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Microsoft Is Selling Office 365 Within iPad Apps, and Apple Is Getting Its 30 Percent Cut

While one of the big holdups for Office for iPad was getting the software just right, another was Apple's policy that apps that sell things — including subscriptions — use Apple's in-app purchase mechanism …

Re/code Ina Fried

Context & Ripple Effects

This ends a negotiation that has been running since at least December 2012, when AllThingsD reported Microsoft was pressing Apple to take a smaller cut on sales inside Office for iOS. Apple held firm on its standard in-app purchase policy, and with Office for iPad launching March 27, 2014, Microsoft is now selling Office 365 subscriptions inside the apps and paying Apple's full 30 percent.

The concession also lands on top of an old strategic worry: a June 2013 TechCrunch argument that Office on the iPad would further erode the case for buying a Surface. Under Satya Nadella, Microsoft has evidently decided that reaching iPad users on Apple's terms beats protecting its own hardware.

First-order effects

  • Apple collects 30 percent of every Office 365 subscription sold through Microsoft's new iPad apps, turning one of the world's largest software franchises into a recurring revenue line for the App Store.
  • Microsoft accepts a 30-point tax on iOS-originated subscriptions rather than lose iPad buyers, while keeping the apps themselves free for viewing — editing requires the paid plan, per the launch-day coverage.

Second-order effects

  • Every other large subscription developer watching this launch now sees Apple enforce its in-app purchase rule against even Microsoft, which hardens the expectation that no publisher is big enough to negotiate around the cut.
  • Because Apple takes a slice of subscriptions sold in-app, Microsoft has an incentive to steer enterprise and renewal purchases toward channels outside the App Store, splitting Office 365 pricing and packaging by acquisition route.

Third-order effects

  • If the pattern holds, platform owners' 30 percent toll becomes a structural cost baked into how major software companies price cross-platform subscriptions — the same 'regulated platform take rate' dynamic that later shapes disputes over App Store economics.
  • Nadella's Microsoft treating services revenue as primary over device-attached revenue points toward a cloud-and-subscription-first industry structure, where being on rival platforms profitably matters more than defending your own hardware.

The trend: Major software vendors are conceding mobile platform owners' 30 percent subscription cuts in exchange for reach, making App Store take rates a fixed cost of the cross-platform subscription business.

Related: Regulated platform take rate · Microsoft Pressing Apple for Smaller Cut · If Office Hits The iPad, Even Fewer People Would Buy A Surface · Microsoft

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