Microsoft Boss Relaxes Windows-First Policy; New Version of Office for iPad Ends Practice of Using Apps to Drive Operating Software Sales

Microsoft Boss Relaxes Windows-First Policy

New Version of Office for iPad Ends Practice of Using Apps to Drive Operating Software Sales

SHIRA OVIDE and STEVE ROSENBUSH

March 26, 2014 4:14 p.m. ET

Microsoft Corp.’s MSFT -1.36% new boss on Thursday will have his first shot at outlining a new, less Windows-dependent path for the company. But those who are the most likely customers for the shift won’t be easily won over.

Chief Executive Satya Nadella, at an event in San Francisco, is expected to disclose a new version of Microsoft’s popular Office software for the iPad, people familiar with the matter said. The long-discussed move would break from a policy of offering tablet versions of Office exclusively on Microsoft’s Windows.

Microsoft long has pursued a Windows-first policy, especially with Office—a bundle of word processing, spreadsheets and other applications—to bolster the prevalence of Windows, historically the biggest contributor to its profits.

Mr. Nadella, who took the top job less than two months ago, is expected to deviate from that restrictive philosophy, stressing the importance of Office and online services on non-Windows devices.

The move suggests a recognition at Microsoft that the rise of mobile devices has weakened the company’s positioning of Windows as the technology hub for work and home computing. Only about 15% of Internet connected devices, including smartphones, now are powered by Windows.

“There is a bit of a new sense of realism at Microsoft,” said Raimo Lenschow, an analyst at Barclays. BARC.LN -1.54% Mr. Nadella “is saying the future is in cloud, and he isn’t holding back.”

A Microsoft spokesman declined to comment in advance of the event Thursday. But sales prospects for Office on the iPad seem far from certain, judging by the response of people like David Austin.

Mr. Austin, head of information technology operations for a chain of 56 car dealerships and auto-body shops, is happy with an iPad app from Quip Inc., which offers a more limited set of word processing and instant messaging tools. Employees in Sandy, Utah, and other states use Quip for many tasks, including the creation of a weekly to-do list that his team can see on smartphones, tablets and computers.

He fears that Office would be too clunky as a substitute. “It’s too complicated and there are too many pieces,” he said.

Such attitudes point to the changes in the software market in the four years since AppleInc. AAPL -0.96% ushered in the iPad, and the pressures facing Mr. Nadella.

Microsoft’s Windows-first policy has been heavily debated inside the company, amid slow sales of Windows-powered tablets and analysts pointing to a potentially lucrative payoff from Office on iPad.

There are more than 1 billion users of Office world-wide. In a Cowen & Co. COWN -6.54%survey a year ago, 30% of respondents who owned or planned to buy a tablet considered support for “productivity” applications including Microsoft Office an important feature.

Office also has generally produced higher profits than Windows, accounting for roughly 60% of Microsoft’s total operating profit for the year ended June 30.

Microsoft no longer discloses revenue from the Office division, but the company said revenue from software sold to businesses rose 10% in the three months ended Dec. 31. Corporate buyers are responsible for about 85% of revenue for the Microsoft division anchored by Office, the company says.

But delays in coming to the decision have imposed a cost, as some companies and their workers have learned to use Office alternatives as they did more work on tablets.

Another skeptic is Bryson Koehler, chief information officer for Weather Co., which owns the Weather Channel television network. It last year replaced Microsoft email and Office with a Google Inc. GOOG -2.31% software package that was about one-quarter the cost of a comparable Microsoft option and worked on all computers and mobile devices.

Mr. Koehler said Microsoft lacks a comprehensive plan to offer its software in a “device-agnostic” way across all kinds of hardware. “Running Office on an iPad is a nice step forward, but a long way from a holistic set of tools and user experience that we need,” he said.

And large and small vendors are offering an array of competing applications for the iPad, some of which let users open and edit Office documents without buying any software from Microsoft. They include Google’s Docs and QuickOffice, Apple’s iWork and offerings from Hong Kong’s Kingsoft KSFTF -0.56% Office Corp. Corporate file-storage service Box Inc. said CloudOn Inc., which offers software that lets people use Office or other software to work together on documents, is the most popular of the more than 1,000 mobile apps it offers to businesses.

Analysts estimate Microsoft could pull in $1 billion or more in new yearly revenue from Office on the iPad, largely from boosting sign-ups for Office 365, an online version of Office that consumers and businesses “rent” rather than buy and install on their computers. Microsoft has said the Web-subscription service accounted for more than 15% of Office sold to consumers during the three months ended Dec. 31.

One company eager for an iPad version of Office is Colorado Hazard Control, a company that removes lead paint, asbestos and other health hazards. Now, the company’s 50 employees fill out their work schedules on Excel spreadsheets on their computers, then have to save them to online services like Dropbox Inc. to access and update the documents when they’re on the go.

“It’s kind of a hassle,” said Danaya Benedetto, corporate branch manager for the firm, which has offices in Denver and Pueblo, Colo. She said an iPad version of Office could let them skip the step of saving to Dropbox and simply update spreadsheets directly from an Office app.

Microsoft’s has previously refashioned OneNote, a note-taking app, for the iPad, and last year introduced Office versions tailored for iPhone and Android smartphones.

The results haven’t been stellar. Microsoft’s iPad OneNote app recently was the 138th-most-downloaded free app for the device in the U.S., according to mobile-app tracking service App Annie. Office apps for smartphones aren’t among App Annie’s list of the 500 most-downloaded iPhone or Android apps in the U.S.

Some analysts and Office fans said those apps were hamstrung because Microsoft only made the mobile apps available to people who subscribe to Office 365. It is unclear if Microsoft will also make subscribing to Office 365 a condition for using the iPad app.

To produce a hit on the iPad, some businesses and consumers said Microsoft has to top the quality of its prior mobile versions of Office, which some reviewers and users panned as clunky and prone to glitches.

Charles Bucher, a 27-year-old student who uses Office 365 for most of his classroom assignments, said he “wasn’t impressed” when he tried Office apps for iPhone and Android phones. But he’s looking forward, with reservations, to trying Office on his iPad.

“Provided it is done right, I will even use it,” he said.