Windows 8: Will Microsoft’s Latest Big Bet Pay Off?

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This post is in partnership with Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania. The article below was originally published at

When Microsoft CEO Steve Ballmer officially launched Windows 8 on October 25, he touted a “re-imagined Windows” with touch-screen capability, a new user interface and the elimination of the traditional Start menu. However, analysts are questioning whether Microsoft’s new operating system — along with more than 140 different Windows 8-powered hardware designs from partners such as Acer, Dell, HP and Samsung — will catch on with consumers.

For one thing, PC sales are declining globally, and the trend doesn’t show signs of reversing. According to research firm IDC, PC shipments fell 8.6% in the third quarter of this year. By contrast, IDC’s tablet forecast was adjusted upward to 122.3 million units in 2012, from 117.1 million, courtesy of Apple‘s iPad mini tablet. Analysts note that the Windows 8 launch hasn’t boosted PC sales, and that Microsoft’s newest flagship device — the Surface tablet/laptop hybrid powered by Windows 8 — hasn’t taken off, either.

“So far, it appears Windows 8 has not been the major catalyst many expected: We are reducing our Windows revenue estimates to reflect the lack of a meaningful reaction in the PC market from the launch and a weak ramp in Surface unit volume,” wrote Barclays analyst Ben Reitzes in a research note. “Data points from the PC supply chain remain negative, with no reversal in sight. The traditional Windows business will continue to be cannibalized by tablets.”

The strength of Windows 8, according to Wharton faculty and other experts, is its ability to span multiple devices — from PCs to tablets and mobile phones. The company could not risk being solely tied to PC sales when that market’s growth is slowing. With Windows 8, “[Microsoft] is attempting to leverage touch-screen technology and bring it to the traditional PC market,” says Andrea Matwyshyn, legal studies and business ethics professor at Wharton. She adds that Microsoft is on the right track with the idea that it can bridge multiple devices with one operating system, but it’s unclear what device will make Windows 8 a must-have.

“Credit Microsoft for trying to bridge the gap between tablets, desktops and mobile,” says Wharton marketing professor Peter Fader. But significant changes in the user interface — required to make Windows 8 compatible on multiple devices — could prove to be a hurdle to adoption by users who are accustomed to the old Windows operating environment, some analysts warn. “Customers are still wait-and-see,” Fader adds.

“Windows 8 is a big deal [for the company], and Microsoft made more than incremental changes to its flagship product,” notes Knowledge@Wharton technology and media editor Kendall Whitehouse. “It’s nice to see Microsoft being more aggressive and taking a big leap.” Still, Windows 8 will be a significant test for the firm, Whitehouse adds. “Microsoft is very good at focusing on profitability, but its track record for developing breakthrough products hasn’t been very consistent.”

Reading the Numbers

Microsoft has reported that it sold 40 million Windows 8 licenses from October 26 to November 27. Speaking at an investment conference on November 27, Tami Reller, chief financial and marketing officer of Microsoft’s Windows division, said that the pace of Windows 8 sales is on par with that of Windows 7 when it launched in 2009. “Each release of Windows has its own characteristics,” said Reller. “The 40 million is roughly in line with Windows 7. If you think about the timing of Windows 7, there was a lot of anticipation, and it was also the type of a transition that didn’t really require much hardware change. It didn’t require the level of change that Windows 8 has required.”

The amount of change needed to make Windows 8 both tablet- and PC-compatible is a primary reason that analysts are mixed on Windows 8’s prospects. Those concerns were magnified when Microsoft replaced Stephen Sinofsky, head of the Windows 8 effort, with Julie Larson-Green as president of the company’s Windows and Windows Live division on November 12. Ballmer said the move was made to “drive alignment across all Microsoft teams” and products.

According to Fader, it’s too early to tell whether the company’s radically revised operating system will do well. And it’s certainly too early to call it a failure, he adds, since Windows 8 may see a long adoption curve as consumers navigate multiple hardware designs and new device interfaces. “So many people are locked into Windows and like it,” Fader notes. “They will adapt. But even if Windows 8 fails, it won’t be the first time Microsoft launched a bad OS.” Microsoft’s Vista and Windows ME operating systems both disappointed due to performance issues and weak sales, but the company rebounded with strong products in their subsequent operating systems.

Matwyshyn isn’t so sure. She says that Microsoft’s competition is decidedly different this time. By changing Windows 8 so dramatically with features like “Live Tiles,” which bring content to the user from multiple sources, and offering new hardware designs from Microsoft and its PC partners, the company “has caused user angst” through disorientation. “When you disrupt user comfort, you create unnecessary tension,” says Matwyshyn.

In an interview with MIT Technology Review, Larsen-Green said that internal data are showing that consumers become accustomed to Windows 8 after an initial adjustment period. “There’s a cutover point, around six weeks in, where you start using the new [features] more than the [ones] you’re familiar with,” she said. To facilitate the transition, Microsoft has included an option to use some features from the older Windows 7 desktop on Windows 8.

Whitehouse likens the revised Windows 8 interface to that of Microsoft Office 2007, which introduced Microsoft’s “Fluent user interface.” The new Office interface, with its “ribbon” feature that shows a changing display of menu items at the top of the application, initially caused a great deal of consternation among users. Once Microsoft tweaked a few details, however, the new interface settled in as the standard across the Office product suite. Should Windows 8 stumble, Microsoft is likely to retool and respond to customers with updates to the core operating system. “Microsoft has a lot of room to dodge and weave,” says Whitehouse.

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