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South Korean upstart Infraware battles Microsoft for office space

Infraware Chief Executive Kwak Min-cheol poses during an interview with Reuters at his office in central Seoul September 12, 2013. REUTERS/L
Infraware Chief Executive Kwak Min-cheol poses during an interview with Reuters at his office in central Seoul September 12, 2013. REUTERS/L

By Miyoung Kim

SEOUL (Reuters) - South Korean upstart Infraware Inc is in a David and Goliath battle with software giant Microsoft over a lucrative niche of the mobile office business and just like the diminutive biblical hero, it believes it can win.

Infraware already dominates the market for office software applications on Android devices and says it now has a killer strategy to extend that domination to Apple Inc handsets as well by giving its best-selling Polaris app away for free.

The contest between the $250 million Korean minnow and the $270 billion U.S. titan illustrates how small firms can outwit lumbering technology majors like Microsoft Corp, which has been criticized for being too slow to transfer its great advantage in office software to mobile platforms.

"What we're trying to do is add cloud-based services and make the Polaris app seamlessly accessible through multiple devices, then offer it for free," Infraware chief executive Kwak Min-cheol told Reuters in an interview in Seoul.

"If you look at Microsoft, they earn over 15 trillion won ($13.8 billion) with Office products and they charge monthly usage fees...Our app has great compatibility with Office and it will come for free for many devices. I'm pretty confident this will have a major destructive impact on the market."

Android users may not have noticed, but the app most of them use to read and create Microsoft Office files is not made by the U.S. firm that pioneered office software. It's made by the relatively unknown Korean firm headed by 38-year-old Kwak.

The global smartphone market is seen growing to nearly 1 billion units this year, with those operating on the Android system accounting for around 70 percent, according to analysts' estimates.

Infraware's Polaris Office app has become the most popular mobile office product since it launched in 2011, on the back of pre-installment deals with major Android carriers such as Samsung Electronics Co Ltd, LG Electronics Inc and HTC Corp, which pay license fees to the Korean firm.

It has logged 500 million unit sales so far, or about 5.4 copies every second worldwide. Installed on more than 60 percent of all Android devices, it is also one of the top-ranked business apps in the iTunes app store, selling for $12.99.

Now Infraware plans to offer a new, cloud-based version of Polaris for free across all platforms, throwing down the gauntlet to Microsoft's Office 365. Currently the only cloud-based office solution that works on all platforms from Windows desktop to Android and iPhone, Office 365 costs either $9.99 a month or $99.99 for an annual subscription.

Infraware's strategy for the free version of Polaris is to keep Microsoft at bay, protect its dominance of the Android office app market and enhance its brand recognition in the hope of making money from its other paid products and services.

MOBILE MICROSOFT

Microsoft said Office 365 was on target to generate annual sales of $1.5 billion this year, and the versions for iPhone and Android made "great mobile companions" for the company's heavy-hitting desktop Office team of Word, Excel and PowerPoint.

"Office 365 is the fastest growing product in Microsoft's history," the company told Reuters in a statement when asked if the firm was late to the mobile office market.

"We are committed to adding new, incremental value for Office 365 subscribers, and Office Mobile for iPhone and Android phones is only the latest example of that commitment in action."

Analysts say Microsoft was slow to join the mobile revolution and its efforts to catch up with the Windows Phone and the Surface tablet have failed to take off.

Initially working on the assumption that a native Office suite would be a great differentiator for its phones and tablets, Microsoft now seems to have abandoned that belief in regard to phones, if not tablets like the iPad.

One analyst has suggested Microsoft is giving up $2.5 billion in Office revenue a year by not putting the software on iPad, amid an internal debate over how the Seattle-based company should structure its business in the future.

One side wants the focus to be devices such as the Windows Phone, while the other says the goal should be to sell services such as Office on as many platforms as possible.

Not constrained by such dilemmas, Infraware's Kwak says the free Polaris Office Link app will be launched later this year in South Korea and early next year in other markets.

ON A ROLL

Thanks to support from Android manufacturers, Infraware's operating profit in the first half of this year nearly quadrupled to a record 9.5 billion won ($8.76 million) and margins expanded to 37 percent.

Its shares have doubled in the past 12 months, and the firm expects revenue to rise more than 20 percent this year. Three analysts rate Infraware's stock a "buy" or "strong buy", according to Thomson Reuters StarMine.

"I think it's not enough yet. With a software product that's this successful, I think it has to make much more money. I'm not satisfied yet," Kwak said.

Backed by money he made developing software programs for IT firms during his college vacation, Kwak set up Infraware in 1997 with two interns. The firm hit the jackpot with Polaris after it bought a small document solution developer with 30 staff members for just 10 billion won in 2009. Infraware now employs 635 people, mainly engineers.

"Document solutions were the only missing part for us, as our main products at the time were mobile browsing and email solutions," Kwak said.

Once he's done gate-crashing the tech majors' office app party, Kwak intends to diversify into other services such as mobile games.

Infraware's games portfolio already includes the popular sword-and-sandals role-playing game "Sefirah," and it plans to publish up to five new games around the end of the year, Kwak said.

Another iron in the fire is Tizen-based smartphones, which run on a mobile operating system that Samsung and Intel Corp are co-developing to challenge Android. Infraware's Polaris app generator (PAG) promises to transform almost all Android apps and games to run on the Tizen handsets.

(Additional reporting by Bill Rigby in SEATTLE; Editing by Stephen Coates)

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