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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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Does anyone else notice the careful wording?
By 91TTZ on 11/28/2012 4:42:58 PM , Rating: 4
If you notice, they say that it's "moved more licenses" than previous versions of Windows. This is a big difference compared to having better sales, aka making more money. The truth is that Windows 8 is selling for much, much less money than Windows 7.

Take a look at the Windows 7 Professional upgrade price:

Now look at the Windows 8 Professional upgrade price:

Windows 8 is moving more licenses because it's selling for less than half the price of Windows 7. If it were a stronger product it would command a higher price. If Toyota came out with a notoriously unliked model of the Corolla and then was forced to slash the price to $7,000 you'd see similar headlines- "This is the best selling Corolla ever". But it would be misleading since their profit margins would be horrible or even negative, and after the launch they'd probably fire the guy in charge of the division (cough, Sinofsky, cough)

And in another article I was reading, it sounds like the Microsoft App Store has had a very lukewarm reception. Microsoft didn't even want to hint at any sales figures. People just aren't buying many apps from Microsoft's app store since they have other options to get their applications (direct from the developers).

When you consider Microsoft's R&D expenses it took to develop Windows 8 and then subtract that from the average selling price for a copy of Windows 8, you're going to find that Microsoft is not making nearly the profit off Windows 8 as they did off Windows 7.

By Varun on 11/28/2012 7:49:38 PM , Rating: 2
Wow with all of that data, someone might confuse you for someone that knows what they are talking about. Well done!

However, the vast majority of Windows 8 licenses go to OEMs. They all have agreements on the cost per COA based on volume of sales.

Also, when Windows 7 launched (on October 22nd not July) there was ALSO a promo deal! 3 licences for $150! But of course now they are offering a promo upgrade price of $40, which is FAR less than $50.

So yeah, their profits aren't going to change much due to this promo which only affects a percentage of all sales. I mean, they offered the Windows 7 Promo and they didn't go bankrupt then so they should be OK now.

And your comment about them undercutting the price of 7. Yup, it's called a SALE. Companies have them all the time maybe you even heard of Black Friday where a few companies all have sales.

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