Apple takes a 30 percent cut of all sales through the App Store. Microsoft reportedly wanted a discount on Office sales through the App Store since it believed Office was a premium piece of software that would enhance the iPad and increase sales. Apple, being Apple, wasn't going to make an exception for Microsoft.
And so, here we are. Year three of the iPad and no Office.
This seems to be a big mistake for Microsoft. The lack of Office hasn't stopped the iPad from killing the PC market, or entering the enterprise market. Apple CEO Tim Cookmentioned this week that virtually all Fortune 500 companies are using iPads.
After running the numbers, he came to the conclusion that Microsoft is missing out on $2.5 billion in revenue by not offering Office for the iPad. Philip Elmer DeWitt at Fortune has the note.
Holt estimates that 30 to 40 percent of Mac users paid for Office. He uses the lower end of that and applies it to 200 million iPads sold by the end of 2014. Using a $60 average selling price for Office, and backing out Apple's 30 percent cut, he lands at $2.5 billion in extra Office sales.
For some context, Microsoft's Business Division, which is home to Office, is on pace for an annual revenue of $22 billion. Missing out on $2.5 billion isn't nothing, but it's not make or break for Microsoft.
And if it thinks it can somehow eek out a competitive advantage for the Surface by keeping Office off the iPad, then it's justifiable.
In the not too distant future, though, we expect Microsoft to offer Office for the iPad. Microsoft is a software company, and so it should be making the best possible software for the iPad. Otherwise, Google and Apple are just going to do it, leaving Microsoft further behind.