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Windows 8 is the next Windows ME? The sales numbers suggest that accusation is malarkey

Windows 8 was an incredibly bold redesign on the part on Microsoft Corp. (MSFT).  The move to a more touch-friendlygraphically rich operating system certainly seemed to mirror the general direction of the device market, but that did not shield Microsoft from loads of criticism. Many wondered whether it went too far with the graphical gloss, whether it was disrespecting developers with its shift to a walled-garden "Windows Store" app distribution model, and whether it was forsaking traditional desktop power users.

I. Windows 8 Upgrade Sales: Very Strong

But the proof is in the sales, and Microsoft announced today that for all the haters, Windows 8 appears to be doing great.

In its first month of sales Windows 8 has moved 40 million licenses, according to Microsoft.  The company announced the news in a blog post and at a conference presentation.  It also points out that buoyed by reduced upgrade fees, the Windows 8 upgrade rate is outpacing that of Windows 7, the previous sales record-holder.

Indeed, our own polling shows that the majority of users are upgrading to Windows 8, although there are certainly many holdouts bitter about the changes.

Windows 8 boxes
While some upgrades have been via disc, the new OS has largely been digitially distributed.
[Image Source: The Verge]

Windows 8 is the first Microsoft OS to transition to a primarily online distribution.  That shift has not seemed to adversely impact sales.  It appears Microsoft timed its transition to disc-less media correctly.

II. The Road Ahead

Microsoft's Brandon LeBlanc also brags that its Windows Store is thriving, writing:

There were more apps in the Windows Store at launch than any other app store at their launch and since then, the number of apps in the Windows Store has doubled. A number of apps in the Windows Store have crossed the $25,000 revenue mark and the developer keeps 80% of the revenue they make off downloads for the life of their app. A lot of great new apps have been added to the Windows Store since launch such as CBS, ABC News, ABC Family, Engadget, Flixster, OWN (Oprah Winfrey Network), Vimeo and my (current) personal favorite - Top Gear.

A strong app market is good news for Microsoft.  While it offers a more favorable revenue split than other players like Apple, Inc. (AAPL) or Google Inc. (GOOG) (with developers keeping 80 percent of the revenue), Microsoft still is closing the loop to include itself in Windows software sales profits.

In the past, Windows Certification processes offered up small cuts to Microsoft, but software publishers largely pocketed these profits.  Now Microsoft has cut out the middle man by playing super-publisher with Windows 8, the same move Google and Apple have made with their mobile and personal computer platforms (although Google does allow unofficial third party channels).

Ballmer Slate
Microsoft needed a bold reinvention in the mobile direction to keep up with market trends.
[Image Source: Bloomberg]

Looking ahead, Microsoft has a lot of unanswered questions -- most notably on the leadership front.  Windows 8 was the baby of departed Windows President Steven Sinofsky.  His shoes are currently being filled by former CFO and CMO Tami Reller on the business/marketing front and by Internet Explorer, Office and Windows interface veteran Julie Larson-Green on the software/hardware development front.

And the deep divisions between those who love Windows 8 and those who hate it, could hint that sales may dip to a slower pace than Windows 7 after the fans have completed their upgrades.

But, given the already modest success, and given the life-or-death need for Microsoft to have a cohesive, touch-friendly mobile platform, it appears overall Microsoft made the right choice.  Windows 8 isn't perfect, certainly and as they say, haters are going to hate.  And that is certainly true of Windows 8.  But it's better to be hated for innovation than panned for lack thereof.

Source: Microsoft

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RE: Malarkey
By Articuno on 11/28/2012 1:07:28 PM , Rating: 1
It's not hard to get sales when you give your OS away for less than the cost of a CD burner.

RE: Malarkey
By chmilz on 11/28/2012 2:21:58 PM , Rating: 4
Yeah. So cheap. Almost as cheap as OSX for $20. Or as cheap as Android or Linux for free.

MS sold 40M copies of MS. That's money in the bank. The competition has to give it away to get users like that, and then try to make the money back in apps. Apps are gravy for MS.

RE: Malarkey
By Argon18 on 11/28/12, Rating: 0
RE: Malarkey
By Florinator on 11/28/2012 4:49:55 PM , Rating: 2
Oh yeah? Linux has been free for 20 years and they still haven't put Microsoft out of business. Hmmm... makes one wonder...

RE: Malarkey
By Argon18 on 11/28/12, Rating: -1
RE: Malarkey
By dark matter on 11/28/2012 7:12:44 PM , Rating: 3
And yet Android is doing so well...

