Weekly Update

We’re seeing a very different Microsoft

Microsoft has been hogging the limelight in recent weeks.

Quarterly results in late October showed that commercial cloud revenue for Microsoft — which includes Office 365 and Azure — grew 128 percent year over year (see Microsoft’s Surface numbers detract from Office 365 and Azure success). Office 365 Home and Personal subscriptions were up to 7 million overall, a 25% growth over the previous quarter. Obviously, Microsoft is remaining competitive in its battle for productivity tools with Google and others.

Then this past week, a bombshell: Microsoft released Office apps for iOS — and soon Android — freely downloadable, without the requirement of an Office 365 account (see Microsoft releases Office apps for iPhone, no Office 365 required). This has been widely heralded as really smart strategy for Microsoft, and more specifically, an indication that Satya Nadella has undone the last of Steve Ballmer’s missteps in iOS land.

Note that the company has clarified that they will be offering prorated refunds for users that signed up for Office 365 Home or Personal subscriptions, although users must apply for them.

There many other places that users can create and edit Office documents, and making iOS and Android users use non-Microsoft tools makes no sense. The trick for Microsoft — now that it has accepted the principle that editing on mobile should be free: just a part of the ecosystem — will be to offer premium features to lure power users to sign up for paying cloud services. For example, premium features of the apps — like tracking and reviewing changes in Word, customizing Pivot Tables in Excel, and checking your speaker notes while you present in PowerPoint — as well as integration with OneDrive for Business or Dropbox for Business. This follows my belief that uploading and storing files will rapidly tend toward zero cost, and we’ll be left paying for connection to other people, and the features that enable that.

Yes, Microsoft also announced a new partnership with Dropbox last week — a busy week — allowing Office users to get at files in Dropbox (see Dropbox partners up with Microsoft). With 35 billion Office documents in Dropbox, Microsoft is wisely choosing to stay close to those files. Otherwise, Dropbox might develop competitive editors. Of course, they still might.

My read is that file sync-and-share is consolidating rapidly (see Sector Roadmap: file sync-and-share platforms, and Brad Garlinghouse steps down from Hightail: Consolidation in the file sync-and-share market), and this integration is a major blow to the remaining independent competitors. This partnership is a win for both parties, and for users.

So, a very different Microsoft: one that is willing to partner, willing to accept the new economics of mobile, and learning how to coax customers to its web services with premium features instead of absolutist tactics. Learning to play, not to fight.