Surprise! This is the Biggest Threat to Microsoft

OK, here’s a question for you. What is the existential threat facing Microsoft today? Did you say in operating systems? iOS? Android?

Unfortunately, the number crunchers would say: wrong on both counts. Just in terms of raw numbers, Windows is not, repeat, not Microsoft’s biggest revenue driver.

That honor falls to Microsoft’s Office productivity suite. This segment generated roughly $23 billion in 2011 in contrast to $17 billion flowing in from all versions of the Windows OS.

Microsoft owns 95% of the productivity software market also, in contrast to 75% of the desktop OS market. The office division is also expected to bring in $26 billion in 2016.

Therefore any threat to Microsoft’s dominance in productivity applications is the real existential threat. The question therefore is whether such a threat exists and how potent it is.

There are actually two very different, but very potent threats to Microsoft’s dominance – Google Docs/Apps and Open Office.

Forbes writes about this competition;

We believe that free productivity suites like Google Docs and Open Office are providing an alternative to users who don’t need the full power of the Microsoft Office suite. We think that downsides to Microsoft’s forecast on the Office suite front are possible especially if a new entrant comes in and provides a better solution for enterprises.

But we think that the likelihood of this is low since the Office suite is far ahead of the competition in terms of capabilities and has a sticky user base as users are reluctant to shift to new platforms.

Is this true though? How well is Microsoft insulated from competition from these two products?

Open Office’s market share is tough to estimate, but a study of 200,000 Internet users by a web analytics service in 2010, showed various adoption rates worldwide: 0.2% in China, 9% in the US and the UK and over 20% in Poland, the Czech Republic, and Germany.

Large-scale users of OpenOffice include Singapore’s Ministry of Defense and Banco de Brasil. In France, local and national government use it as well as the French Gendarmerie. Government organizations in India, such as ESIC, IIT Bombay, National Bank for Agriculture and Rural Development, the Supreme Court of India completely rely on OpenOffice for their administration.

Open Office comes at a great price – free. With a reported 30 million downloads for the Apache OpenOffice 3.4 series by January 2013, OpenOffice could pose a threat to Microsoft, especially on tablets.

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