Will Office for the iPad really bring Microsoft billions?

There have been esimates that when Microsoft releases Office for the iPad, likely later this month, it could end up bringing in billions of additional dollars to Microsoft’s coffers. Is that hype and overkill, it will it really add that much to Microsoft’s bottom line?

It’s widely expected that on March 27, Microsoft CEO Satya Nadella will announce Office for the iPad. If that’s true, that will finally put an end to the “will-they-won’t-they” speculation that has swirled around the fate of the suite for years.

How much additional revenue will Microsoft bring in when it releases the suite? Morgan Stanley analyst Adam Holt says that Microsoft could get $2.5 billion in new Office revenue by releasing Office for the iPad. And Gerry Purdy, principal of MobileTrax, offers even bigger numbers. He believe that Microsoft could gain an additional $1.25 billion in revenue in the first year Microsoft releases Office for the iPad and Android tablets, and $6 billion in annual revenue by 2017.

I think both numbers are wildly inflated. Take a look at Purdy’s reasoning,which is based on Microsoft releasing Office for both Android and the iPad.

He assumes that 25% of iOS and Android tablet users would buy Office and that Microsoft would net $50 per copy sold. He believes that Microsoft will sell Office for the tablets as standalones, rather than include it as part of a subscription to Office 365.

Purdy is likely wrong on both counts. It’s hard to imagine a quarter of all iPad and tablet users buying Office, especially because there are so many free or very low-cost alternatives, including the free Google Docs and Google’s Quickoffice. I’m sure that the percentage of people willing to pay for Office is far, far under 25 percent.

In addition, it’s quite likely that Office will be sold as part of an Office 365 subscription, not as a standalone piece of software. Microsoft has made clear that subscription-based Office is the future, and standalone Office is the past. As just one piece of evidence, Microsoft recently announced a cheaper Office 365 subscription, called Office 365 Personal, that appears to be aimed at those with iPads. It will cost $6.99 a month, or $69.99 for a year for one PC or Mac and one tablet compared to $9.99 per month or $99.99 per year for five devices for the normal subscription version of Office. That means that only some part of additional Office revenue shoud be attributed to the iPad, not all of it.

But that doesn’t really matter. Releasing Office for the iPad is not only about additional revenue. It’s also being done to protect existing revenue and market share. Microsoft needs to fend off Google Docs, which is free and works on all platforms. Releasing Office for the iPad is an important way to do that.

That will be even more important in future years. Rumors are that a 12-inch iPad may eventually come down the pike. If true, that would put it at the screen size of a laptop, and make it more likely that iPad owners will want a productivity suite. If Microsoft wants to keep its hold on the office productivity market, Office needs to be available for the iPad, and at some point, Android tablets as well.