Microsoft's future growth: Windows Phone, Windows 8 wild-cards

Microsoft's future growth: Windows Phone, Windows 8 wild-cards

Summary: For Microsoft to capture our imaginations again it needs a few things to go right---namely Windows Phone and Windows 8.


Microsoft's first quarter played out largely as expected---Office, Lync, servers and tools carried the day---but there are multiple wild-cards that need to be considered before assuming that the software giant can juice growth again.

These days Microsoft looks like a value stock---little growth, but a healthy dividend. Microsoft's Windows revenue was only up 2 percent. For Microsoft to capture our imaginations again it needs a few things to go right. Among them:

  • Windows Phone has to become a legit No. 3 platform and show some smartphone traction. Microsoft CFO Peter Klein said the company was confident it could be a solid No. 3.
  • Windows 8 needs to put Microsoft on the tablet map.
  • And Microsoft has to improve Yahoo's revenue per search metrics so it can cut some of the losses in its online unit.

In other words, Microsoft is in a big holding pattern. Analysts on Friday were handicapping Microsoft's first quarter results. The conclusion: Microsoft is a big waiting game.

Also: Microsoft earnings insights: On-premises Office still has a lot of life left |   Microsoft barely beats Street, raises outlook thanks to Skype | CNET: Microsoft sees strong Office and flat Windows in quarter

Wells Fargo analyst Jason Maynard said:

We think the next major catalysts are the coming Nokia smartphones, Yahoo search improvement, and the late 2012 Windows 8 release. In the coming month we are looking forward to seeing the fruits of the Nokia partnership with new WP 7.5 smartphones. We think resolution of the Yahoo integration issues is the key to stemming the multi-billion OSD losses. The outcome to the ongoing corporate speculation around Yahoo could also play a role. Finally, we think developer commentary and hardware progress are keys to tracking the Win8 development cycle. We assume Win8 will come in the second half of calendar 2012. The latest iteration of Android tablets running 4.0 and the pending launch of Amazon's Kindle Fire are also worth watching in our view as potential viable tablet competitors.

Maynard's take is a good jumping off point to assess Microsoft's growth prospects. Let's take them in order.

Windows Phone traction. Nokia World---we'll have ZDNet UK, Mary Jo Foley and CNET News' Maggie Reardon on scene---will be the coming out party for this Microsoft-Nokia marriage. The first Nokia devices will be shown, but the biggest question for me is whether consumers will bite. Nokia can add distribution heft, but Microsoft and its partner need to inspire gadget lust around the world. The Microsoft-Nokia effort falls into the "prove it" camp to me. Until I see market share gains, color me skeptical.

Yahoo improvement. Microsoft's partnership with Yahoo is another high profile effort. Microsoft and Yahoo were supposed to be Google killers. The reality is that the revenue per search improvements just aren't there yet. Both companies say things are getting better, but the earnings need to tell the tale. Klein said:

In search, monetization of our ad platform remains below our expectations, and we continue to partner closely with Yahoo! to address the platform gaps and inefficiencies. We recently agreed to extend the RPS guaranteed payments to Yahoo! reflecting the strength of our partnership and our continued commitment and optimism about the financial opportunity ahead of us.

Windows 8: The Windows 8 launch is also huge. Windows 8 features a new interface and is designed to work equally well on PCs and tablets. That effort is daunting. Toss in potentially sluggish IT spending, Windows upgrade fatigue, weak PC sales and another round of Android 4.0 tablets and Windows 8 could be running into a buzzsaw. Also see: A deeper dive into Windows 8: can Microsoft's big bet pay off?

Deutsche Bank analyst Tom Ernst Jr. said:

We expect PC sales, especially among consumers in the developed markets to continue to be weak, but we believe that Microsoft is positioning itself in the right direction to bridge the competitive gap in the faster growing tablet and smartphone space. Windows 8, expected to be released in fall of 2012 supports the ARM chip architecture. Early reviews of Windows 8 have been positive and the availability of Windows applications on a tablet form factor could make Windows 8 tablet a formidable alternative to iPad and the Android tablets.

None of these moving parts---Windows 8, Windows Phone and Yahoo search improvements---are solid enough to even make an educated guess on how this Microsoft tale will play out. Stay tuned.

Topics: Hardware, Windows, Tablets, Software, Operating Systems, Nokia, Mobility, Microsoft, Laptops, Social Enterprise

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  • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards
    • no. 3?

      how is windows phone no. 3 of the smartphone platforms with a mere 5% market share? last time i checked, blackberry was still no. 3. and nokia? dead already. i think microsoft will buy it next year to become an integrated phone vendor like - wait a minute - apple!
      • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards


        No need to go to Zdnet for my tech info anymore. Just email me with any details you know. Because you really seem to know what you are talking about.
  • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

    I think Microsoft needs to get aggressive in their marketing strategy. I've seen one new Microsoft commercial here in the States the past couple of days highlighting some of their products, and how well they work together. It's a start, but I think thy should still be a bit more aggressive.

    I do have to say though, while Microsoft is constantly portrayed as "uncool", people are still buying Windows, XBox, and yes, even Windows Phone. Maybe not as "cool" as the iPhone, but people aren't deterred from buying them. Just last weekend, at a hockey game, I sat down next to a student who brandished a Dell Venue Pro, who was in love with the thing. Also, I have had a few others ask me about mine.

