Sprint’s new CEO gets aggressive on data pricing

Sprint’s new CEO, Marcelo Claure, kicked off his tenure by announcing new shared data pricing on Monday. The headline is that Sprint will double the data available for $100 compared with competitors’ pricing. The following comment may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research.

In introducing Marcelo Claure as Sprint’s new CEO, Masa Son suggested Sprint would quickly move to get more aggressive on pricing, and Claure has now begun to deliver. The focus is on giving away more data for the same price, rather than lowering prices per se, and with all the capacity available on the Sprint network, Sprint can afford to do so. Most customers will not come anywhere near using 20GB in a month even across four lines, so there’s little risk involved for Sprint. Paying off customers’ early termination fees early will be slightly riskier, and will also have a negative short-term financial impact for Sprint, as it did at T-Mobile when it began paying ETFs for customers. Sprint is also finally embracing the shared data plans both AT&T and Verizon introduced over a year ago, and which Sprint has criticized in its marketing since then. It’s a sign that Sprint is bowing to the inevitable both in embracing shared data plans, which are becoming the industry norm, and in competing on price when its network is not yet up to the challenge. Sprint’s been losing subscribers for the last few quarters, and desperately needs to start turning around the negative trend. Sprint’s former CEO Dan Hesse had resisted the urge to compete aggressively on price, so this is the first sign that Claure will be more aggressive.

The new pricing plans are somewhat complex, with different prices for discounted and non-discounted phones, long-term pricing and promotional pricing, and so the overall impact is a little more complicated than Sprint’s “double the data” headline suggests. However, it’s undoubtedly a better deal for most customers than competitors’ equivalent data plans. These moves from Sprint are also likely to make it significantly harder for T-Mobile to achieve John Legere’s goal of catching up with Sprint in terms of total number of subscribers by the end of the year, which was always going to be a bit of a stretch. I now believe it will be very tough for T-Mobile to achieve that goal. It looks like Sprint has more pricing moves coming later this week focused on individuals, so this is likely not the end of Claure’s initial moves to get Sprint back in the game. But he will also need to focus on ongoing network upgrades, which are critical to getting Sprint’s long-term growth back. As T-Mobile has demonstrated, price discounting and giveaways can provide a useful boost to short-term growth, but longer-term growth will require better underlying network performance too.

Google I/O – Google reasserts control over Android

Google today held the keynote for its I/O developer event. It previewed a new version of Android for smartphones and tablets as well as detailing narrower user Android-based interfaces for the car, wearables and the TV. The following comment may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research. Jan can also be reached at jan@jackdawresearch.com or (408) 744-6244.

The overriding theme of the I/O keynote was Google reasserting control over Android. The core objective of Android has always been to provide the widest possible audience for Google’s services, but over the last several years Google has seen a variety of device vendors customize, tweak and fork Android in ways that either submerge Google’s services beneath their own or strip them out entirely. Google has achieved its objective of creating a very widely used mobile operating system, but it’s a very Google-light version of Android which is driving that growth. Android One is ostensibly about expanding the availability of cheap smartphones using Android in emerging markets, but Android is already the default operating system for cheap smartphones. The problem is that it’s often a version of Android which has very little to do with Google. Android One will re-enshrine Google’s services at the center of these devices, which will run stock Android and be free from the sorts of customizations so popular with the largest Android manufacturers, notably Samsung.

Google’s increased control over Android extends to Android Wear, Android Auto and Android TV too. As shown at I/O, the Android user interfaces in each of these new domains will be standard Google interfaces, and won’t be customizable in the way Android on smartphones and tablets has been. Google’s search and voice control, Google-provided location and other contextual data and other Google-centric services will be at the heart of these devices in a way they’re currently not on many Android smartphones and tablets.

Another theme was Google’s attempt to promote web apps versus native applications, since Google dominates web search but has failed to replicate that dominance in mobile apps. Extending App Linking to all developers allows Google to include links to specific points within apps in Google’s web searches and will therefore bring the world of apps into Google search. Promoting individual web browser tabs to the level of native apps in the recently used apps screen also gives web apps a new prominence. Google will also include deep linking within search results in the Google search box on Android devices. All of these together are attempts by Google to redress the disparity between native and web apps on mobile and reassert its dominance.

