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Report: Apple, Microsoft lock horns over iOS Office revenue split

December 12, 2012 03:59 PM ET

But Microsoft's in a tough spot, and may be forced to swallow Apple's 30%.

"There are two conundrums here for Microsoft and Office," said Miller. "One, while there's an almost unspoken rule that the iOS apps will sell at some kind of price, Microsoft may not be able to charge what Office is worth."

App Store prices are notoriously low, and higher-priced software is rare. Apple sells its application apps -- Pages, Numbers and KeyNote -- as an alternative to Office, charging $10 each. Even that's high for the App Store.

But if Microsoft charges more -- something Miller argued could be justified -- to the tune of $15 or $20 an app, iOS customers would likely balk.

Second, and more important, said Miller, is that Microsoft wants to move all Office customers off "perpetual" licenses that let customers use the software indefinitely for a one-time, up-front fee. Instead, it would like to shift customers to a software-by-subscription model with recurring payments.

Most enterprises already pay for Office using subscription-style licensing agreements, called Software Assurance. In fact, those agreements account for the bulk of Office revenue. But Microsoft is pushing Office 365 subscriptions even to those large customers. "Microsoft seems to want to move everything to subscriptions," observed Miller. "They're really trying to get everything to subs."

His point: If Microsoft wants badly enough to tie iOS Office to Office 365, it will pay Apple's 30%.

But he warned that the longer Microsoft holds out, the worse position it puts itself in. "The longer they go, the more they train users to do without Office on the iPad," Miller said. "Users will be de-conditioned, so Microsoft should move quickly."

Miller acknowledged that the picture is cloudy. "It's too hard to know one way or the other. There are all these moving parts," he said.

Meanwhile, the clock is ticking. Office 2013 and the new Office 365 subscription plans are likely to launch late next month or in early February, while Office for iOS is expected to debut in late February or early March.

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

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