicon Valley operates differently than the rest of the world. Just because small tech companies don’t need Office, doesn’t mean big companies elsewhere don’t. But people in Silicon Valley counter that argument by saying that what the Valley is doing today is what the rest of the world will be doing tomorrow.
Rabois isn’t the only VC who is unenthusiastic about the future of Office. Kleiner Perkins investor Megan Quinn said on Twitter
, “Excel is the worst. It’s a product designed by MBAs, for MBAs. I’d rather use an abacus.”
Google Ventures partner MG Siegler chimed in, saying, “It’s one of those irrational fears. You think you need Office. In no way do you need Office. Not even to open files.”
Is it possible that Microsoft could design a new iPad-friendly version of Office that saves the franchise? “I find it pretty difficult to imagine that,” says Rabois.
On Thursday, we’ll find out if Rabois is right or wrong. Microsoft is holding a press briefing in San Francisco that it says is “focused on the intersection of cloud and mobile computing.”
At the event, new CEO Satya Nadella will unveil Office for the iPad. We’ll probably also see Office for Android and touch-based Windows devices. He’ll also lay out his vision for the future of the Office line at Microsoft.
Despite Microsoft’s best efforts, iPhones and iPads have worked their way into corporate buying departments. The iPad is 91% of all enterprise tablets, according to mobile security firm Good Technology. iOS is at 73% of enterprise activations.
Analysts have been begging Microsoft to put Office on the iPad for years now. Estimates on how it can impact Microsoft’s business are all over the place. Some say it will generate $US1 billion in extra revenue, while others think it could kick in $US7 billion in new sales.
Just as important as the revenue, is the psychology of getting Office on iPad.
Microsoft has spent the last four years sitting out the iPad. A former Microsoft employee told us CEO Steve Ballmer made the decision to skip iOS and Android. “Our fearless leader tried to manage for the portfolio,” says our source. “He felt it was a competitive need for the franchise.”
Ballmer’s maths said if he only put Office on Windows devices, especially tablets, then more money would accrue to its fledgling Surface line of tablets.
“It was a heated debate in the company,” says our source. “[Former] Office leader Kurt DelBene fought aggressively to get Office on the iPad.”
Ballmer’s decision to bypass the iPad hasn’t had much of a positive impact on the Windows business. Microsoft’s first-ever tablet, the Surface, was a failure. It took a $US900 million charge after it failed to sell enough Surface computers.
However, it looks like Ballmer has had a change of heart. We’re told that Ballmer was the person who put Office for iPad into motion. Nadella has added his own priorities to the release and we’ll see that Thursday.
This is a big moment for Microsoft. It’s an opportunity to prove that it can build successful software on other platforms.
This has to be the future of Microsoft because the Windows platform is no longer the dominant computing platform. And it will never again be the dominant platform.
When Apple launched the iPhone, Microsoft controlled over 90% of the computer market through Windows. Five years later, Windows-based devices were only 40% of our computing devices.
Today, Windows is down to less than 20% of the computing market, according Benedict Evans, analyst for venture capital firm Andreessen Horowitz. (Even crazier still, Apple’s computer devices — iPhones, iPads, and Macs — were equal to Windows-based PCs and phones last quarter.)
In a way, this is back to the future for Microsoft. Microsoft’s earliest success was making software for the Mac.
For all the doom and gloom from people like Keith Rabois, it’s important to remember that Office remains a very popular suite of software. Not only does it generate a staggering sum of revenue for Microsoft, many people really like it, despite what Rabois says.
“Anybody who says Google apps is better than Office is a liar,” a former Microsoft employee who is being forced to use Google Docs at his new job tells us. He says of Docs, “I hate it! I hate it! I hate it!”
Putting aside the anecdotes, there is this inescapable fact: Last year, Microsoft says Office users made 500 billion Office documents. If Office for iPad is a hit, Microsoft will ensure that number doesn’t get any smaller.
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