Google also laid out its vision for increasing integration between its various platforms, echoing a theme from both Microsoft’s Build and Apple’s WWDC. Each of these companies, though, is approaching that integration in a different way. Microsoft is focusing on the top and bottom of the stack – the user interface at the top and the code at the bottom. Apple is focusing on back-end services and a common user experience rather than a common user interface. Google, in turn, is borrowing elements of both, with Continuity-like features between smartphones and Chromebooks, a common design language across all of Google’s services and so on. The smartphone is clearly at the center of Google’s integration strategy, as it is for Apple, whereas Microsoft’s is still more focused on the desktop and to a lesser extent the tablet, where it’s comparative strengths lie.

Overall, what’s striking is the way each of these three major companies – Google, Microsoft and Apple – are seeking to participate across four key domains: the home, the car, the body and the mobile world at large. Each now has a stated strategy in each of those domains and it will be interesting to see how they shape up against each other. Those strategies are remarkably similar, with Apple departing from its usual hardware-centric approach to take more of a platform approach in the home, car and wearables. But they’re also different – Google made much (rightly so) of its many partnerships with car manufacturers, TV vendors and smartwatch makers, and continues to go broad rather than deep. Google and Apple now have very similar-sized bases – Google has over 1 billion active monthly users, while Apple has around 800 million iTunes accounts, and likely a similar number of total devices in use. But Apple’s ecosystem continues to be far more lucrative for developers, generating over $9 billion in revenue for developers in the past twelve months, while Google generated just $5 billion.

T-Mobile’s Uncarrier 5 and 6 is more of the same

On Wednesday, T-Mobile announced phases 5.0 and 6.0 of its long-running Uncarrier strategy, including a free seven-day test drive of an iPhone 5S running on its network, and zero-rated music services on its data plans. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached at (408) 744-6244 or jan@jackdawresearch.com.

T-Mobile’s latest event – and the announcements it made there – were more of what we’ve come to expect from the carrier. There was brash, foul-mouthed trash-talking of T-Mobile’s competitors from John Legere, and announcements which combine giveaways with clever marketing. The test drive offer resurrects an age-old concept in the US wireless market, one all the major carriers have long since put to bed, but it does it with a new twist, lending the customer a high-end device instead of signing them up for a contract on a trial basis. T-Mobile badly needs to convince the US population as a whole that its network has got better and is now very competitive in certain markets, and the best way to do that is to get live devices running on the network into consumers’ hands. The new test drive offer is a fantastic, low-risk way to do that, and it should be met with significant demand, especially because of the lure of using an iPhone 5S for a few days. It would have been easy to use a cheap Android device for the testing to reduce costs, but the partnership with Apple is a win-win for both companies, as Apple gets some marketing out of the deal and may increase its penetration of the T-Mobile base in the process. The downside is that, for all the progress T-Mobile has made in major metropolitan areas, its overall network coverage still lags competitors significantly, and in-building coverage can be spotty even in markets where it does well outdoors. Some people who try the test drive may merely confirm what they already suspect: that T-Mobile doesn’t cover their area very well. But overall the test drive program will likely lower the barriers to switching still further and help keep T-Mobile’s conversions from other carriers going.

The music initiative is above all else great marketing. For a carrier which talks up its unlimited plans, it’s somewhat surprising for T-Mobile to promote a feature that’s mostly appealing to those on limited tiers. The genius is in the fact that video, and not music, is what really causes people to go over their data plans. Sandvine data suggests that the most-used music service on mobile only accounts for 5% of downstream traffic, while YouTube and Netflix combined account for over 20%. Zero-rating music services (i.e. carrying them without dinging the customer’s data plan) is therefore a low-risk strategy which will have relatively limited impact on T-Mobile’s costs while making for good marketing material. It also announced a partnership with Rhapsody to provide a new radio service for free to T-Mobile unlimited data customers, who of course don’t benefit from the free music streaming offer. T-Mobile therefore joins AT&T and Sprint as carriers who’ve signed deals with major music streaming services, though the only one that isn’t offering a fully-fledged subscription music service. Verizon is now the lone holdout among the major carriers in forming such a partnership, though it’s likely that it will have limited impact on its growth.

The Fire Phone is a disappointingly undisruptive device from Amazon

Amazon today announced its first smartphone, the Fire Phone. The comment below may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research. Jan may be reached for further comment at (408) 744-6244 or jan@jackdawresearch.com.

