When Microsoft Office finally got off its duff this spring and released versions of Word, Excel, and PowerPoint for the iPad, it was a big departure for a company that has been careful not to undermine its money-printing Office software. But its decision Thursday to make the software free marks a more drastic shift and brings Microsoft more in line with newer competitors.

In March, Microsoft (MSFT) required anyone who wanted to create or edit documents on their iPads to buy a $99-a-year subscription to Office 365. People without subscriptions could use the apps to read documents but not to create or edit them. Now people will have full use of the programs for free; Microsoft will still charge for advanced features such as unlimited storage and Dropbox integration.

The model for many new software companies, especially on mobile, is to draw huge numbers of people with basic services, then rely on a group of core users to pay for features that are needed only for heavy use. Microsoft’s traditional software strategy has been the opposite: It makes software, and everyone pays to use it. But the company apparently decided that the only way to compete against free was to be free itself. It is also introducing a version of its Office software for Android tablets, further expanding its reach.

For Microsoft, the iPad is a gateway to the desktop. The PC version of Office will still require a subscription, and Microsoft is hoping that people accustomed to using the mobile versions will eventually feel compelled to have the same experience on their personal computers.

The risk here is that companies building tablet computers will succeed in their efforts to build mobile devices that replace laptops altogether. The distinction between mobile and PC computing is becoming less clear, and the distinctions between a smartphone and a tablet, or a tablet and a laptop, could be hard to draw in the future. If this happens, Microsoft could succeed in its goal of getting the mobile generation hooked on Office—and end up being worse off because of it.

(Bloomberg Businessweek)