    Be aggressive. Don't be afraid to go out there head to head with your competitors.
    The one and only, Cylon Centurion
    • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

      @Cylon Centurion
      Advising the company who created the lie marketing and bullying is similar to advice George Bush to go for war :-)
  • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

    One more time: the PC market is huge and mature so its growth is not and can not be like that of tablet devices. And yet tech bloggers continue to compare percentage growth with actual unit sales and make something of it. Apple sold 14 million iPads. That's great news for Apple, but a tiny fraction of the number of licenses of Windows that Microsoft sold in the same time period. And Android tablets?! Give me a break! They are a fraction of a fraction, though I expect the Fire will change that and give Apple real competition. But the secret to their success will be the Amazon and Kindle brand, not Android.
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    P. Douglas
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    P. Douglas
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    P. Douglas
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    P. Douglas
  • Zdnet: Links in comments


    Does your comment system no longer allow links in comments?
    P. Douglas
  • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

    Tablets are cool but I don't think will ever be a *huge* product as in PC or smartphone level sales. They are in a awkward position - too big to be carried around like a phone and not capable of serious PC like productivity. There's only so big a market for them. I love my tablet but, its just the way it is. I don't think its critical for MS to have success on tablets and have made a big mistake focusing on moving to ARM and touchscreens. They need to be successful on phones for growth - that's a given, but doesn't look promising. Android (or straight linux) runs on anything and pretty much has taken over consumer "smart devices" in general, so I think MS growth days are done at least in the OS business.
    • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

      @willyampz <br>Willy, what are you smoking? Like it or not, tablets are taking over... Your post sounds, well, oh so 2 years ago! Productivity is a relative term... Tablets (the iPad, anyway) were designed to consume content, productivity was a secondary consideration at best that is being added, or bolted on after the fact... For most (not all), it serves its' intended purpose. The PC market strong growth days are over, and saturated - I might add... Couple that with content (as mentioned before), and you have a tremendous growth machine, i.e. "The perfect storm", for tablets... Whether or not MS can parley that into "licensing terms" remains to be seen with regard to Win 8! It has become a "Star Trek" world my friend... Whether you like it or not:)
    • tablet market

      2011: 60 million
      2012: > 100 million
      2013: ?
      worldwide pc market 2011: 320 million (not growing anymore)

      my bet: it will take 3 years then the tablet market will be bigger, with apple owning the majority share of it.
  • Regarding .............

    ... Windows Phone 7, MS' biggest problem was getting salespersons in stores to push the phones. MS eventually substantially reduced marketing for WP7, presumably, to remedy the above problem and other issues. The above and other issues appear to have been addressed, and WP7 marketing has started up again. Also MS now has a first class partner in the way of Nokia, which has a very large stake in the platform, and also a substantial distribution channel. Because of this and other reasons, MS appears to have its ducks in a row, and I believe it will make substantial market share gains this time around.

    Regarding MS' search business: I recently created a little WP7 app, and tried to use MS' search advertising to promote the product. After a couple of days, I couldn't get the service to work (i.e. to actually display ads), and went over to Google. Google's service worked like a charm, and gave me actual results. MS' search ad system needs better automated diagnostics, and a user should ideally be able to initially configure his ad campaign, then tweak his settings on recommendations by the system, then have the system work soon after. The above may be a major contributor to why MS' AdCenter isn't doing so well.

    As for Windows 8: I believe MS should push Windows 8 aggressively on a variety of touch screens PCs - including tablets and all-in-ones, to show that Windows 8 is more than about tablets (it is about modernizing the whole PC experience) and trumps the iPad / Android in this regard.

    Adrian Kingsley-Hughes, along with others, seem to think that Windows 8 won't be shipped on many touch screen PCs. I think all MS has to do to ensure that Windows 8 touch screens sell well, is ensure that salespersons in stores have Windows 8 tablet and all-in-one touch screen demo devices displayed in stores, and these units will be flying off the shelves! I believe all-in-one Win 8 touch screens can be huge, and can significantly displace sales of traditional desktops in homes - and also have an impact on business sales. Manufacturers just need to make sure that their all-in-ones can be inclined away from vertical positions, and the use of touch first metro apps should be heavily promoted.
    P. Douglas
  • They aren't thinking

    <ul><i>the availability of Windows applications on a tablet form factor could make Windows 8 tablet a formidable alternative</i></ul><br>I think the finance types who say stuff like that should have to put a bag over their heads and go sit in the corner.<p>Precisely which "Windows applications" are huge numbers of people going to want on tablets? No one is going to make a serious 'gamer' tablet for years, because the low-power chips aren't there yet. So Windows games aren't the reason. We already have the Microsoft fanbois telling us that tablets are 'media consumption devices' that no one can do Real Work(tm) on, so it can't be the Windows productivity applications either.<p>
    What does that leave, Windows Media Player? BFD.<p>
    The idea that "Windows applications" are going to sell tablets is horsepuckey.
    Robert Hahn
  • RE: Microsoft's future growth: Windows Phone, Windows 8 wild-cards

    "Microsoft CFO Peter Klein said the company was confident it could be a solid No. 3."

    No, Mr. Klein. I'm pretty sure it's a solid number 2... :-)