If I told you there was an application store that existed within a software product used by over 300 Million paid subscribers, what product would you think I was talking about? Feels too small to be Apple or Google. Feels too large to be a video game like Fortnite. Too many ‘paid’ users to be the Chrome extension store. The product I am referring to is the Microsoft office add-in store. The Add-in environment allows developers to build and deploy add-ins that extend the functionality of office applications. These add-ins work with familiar web-app technologies and can be deployed across platforms such as Windows, Mac and in browsers. While add-ins have existed in various forms, previously called COM and/or VSTO add-ins, adoption has been weak and as our exercise at the beginning of this paragraph demonstrated, many haven’t even heard of it. This article examines the add-ins store’s strategic positioning and suggests three strategies to market for growth and successful monetization of its core customers.
Bring Enterprise Software Providers to the Platform
In 2020 Microsoft’s Productivity and Business Processes segment (revenue breakdown pictured in Fig 1), which includes Microsoft office commercial and professional (as well as a host of other products) grew to approximately $46 Bn. More than $28 Bn of this came from Office Commercial products, relative to the $4.6 Bn that came from Office Consumer. With 6x the revenue as consumer, Microsoft’s real customer for Office 365 and related products appears to be other businesses and not every day personal users.
Most workers at large corporations interact with one or more enterprise level software product every day. These include Sales CRM’s like Zendesk and HubSpot, Marketing and analytics platforms like Google Analytics and Tableau and Accounting and finance software such as QuickBooks and Workday. If you think back, the core tenant of all these platforms it is to take on tasks traditionally done in the Microsoft office suite, and do them much better, by either focusing on an industry or specific use case. For example, Tableau aims to make data reporting and editing much more visual and dynamic than possible in excel and PowerPoint. Zendesk strives to make tracking customer relationships and communications much better than rows on rows of data in excel.
Nevertheless, a significant amount of data generated (or inputted to) these solutions ends up routing through the MS Office Suite. Whether its data extracted into a csv before being fed to a tableau dashboard or Google Analytics outputs that are displayed in PowerPoint for management presentations, Microsoft office is entrenched in many use cases.
Microsoft should use its reach to encourage enterprise software companies to publish add-ins which would enable Office 365 applications to extend integrative capabilities to their platforms. Formally acknowledging the role Office 365 products play in day to day use cases will help enterprise providers meet users where they work and provide more practical products. Office 365 could become even more entrenched in daily workflows.
Focus on Quality and Lower the Firewalls
The mobile app market is a duopoly dominated by Apple and Google, with 62% and 38% of revenues respectively, and they are generally ruled by two schools of thought. The Google Play store is more developer friendly and less cost prohibitive for entry, while the Apple App store is more focused on quality assurance and curated selection. The most cited reason (not only by Apple fan boys) for the App store’s superior market position is Apple’s focus on quality, a factor their much higher income customer’s value greatly.
Like Google, Microsoft is pursuing a strategy that aims to get developers on board, with low barriers to entry in terms of costs and quality standards. By releasing many tools, robust APIs and tutorials to accelerate developer acquisition, Microsoft aims to grow its add-in offering to make it more appealing to users. However, unlike Google, and like Apple, Microsoft Office derives more of its income from very high value customers. Microsoft Office makes its real money from Corporations.
Microsoft is pursing Google’s strategy with Apple’s customer base. The result is that many large corporations have firewalls in place prohibiting employees from accessing the add-in store to safeguard their networks from potential malware. This halts any bottoms up (also known as slack style growth where some users, then a team, then the corporation start using) customer adoption that could occur. Those corporations that do use add-ins prefer to build and deploy their own internal solutions that are more targeted toward company specific problems.
Microsoft should focus on quality; creating and marketing higher common standards to its corporate partners to increase adoption and entice them to lower the firewalls to the add-in marketplace. Microsoft should leverage their customer relationships to gather add-in use cases and then recruit accomplished developers to create higher quality products. Finally, Microsoft would do well to invest in creating more inhouse add-ins to expedite corporate penetration.
Encourage Corporate Partners to Publish
When I was at Deloitte, we had custom excel and PowerPoint add-in’s that were proprietary to the firm and allowed us to create incredible graphics, trace and audit functions and much more. I am now getting my MBA at Columbia where the business school has developed custom software add-ins to bring the functionality of advanced analytics software and financial forecasting to us in Microsoft excel so we don’t have to invest time in learning specialized software products that are seldom used in the workplace. Many other large organizations such as banks, consulting firms and universities have developed add-in packages, to solve complex problems, that remain siloed within their organizations.
Microsoft should use their deep relationships with these large corporations and entities, that are already publishing high quality add-ins free of malware, to encourage them to release their add-ins to the public. While some companies may wish to not publish, to keep proprietary information inhouse, most use cases are not novel innovations and rather creative ways to solve problems that might otherwise take a lot longer. This approach would help populate the add-in store with a host of reputable publisher add-ins. Put another way, would you rather download a stock analyzer from Goldman Sachs or Michael Saunders, the current best in class publisher? Nothing against Michael, I just think Goldman might have a slight analytical edge. For companies and organizations, this would present them with a way to diversify revenue streams and capitalize on their reputational know-how.
A greater focus on corporate solutions could make the add-in store the B2B app marketplace of the future, helping Microsoft further embed itself as essential and adaptive to the needs of the business world.