If you talk to people who use iPhones or Android phones about why they chose them, they frequently answer by saying, “I’m an Apple person” or “I’m a Google person”. The Fire Phone is the smartphone for the Amazon person – someone who buys lots of stuff through Amazon, has a Prime subscription, uses Prime Instant Video and has a Kindle, a Kindle Fire and a Fire TV. Amazon’s strategy here isn’t to take meaningful share in the smartphone market, or even to make lots of money selling smartphones. It’s to cement the relationship it has with its most loyal customers. The Fire Phone is intended to put Amazon’s content front and center, and the Firefly feature is intended to make it easier than ever for customers to buy things through Amazon.

However, for all the talk about disruptive business models such as taking advantage of AT&T’s Sponsored Data plan or heavily subsidizing the device, this really isn’t a very disruptive phone. It acts more or less like any other phone on the market when it comes to the things people use their phones for, and both the phone itself and the data plan that come with it are priced the way these devices usually are. The 3D features are gimmicks at best, which will be great marketing tools to get people to go into AT&T stores to take a look at the phone, but likely won’t drive many sales. Amazon has 244 million customer accounts, and about 10% of those are Prime customers. It’s likely that only a small fraction of those will be prospects for the Fire Phone, and as such the sales will be very limited. Because of the AT&T exclusive and the premium price, Amazon will sell even fewer units than if it had used broader distribution and a more disruptive pricing model. Instead of offering a free year of Prime, it should have just dropped the price by a hundred dollars. There were good strategic reasons for Amazon to launch a smartphone, but the Fire Phone isn’t the phone Amazon should have launched. Instead of something truly disruptive, Amazon has given the world (or technically just the US at this point) yet another shiny black rectangle.

Samsung Galaxy Tab S goes head to head against the iPad for the first time

Samsung today announced the Samsung Galaxy Tab S, a “flagship” tablet that joins other tablets in Samsung’s existing lineup. The comment below may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research.

The first reaction by many people to the launch of a supposed “flagship” tablet from Samsung may be surprise, since it already has a number of high-end tablets in the market at similar price points to the iPad, the market leader in the premium segment. In reality, Samsung’s Galaxy Tab S is less a flagship product but the first of Samsung’s tablets to go head-to-head against the iPad as a consumption-centric device. Samsung has pursued a smart strategy in the tablet market of differentiating each of its devices in some way against the iPad, originally by creating smaller tablets and later by featuring a stylus, multitasking and larger screens. But it’s never before had a tablet that looked like it was so explicitly intended to go up against the iPad.

The two versions of the Tab S look and feel very much like the iPad Air and Mini respectively, at least from the front. They are very similar sizes and weights, albeit with longer, thinner aspect ratios. They’re priced identically, too. And for the first time, Samsung is really emphasizing viewing rather than creativity or productivity as the main feature, with a super AMOLED screen that’s noticeably brighter and sharper than the iPad screens. However, what lets the flagship message down somewhat is that, other than the screen, there’s little to mark these devices out as premium entrants in the market. They use similar materials to the Galaxy S5, itself an increasing anomaly among premium smartphones for its use of plastic rather than metal finishes. Regardless of this, Samsung’s release of the Tab S is a sign of increased confidence on its part in going head to head against the iPad, a device few contenders have taken on directly at the same price point.

One worry is that retailers and consumers will get confused by the sheer number of Samsung tablets available, with Tab, Tab Lite, Tab Pro, Note, Note Pro and now Tab S tablets in the market, at as many as four different sizes. Most retailers will struggle to stock more than a couple of these options, but Samsung appears to see the Tab S as its main tablet going forward, with the Note and Tab lines meeting specific needs for productivity-centric and price-sensitive customers. It’s also not clear that the screen alone will convince would-be iPad customers to make the switch, especially since Android tablets continue to suffer from poorer apps and content options. Samsung is addressing the latter issue with its ongoing Galaxy Gifts program, offering free trials to premium apps and content, and with digital magazines customized for the specific dimensions and capabilities of the Tab S. But in a world where Apple still dominates the premium end of the tablet market as competitors continue to vacuum up much of the low- and mid-tier opportunity, it’s not clear that the Tab S will make significant inroads.

WWDC announcements

Apple today announced new versions of iOS and Mac OS X, along with a new development language for both operating systems and a large number of additional features and APIs for developers. The following comment may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research. Jan can be reached at jan@jackdawresearch.com or (408) 744-6244 for further comment.

