SkyDrive decision reveals Microsoft's Office on iOS strategy

'Microsoft doesn't want to give Apple any money,' summarizes analyst

Microsoft's update Wednesday to its SkyDrive iOS app is proof that the software giant has no intention of sharing revenue with its fierce rival, Apple, and further evidence it will tie Office on the iPad to its subscription plans, an analyst said today.

"It appears that Microsoft doesn't want to give Apple any money," said Wes Miller of Directions on Microsoft, a research firm that only tracks the Redmond, Wash. developer. "And I can't say I blame them."

SkyDrive 3.0 for the iPhone and iPad hit the App Store Wednesday, the first upgrade since April 2012's version 2.0, with added support for the iPhone 5 and iPad Mini, products Apple shipped between the two editions, and several feature improvements.

The 12-month lag was reportedly due to disagreements over what, if anything, Apple was owed by Microsoft for revenue generated by additional storage plans for the cloud-bases storage service. Apple takes 30% of all app revenue, including in-app purchases, and likely argued that it was due that percentage of all SkyDrive storage sales credited to iOS users.

SkyDrive 3.0 for the iPhone and iPad hit the App Store Wednesday.

At the time, Microsoft confirmed the delay, couching it as nothing unusual. But company developers said different, claiming that the SkyDrive app upgrade had been rejected over an Apple rule that bars apps from circumventing in-app purchases by linking to outside mechanisms.

Although Microsoft declined today to answer specific questions about how the logjam had been broken, its official line spoke volumes. "We worked with Apple to create a solution that benefited our mutual customers," a spokeswoman said in an email. "The SkyDrive app for iOS is slightly different than other SkyDrive apps in that people interested in buying additional storage will do so via the Web versus in the app."

In other words, customers who want more than SkyDrive's standard 7GB of free storage space cannot buy more from within the app -- an in-app purchase -- but instead must purchase it after accessing their SkyDrive account using a browser.

Microsoft charges $10 annually for an additional 10GB, $25 for 50GB and $50 for 100GB. If it had bowed to Apple's rules, Microsoft would have had to fork over between $3 and $15 for each customer order.

But SkyDrive's neither circumventing the App Store rules or doing anything new.

Former CEO Steve Jobs, for example, explained the in-app rule and revenue sharing in early 2011 by saying, "When Apple brings a new subscriber to the app, Apple earns a 30% share. When the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing."

And the Web purchase mechanism is used by scores of companies, including Amazon, one of the first to have a major dust-up with Apple over in-app purchases.

The 2011 brouhaha began when Apple told developers and publishers that they must remove all links within their apps to outside-the-App-Store purchasing methods, as the store would now support in-app purchases. For that support, Apple said it deserved its cut. The face-off ended when Amazon deleted a link to its online store within its iOS Kindle apps, and required -- as it still does -- that customers browse to amazon.com via Safari to buy an e-book.

Amazon wasn't alone in blinking; Google also complied with the new in-app publishing rules around the same time.

"Calling [this method] the 'Kindle app approach' is interesting," said Miller, of the long-time workaround that steers customers to the Web to avoid Apple's 30%. "Amazon is one of the most inconvenient apps because of it. But in a Kindle app, [the manual browsing to the store] is required for Amazon's entire content channel. It's not just a one-time thing."

Since SkyDrive customers will be stepping outside the app only when they change storage plan, the Apple rule makes SkyDrive less inconvenient for users than the Kindle apps on iOS, Miller argued. That may have been at the front of Microsoft's mind when it agreed to strip all SkyDrive storage purchase opportunities from the new app.

"And it's easier for Microsoft to lead users to a purchase [on the Web] than for Amazon," Miller added, citing possibilities such as Skydrive.com, Microsoft's vast collection of other websites, and even the Office suite itself.

Because Microsoft could have done the SkyDrive upgrade this way -- pulling any reference to additional storage purchases -- months ago, it gives weight to the reports late last year that Microsoft and Apple were negotiating, or arguing, over Apple's slice of the App Store pie. If so, yesterday's SkyDrive shows Microsoft was unable to convince Apple to lower the number.

SkyDrive also adds credence to the theory -- which has gained headway in recent months -- that Microsoft will not sell future iOS Office apps in the App Store. If Microsoft was unwilling to share the relatively small income from SkyDrive storage purchases, Miller said, it would certainly not split the far more lucrative Office revenue with Cupertino.

Instead, said Miller, it increasingly appears that Microsoft will go with Option B: Tying Office iOS apps to a subscription to Office 365, its expanded line of rent-not-buy plans.

The $100-per-year Office 365 Home Premium, for example, gives a customer the right to install Office on up to five Windows PCs and Macs, as well as five mobile devices, including smartphones and tablets.

Under that scenario, Microsoft would offer the Office iOS apps free of charge; those apps, however, would only work, or do more than allow document viewing and reading, when logged in with an active Office 365 account.

That, too, is not new. In fact, earlier this week Google launched an iPhone version of its Quickoffice on the App Store. Quickoffice for the iPhone, and the already-available version for the iPad, are free downloads but require a Google Apps for Business account.

Google sells those accounts separately on its website, not in the Quickoffice apps. Microsoft would presumably do the same.

"Any time there is an opportunity to make more money, Apple wants to be part of that," said Miller. "If we see Office, we'll see much the same thing. Apple will want its part. So Microsoft will have to be careful about how they couch any upsell opportunity [in Office on iOS]."

In practice, that will mean the iOS Office apps won't include a link to subscription renewals, or include account management controls that mention renewals or additional storage purchasing.

Some saw the upgrade of SkyDrive as an even stronger omen of the launch of Office for the iPad and iPhone. Ed Bott, a long-time Windows watcher and ZDNet blogger, was one. "Having a robust SkyDrive app that works with all iOS devices is a prerequisite for a subscription-based Office app for iOS," he wrote Wednesday.

Bott has a point. The newest Office, whether perpetually-licensed, stand-alone versions that run on Windows PCs or those installed locally as part of an Office 365 subscription, defaults to the cloud service for saving files. Unless Microsoft was to do a volte-face on a core strategy, an upgraded SkyDrive must be in place by the time Office appears on iOS.

SkyDrive 3.0 for iOS can be downloaded from Apple's App Store. It requires iOS 5 or later, and runs on the iPhone, iPad and iPod Touch. Microsoft said it was optimized for the iPhone 5.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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This story, "SkyDrive decision reveals Microsoft's Office on iOS strategy" was originally published by Computerworld.

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