Morgan Stanley: Microsoft may threaten Apple’s App Store

In-app events will be displayed on the App Store starting October 27

In a turnaround tale built atop decades of similar tales to emerge from the Microsoft/Apple ‘eternal frenemy’ dance, Morgan Stanley now says Microsoft could be the ‘biggest potential threat’ to Apple’s App Store business.

The battle of the app stores

That’s because of Microsoft’s revealed hope that it will be able to launch its own app store for games as early as next year if its $75 billion Activision/Blizzard acquisition is approved by regulators. Microsoft could launch its store as soon as next year if the deal goes through.

The analysts aren’t hugely worried, yet.

They say the near term risk to Apple’s business in small, but that once Apple begins to offer support for third party stores on its devices the scale of the threat could grow, generating a turf war around games between the two tech giants.

The European Union’s Digital Markets Act means third party stores will have to be supported on Apple and Android devices starting next March. But it doesn’t mean users will migrate to Microsoft, they may simply use it to get games unavailable elsewhere.

But first you got to win them over

“While regulators are pushing for greater App Store competition, consumers continue to overwhelmingly prefer the App Store’s unmatched security, centralization, and convenience,” the analysts said in a note to clients.

“While the risk of competition is likely higher should a large player like Microsoft enter the space, we expect the risk to be limited to just Europe for the foreseeable future (and Europe represents just 13% of total App Store spending).”

This does of course lead toward precisely the outcome some fear, with store providers using games to goad users into entering their stores. In the case of less salubrious providers this may create security and fraud problems for customers, used to the safe as houses Apple experience.

It’s all in the game

All the same the result could be slight to Apple. The analysts estimate a 1% hit if Microsoft sucked all the games sales in the EU, “but it still represents the biggest potential threat to the App Store today,” they wrote.

They believe less than 30% of Apple customers would be willing to buy apps outside the App Store at this time, but do note that Microsoft’s brand means it can maintain itself as a long-term force.

Last year, Woodring noted that consumers “overwhelmingly” prefer the App Store to its alternatives, and observed that sideloading has seen limited adoption on other platforms. It’s just too complex for most people to bother. It will be interesting to see if Microsoft can change that.

Morgan Stanley analyst Erik Woodring maintains his Overweight rating and $180 price target on Apple stock.

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