Apple’s approach to cross-device integration in contrast to Microsoft’s

Apple’s approach to integration between Apple devices, which it calls Continuity, is in stark contrast to Microsoft’s. Apple is focused on a common user experience across devices, whereas Microsoft has focused on a common user interface and code base. So far, Microsoft’s approach has felt forced, layering a touch interface onto its PC operating system, whereas Apple’s approach feels more natural and useful. It’s also the kind of thing only Apple, with its tightly integrated approach to hardware, software and services, could pull off.

Replacing Google in its last stronghold on the iPhone – search

Over the last two years, Apple has been removing Google from core parts of the iOS experience, with Google Maps and YouTube being the obvious steps taken last year, though Google continues to be the default search provider in Safari on iPhones. However, while Apple has no chance at replacing Google as a search engine in its entirety, it has also spent the past couple of years slowly inserting itself as an intermediate search engine on iOS. This started with Siri but is now continuing in both iOS and OS X with Spotlight search incorporating web search results. In many cases, users of Apple devices will now find answers to their questions without ever entering a traditional search into a web browser. Even the browser address bar will now serve up search results from other sources before the user hits enter. This is an enormous step forward in Apple’s removal of Google from its last bastion on the iPhone, and could have a significant effect on Google’s mobile search business.

Increased openness to third parties a shift in tone

Just as Apple is stripping Google of its roles on Apple devices, it’s actually opening up opportunities for other third parties throughout its ecosystem. The integration of Box and OneDrive as storage options, the inclusion of third-party widgets in the Notifications area on OS X and iOS, the whole Extensibility concept and third party keyboards are all big advances in Apple’s openness to third parties. This is a healthy recognition on Apple’s part that it can’t possibly do everything, and that the iOS experience has been unnecessarily limited by Apple’s relatively closed approach to third party integration in these various areas. This may partially neutralize one of the main attractions of Android, which is the much greater openness to these third party services, although on Apple devices it’s being done in a way that’s very security-conscious, sharing very little data between apps and developers.

Swift, Metal, CloudKit, HealthKit, Touch ID integration and more mean a boon for developers

With so many user-focused announcements, it would be easy to forget that WWDC is Apple’s developer event. But the last half hour of the keynote was also enormous for developers, with a new programming language and lots of new APIs. Developers now have new ways to create value around Apple’s operating systems and the Apple ecosystem as a whole. The mood in the keynote haul was enormously positive around these changes. The introduction of Swift, though announced with less fanfare, may be equivalent to Steve Jobs’ introduction of the original OS X in that it creates a platform for the next 15 years of Apple’s development.

HomeKit and HealthKit cement the iPhone ecosystem

Apple’s new HomeKit and HealthKit platforms promise to bring Apple’s core integration principles to third party devices in two industries which currently suffer enormously from fragmentation. Both the smart home and wearables markets are currently characterized by huge numbers of players whose products don’t talk to each other. Though others have tried, Apple is arguably the first player with the consumer pull to really make a difference in bringing these industries together in a way that makes sense for end users. Smart home adoption should be hugely boosted by Apple’s entry to the market. The healthcare industry is likely to be much slower to be disrupted, not least because the number of people who care about tracking health data is still very small. But Apple’s solution should make a big difference for the minority who do make us of it, much like the rest of Apple’s products.

For more of my pre-WWDC take on HomeKit and HealthKit, see these two blog posts:

Media comment on AT&T/Cricket re-launch

AT&T today re-launched the Cricket brand acquired through Leap Wireless under the AT&T umbrella. The comment below may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research.

The Cricket re-launch marks a new sub-brand for AT&T in prepaid, replacing the Aio Wireless brand it launched about a year ago. This time, it’s combining a familiar prepaid brand with one of the top two wireless networks in the country. This is the first time one of the top two US wireless networks has really put significant heft behind a prepaid brand, and it should be a big boost for Cricket in the market. In addition to the Cricket brand and AT&T network, AT&T is bringing some of the lessons it learned from Aio to the new venture. Aio was given free rein to develop its own processes, retail environments, culture and brand when it was launched by AT&T, operating at arm’s length from the rest of the company. As such, it did a lot of things differently from the parent company and these could easily have been lost as Aio was absorbed into Cricket. However, it looks as though AT&T has kept some of the best parts of Aio rather than simply replacing them, and those will start to filter through in the retail stores, in the branding and in the online and mobile customer experience.

