If you are a professional, chances are that you have worked with Microsoft Office. Along with Windows, the Office productivity suite has been a staple of the Microsoft Corp. (MSFT) brand for the last three decades. However, As consumer tastes shift towards mobile (an area where Microsoft is still struggling to find its footing), commentators predict tough times ahead for the Office productivity suite. All in all, it seemed a tough road ahead for Microsoft.  

But, the company's new CEO Satya Nadella seems to be proving them wrong. The reinvention of Microsoft Office for mobile systems is a hit, and the productivity suite's importance to the Microsoft ecosystem remains undiminished. 

The Office Juggernaut 

As with most products from the company, Microsoft Office had a lukewarm start. It started life as a spreadsheet application called Multiplan. The Excel application, which was an imitation of competitor Lotus 1-2-3, was initially launched for Mac in 1985. In the beginning, it was a distant third in the productivity software market, behind Apple Inc.'s (AAPL) Visicalc and Lotus 1-2-3. Multiple iterations and problems with Apple and Lotus's software productivity suite later, Office became a money-spinner for Microsoft. 

In 1990, the company bunched Microsoft Word with PowerPoint and Excel, and the Office productivity suite was born. As it gained popularity over the years, Office became a solid revenue generator for Microsoft. By 1995, the Applications and Content Products Group (which included the Microsoft Office suite) was responsible for approximately 60% of the company's total revenue. 

Even when the company was floundering in direction and strategy, Microsoft Office proved to be an anchor in the company's income statement. As recently as 2013, Microsoft Office was responsible for a third of the company's total revenues. 

However, a majority of this revenue was derived from sales of its standalone product. That product is declining in popularity now. In its previous earnings call, the company announced that revenues for the standalone Office suite had dropped by 41%. (See also, How Microsoft & Apple's Balance Sheets Compare.)

Reinventing Office 

The market for mobile and cloud productivity applications is estimated to be a multibillion dollar one. Even as Microsoft stumbled, rivals, such as Google Inc. (GOOG) (with its cloud-based Google Docs suite) and startups such as Quip (with its mobile productivity app suite), have already staked their claim in these markets.  

In an interview last year, Microsoft CEO Satya Nadella emphasized the company's expertise in productivity applications. He called it the "Getting Stuff Done" mantra, and it reflects Microsoft's readiness to embrace the changed ecosystem. 

In its latest iteration, Office is an app in the cloud and on mobile. It is dependent on the device and cloud ecosystems of shared dependencies, such as mobile operating systems (the company has already developed apps for Google's Android and Apple's iOS mobile operating systems) and inked partnerships with popular cloud-sharing applications, such as Dropbox. 

The result is an evolution of the Office's capabilities and user experience. The new Office harnesses the collaborative and freewheeling power of the Web. As an example, Office 365 has enhanced collaboration capabilities and, in some markets, has already overtaken Google Docs. What's more, you can tap a word and cull "insights" from Bing, Microsoft's search engine. 

The company's revenue model for Office has also changed. In an earlier earnings call, Nadella said he hoped to strike a number of "annuity relationships" with consumers and businesses. The on-premise version of Office was dependent on volume licensing for its revenues; more recently, the company has adopted the Software-as-a-Service model for pricing. This means that the company offers a basic version of the Office app for free and charges for premium features. 

The strategy seems to have been successful. During its latest earnings call, Microsoft said it added 3 million subscribers giving it a total of 15.2 million users. This is an impressive jump from its 12.4 million subscribers in April. By itself, that figure represented a jump of 34% from previous quarter figures. 

The company also unveiled the prospect of Office as a data platform in its recent developer conference. In practical terms, this means that users will be able to set reminders for apps (such as the popular ride-sharing app Uber), access Chrome plugins or perform in-app actions without leaving the Office suite of applications. The company is also making plans to further upgrade Office apps. For example, Microsoft PowerPoint is being reconfigured as a multimedia application that displays graphics, videos and a slew of other features. (For more, see: The Real Secret To Microsoft's Success.)

The Bottom Line  

After sustaining Microsoft's earnings for the better part of two decades, it seemed that the Office ship was sinking under the onslaught of mobile and cloud revolutions. Its reinvention as a mobile and cloud app, however, has given the product a new lease on life.

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