Enough to make MS sit up and notice....

Go figure.

RE: Malarkey
By wordsworm on 11/28/2012 11:11:07 PM , Rating: 3
You might have to point out that Android is the world's most popular Linux OS.

RE: Malarkey
By schmandel on 11/29/2012 10:51:53 AM , Rating: 3
Worldwide, Android outsold it's nearest competitor, IOS, at around a 2 to 1 ratio in third quarter 2012. Linux is doing just fine.

Metrics that reflect adaptation *choices* would be interesting. I suspect if you cut out the automatic corporate mass license upgrades the Windows 8 picture would not seem so rosy.

I personally can account for hundreds of corporate Windows licenses on machines that were immediately wiped and replaced with Linux, unfortunately that was the only way we could get the hardware at the time, we had to pay the "Windows Tax".

Microsoft's numbers seem mostly about maintaining appearances until they can dump Ballmer, repudiate their "STFU, we already know what's good for you" marketing approach, and maybe actually turn into a company worth dealing with. They will be far more desolated before that happens.

RE: Malarkey
By Cheesew1z69 on 11/28/2012 5:01:13 PM , Rating: 2
When they couldn't compete with Netscape on sales, Microsoft gave their product away free and put Netscape out of business. Friendly competition? Or anti-competitive monopoly? You decide.
Or, it was their OS to put what they want in? Yes, I believe that was it.

RE: Malarkey
By TakinYourPoints on 11/28/2012 6:22:27 PM , Rating: 1
Microsoft makes their money from software, none of the other companies you mentioned do. Google makes their money from advertising, Apple makes their money from hardware.

That said, Microsoft selling their OS for so little may have a surprisingly small impact on their bottom line. The number of people building their own machines and doing self-upgrades has been declining over the last ten years with the rise of the laptop. Giving it away for a fraction of what they used to to a very small part of their customers may be a calculated risk worth taking, and they still make what they're "supposed" to from OEMs.

It boosts the number of installations from the small DIY audience who otherwise would have stuck with Windows 7 and wouldn't have gotten it anyway. Cash is going to come in from OEMs no matter what since MS has a lock on that market.

RE: Malarkey
By 91TTZ on 11/28/2012 4:53:41 PM , Rating: 2
Neither Apple nor Google nor Linux make their money off software. Microsoft does.

Apple makes its money off hardware, not software. You pay $20 for the OS, but you probably paid $1200 for the laptop. Google makes it money off search. Linux is made by people in their free time. It's all open source.

I get my iOS updates for free, but then again I paid a lot more for my iPhone than I would for an Android phone.

RE: Malarkey
By StanO360 on 11/28/2012 5:05:05 PM , Rating: 2
But that's the point isn't it? Microsoft realizes that it needs a broader base of income. Computers last too long now and have long surpassed basic computing requirements. So growth will be slow. And some people replace their laptops with tablets (I never would but our computers are all used for Office apps).

So they must realize that people are happy with 7, so they need to price it accordingly.

RE: Malarkey
By foolsgambit11 on 11/28/2012 6:28:07 PM , Rating: 2
Microsoft still will make their money on software sales. But their new model will rely more heavily on long-term sales of first- and third-party software through the MS Store. It's sort of like turning the Windows business strategy into the Xbox business strategy - make most of your money off software to run on the platform.

RE: Malarkey
By TakinYourPoints on 11/28/12, Rating: 0
RE: Malarkey
By TakinYourPoints on 11/28/12, Rating: 0
RE: Malarkey
By tayb on 11/28/2012 9:02:18 PM , Rating: 2
Apple makes plenty of money selling software. They sell OS X upgrades and iOS upgrades, they sell apps on the app store, they manage the distribution of apps on the app store, and they sell OS X software (iLife suite and the like). They also bundle software with every device sold and it would be unfair to count a Macbook Pro or iPhone as 100% hardware revenue. The real magic lies in the software else no one would bother with it.

RE: Malarkey
By TakinYourPoints on 11/28/2012 10:23:29 PM , Rating: 1
Selling software serves as a way for Apple to keep customers in the Apple ecosystem, thus selling more hardware which is where their profit lies.

Selling software indirectly results in profit, but as a direct center for profit it is a very small fraction of what Apple makes selling hardware.

Microsoft is in the opposite position where they sell very high margin software that is almost pure profit for them. Apple doesn't sell first-party high margin software in anything close to large numbers, and almost all of the profit from third party software in the App Store goes to publishers and developers, not Apple.

"I modded down, down, down, and the flames went higher." -- Sven Olsen

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