Prepaid is hot in the US wireless market, having long been the red-headed stepchild of the industry. It now represents about a quarter of the subscribers at the big five providers, and is growing fast at Tracfone and T-Mobile in particular. AT&T’s prepaid subscribers haven’t grown in two years, largely because its GoPhone brand isn’t heavily promoted and Aio was still nascent at the time of the acquisition. Cricket represents a chance for AT&T to tap into this market and benefit from some of the growth that’s happening there. The challenge will be marketing the benefits of the AT&T network when AT&T is keen to keep the Cricket brand separate from its own and downplay the connections so as to preserve the perceived value of the AT&T-branded experience. Cricket’s prices are significantly lower than AT&T’s own branded services, and so it will be very careful about articulating the connection between the two, even as it wants to tout the benefits of the much more robust network.

Part of what’s been behind the growth of prepaid in recent years is the increased flexibility it offers versus traditional 2-year contract plans. Whereas it was once the province only of people with sub-prime credit, it’s become more mainstream among people with good credit who want the greater flexibility it offers. But as contracts and device subsidy models on the postpaid side start to change, it’s possible that the attractiveness of prepaid will begin to fade again, and growth will slow as some subscribers migrate back to postpaid plans. AT&T’s bet on Leap is an investment in prepaid’s future, but it remains to be seen whether that’s future is as bright as it has seemed.

AT&T DirecTV is about new addressable markets

Note: This past week I posted analysis of the market context for both these mergers here, including a large amount of data and charts. One of those charts is at the bottom of this post.

Additional note: At the time of writing, the AT&T-DirectTV merger is rumored to be announced on Sunday. I don’t work on Sundays, so if you’d like to reach me for comment, you can do so today, ideally via email at jan@jackdawresearch.com. Or wait until Monday. 

The comment below may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research.

There is precious little growth in the consumer wireline market, and the total number of customers for some combination of wireline voice, broadband and TV has stayed stubbornly constant for the last couple of years. The major providers are largely swapping subscribers, and the only way to grow is to steal more subscribers from your competitors than you lose to them. In addition, each of the major providers has a set geographic region within which it operates, and organic expansion out of that region is pretty unattractive because of the cost of building new infrastructure. As such, the only way to grow is to expand inorganically by acquiring a provider with a different footprint and boosting its growth. The Comcast-Time Warner Cable and AT&T-DirecTV mergers are essentially the same in this regard – they’re both attempts to grow by acquiring a presence out of their traditional footprint.

But there’s an important difference between the two mergers: Comcast and Time Warner Cable are essentially identical assets under very different management, while AT&T and DirecTV have very different assets both under similarly good management. Comcast’s bet is that it can apply its successful strategy and backend infrastructure to the TWC assets and get that business growing and adding customers again. In the process it will gain scale and thus negotiating power with content owners. But in acquiring DirecTV, AT&T will be acquiring a very different asset, one that gives it a national footprint in TV services to go with its national wireless footprint, but which doesn’t have any wireline broadband or voice assets. This creates the opportunity for AT&T to provide a new kind of triple play of satellite TV along with wireless voice and broadband outside its traditional wireline footprint, in addition to providing a more traditional triple play inside its footprint, utilizing DirecTV where U-verse doesn’t make sense to provide the TV element of the bundle. This means an opportunity to sell AT&T wireless services to the DirecTV base, but also an opportunity to sell DirecTV services to AT&T wireless customers outside of AT&T’s wireline footprint. And of course, it’ll also offer some of the same benefits in terms of negotiating power as the Comcast-TWC merger.

Given that AT&T has bumped up against the upper limit of its acquisition strategy in both the wireline and wireless telecoms space, it’s been looking overseas for expansion opportunities, and in particular at Vodafone. But cross-border mergers have never performed well because the synergies are small, the duplicated assets in each country large, and because cultural differences usually prevent companies from applying the same strategies in each market. But domestic acquisitions usually fare much better, with significant synergies as well as scale economies. As such, the DirecTV acquisition makes a lot of sense for AT&T as an opportunity to grow domestically while avoiding some of the problems it experienced when it tried to acquire T-Mobile.

However, especially in the context of the Comcast-Time Warner Cable merger, this acquisition raises important questions about scale in the US market. Were both mergers to go through, they would create two dominant providers which would dwarf all other providers – total customer relationships for both companies are shown in the chart below (which takes no account of the divested subscribers at Comcast since it hasn’t provided enough detail to make a full calculation). These two mergers would involve the four companies that already have the largest number of customer relationships, and each would likely end up with around 35 million customers, compared with DISH at under 15 million and Verizon at just over 10 million. The companies will have to work very hard to justify regulatory approval in that context, especially since the wireless market is already dominated in this way by two larger players, one of which happens to be AT&T.

