This week, Microsoft did what was unthinkable just a year ago. It made its Office apps free for everyone (premium features still require an Office 365 subscription, but those features are for advanced users which most are not). This is important for the following reasons:
A. They needed to compete with free services from Apple and Google. While the document editing services of those competitors are getting better, Microsoft Office is still king. This move to make Office free just confirms it.
B. Indoctrinate the young. Microsoft needed to get young people using their products from an early age, so that they may become lifelong Microsoft users. Without a free tier, these young users would be indoctrinated into Apple's and Google's ecosystems instead, which would be terrible for the future sales of Microsoft products. Hooking these young people early is an investment for the future, when they grow up and have disposable incomes to purchase other Microsoft products.
C. Separate the consumer business from the enterprise business. Ben Thompson put it best:
On the consumer side, Microsoft hopes to make money from devices and advertising: they sell Surfaces, Lumias, and Xboxes with differentiated OS’s, hardware, and services, and they have ad-supported services like Bing and Outlook. The enterprise side is the exact opposite: here the focus is 100% on services, especially Azure and Office 365 (to use the Office iPad apps for business still requires a subscription).
Microsoft needed to clearly delineate its two major businesses - one aimed at consumers, and the other at enterprise. Offering the Office apps for free makes their consumer business stronger. In turn, these consumers will expect the same services from their employers (many large businesses already pay for Office 365, but this is about those who don't, such as small to medium sized companies).
Overall, this is an excellent move for Microsoft. As of this writing, Microsoft Word is third most downloaded app in the App Store. The investment has already started to pay off.