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.