Total customer relationships incl mergersLastly, it’s worth noting that although the US is by far DirecTV’s biggest business, about a quarter of its revenue comes from its Latin American business, which operates satellite providers in several countries. AT&T already owns a small stake in America Movil, a Latin American mobile operator, and there may be some small complementarity between these assets. But the Latin American business is more likely to be a distraction than a benefit for AT&T, with limited synergies between the domestic and overseas operations. As such, it’s quite possible that it will look to offload rather than keep the Latin American assets either immediately or over time. As mentioned above, the synergies between cross-border activities in this market tend to be very small, although they’re often overestimated by acquirers.


Amazon’s TV device brings greater firepower to set top boxes at a price

Amazon today announced its entrant in the consumer set top box space, the Fire TV, which will cost $99. The comment below may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research:

Amazon’s Fire TV device brings greater power to the consumer set top box space, at a price. In contrast to its tablet pricing, which has undercut major competitors, Amazon has instead focused on boosting the specs and performance, at a price. The $99 price point means Amazon is going head to head against Apple TV, and will be significantly more expensive than Google’s Chromecast and several of Roku’s offerings. Together with the recent increase in the price of Amazon Prime, this appears to signal a greater conservatism on the part of Amazon on pricing.

The box itself largely takes the approach of doing the same things as other set top boxes, but doing them better. The exceptions are voice search and gaming, where Amazon has gone significantly beyond what other consumer TV boxes offer. Voice search is notoriously fickle, and it’s not an area where Amazon has a lot of experience, so we’ll have to wait for the first reviews to see if it’s any good. If it does work, it’ll be a significant improvement on the text input functions on other major boxes. The games feature mimics Roku’s games features, but goes significantly beyond them, building on its existing relationships with game developers through the Amazon App Store for Android.

The big question is what Apple has up its sleeve for Apple TV. Amazon is embracing the fragmentation that exists in the TV space today, offering an impressive array of third party video apps on the Fire TV while also creating exclusive content on its own channels. But the great opportunity in the TV space is to bring unification rather than fragmentation to consumers, creating a single unified service and interface for video across multiple devices. That’s where Apple has a great opportunity, and if it is able to take advantage of that opportunity, it could provide significantly more value than Amazon has here. (For more on this concept, see this blog post).

Microsoft announces Office for iPad

Microsoft today announced a full version of Office for the iPad, available later today. The below comment may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research:

You have to think about today’s announcement in several parts. On the one hand, the product Microsoft demoed today looked incredibly impressive, much cleaner and easier to use than any of Microsoft’s other Windows versions. That in itself is a huge step forward, and suggests similar improvements may be coming to touch-based Windows devices like the Surface. But at the same time, Microsoft is coming to this very late, roughly four years after the launch of the iPad, and during those four years people who use iPads have found other ways to get work done, whether third-party apps or Apple’s iWork apps. Many of those apps are free, and at most $15 or so on a one-off basis, while editing documents in Office on the iPad will cost at least $70 a year. The big question is whether people will want to pay that kind of premium for the ability to use a “full” version of Office. So many people whose work lives are iPad-centric have moved away from Office entirely, and Microsoft will now have to win them back. The overlap between the 3.5 million consumer Office 365 subscribers and the 150 million or so iPad users is likely vanishingly small, and Microsoft will have to change that.

The other big challenge for iPad users is how to get documents in and out of Office on the iPad. For anyone who’s used productivity apps on the iPad, they know that in the process of opening, editing and emailing a document, the emailing part can be as painful as the editing. Microsoft is clearly favoring OneDrive as the major way for people to get documents in and out of Office on the iPad, which makes good strategic sense. But it doesn’t necessarily make sense for iPad users, who are much more likely to be invested in iCloud or even Dropbox for document storage.

For all these reasons it’s unlikely that the iPad for Office announcement will make a huge difference either for Microsoft or anyone else. But it does signal a much more significant strategic shift on the part of Satya Nadella. He’s shown a willingness to allow Windows to fade into the background, as demonstrated by both the Office iPad launch and the recent renaming of Azure. That’s critical to Microsoft’s future success, as the obsession with promoting Windows above all else (including its customers’ needs) has been one of the biggest forces holding Microsoft back from success in the mobile space. This recognition, and the change in strategy that have flowed from it, are more significant than any individual product launch Microsoft might announce.