Microsoft's long-running Windows franchises faces the twin threats of softening PC sales and consumers' rising preference for mobile offerings such as Apple's iOS.
Microsoft's July 21 earnings call revealed one little tidbit
that could have executives in Redmond reaching for the anti-anxiety medication:
revenue for the company's Windows and Windows Live Division declined 1 percent
during the most recent quarter, even as other divisions reported significant
It's hard to understate the importance of Windows revenue to
Microsoft's overall fortunes. Windows 7 has sold some 400 million licenses
since its October 2009 release. A galaxy of manufacturing partners and
third-party vendors depend on the operating system to help sell their own
products and services. And Microsoft needs those truckloads of Windows revenue
to help finance less profitable initiatives, such as its "all in" cloud
During the earnings call, Microsoft executives attributed
the dip in Windows revenues to an overall softness in the PC market. But
according to at least one analyst, the company could be feeling pressure from
consumers' rising preference for mobile devices, which run alternative
"Microsoft's most mature franchise, Windows, is facing
unprecedented challenges in the form of a new generation of computing devices,
tablets and smartphones, which are rising in popularity and are not based on
the Windows operating system," Allan Krans, an analyst with Technology Business
Research, wrote in a July 21 research note. "Although Microsoft does plan to
increase its presence in this space through the addition of ARM compatibility
with Windows 8, Linux-based alternatives have already established significant
positions in this space that will be difficult to sub-plant."
In other words, he added, "deployment of alternative devices
across both the enterprise and consumer markets" is impacting "the vitality of
Microsoft's Windows business."
Meanwhile, one of Microsoft's chief rivals is echoing that
During Apple's July 19 earnings call, COO Tim Cook discussed
the iPad's potential for cannibalizing traditional PCs. "Some customers chose
to purchase an iPad instead of a new Mac during the quarter," he told media and
analysts. "But even more customers chose to buy an iPad over a Windows PC. ... There's a
lot more of the PC Windows business to cannibalize than the Mac."
Microsoft's solution is apparently the next version of
Windows, which reports suggest will appear sometime in 2012. Internally
code-named "Windows 8," the operating system will chuck Windows' traditional
desktop and taskbar in favor of color tiles designed to be equally tablet- and
PC-friendly. An OS capable of running on everything from small tablets to the largest
desktop workstation, in theory, could help blunt the threat presented by other
operating systems, including Apple's iOS (for iPhone and iPad) and
Hewlett-Packard's webOS (now on tablets and smartphones, but scheduled to move
to desktops and laptops).
Until the launch of Windows 8, though, the question is
whether Microsoft's revenues from arguably its most valuable product will
continue to slide.
Nicholas Kolakowski on Twitter