Microsoft attempts to decouple Windows 8 sales from flatlined PC sales

Microsoft attempts to decouple Windows 8 sales from flatlined PC sales

Summary: With Windows 8, it seems that Microsoft is more interested in creating as large a user base as possible for the operating system rather than focusing on revenue.

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Much data points to the fact that the PC industry is dying. The PC industry is hoping that Windows 8 is the catalyst needed to jumpstart the market, but it's becoming clear that Microsoft isn't so sure that it can rely on the OEMs to buoy sales of its new operating system.

Signs that the PC industry is in serious trouble are all around us. Take the latest Gartner report which revealed that a total of 87.5 million units were shipped in the second quarter of 2012, a fall of 0.1 percent compared to the same quarter in 2011.

"In the second quarter of 2012, the PC market suffered through its seventh consecutive quarter of flat to single-digit growth," said Mikako Kitagawa, principal analyst with Gartner.

The problem is that PCs are just no longer sexy in the eyes of consumers, and even new classes of products such as thin-and-light ultrabooks have failed to convince buyers to part with their money.

"Consumers are less interested in spending on PCs as there are other technology products and services, such as the latest smartphones and media tablets that they are purchasing. This is more of a trend in the mature market as PCs are highly saturated in these markets," Ms Kitagawa said.

Another problem is that PCs are being made to last longer, both in homes and businesses, and this is contributing to the decline in sales.

While the big name PC OEMs are hoping that Windows 8 will reinvigorate sales -- although off-the-record, most are pessimistic that it will have the desired effect -- Microsoft, it seems, is pulling all the stops to decouple Windows sales from new PC sales.

Traditionally, the way that most people got their hands on a new copy of Windows was by buying a new PC. While Microsoft has always offered retails copies of Windows, these sales have been a drop in the ocean compared to sales through OEM channels and enterprise sales. Microsoft made the operating system, then sat back and relied on the OEMs to do the hard work of selling it.

But those days are gone. The power that the OEMs once had seems to be dwindling, and that leaves Microsoft in a position where is has to pick up the slack and start selling.

First, it plans to offer cheap $39.99 upgrades to Windows 8 Pro to pretty much everyone from launch through to January 31st, 2013. Doesn't matter whether your PC is running Windows XP, Windows Vista, or Windows 7, you can take advantage of this deal. While the deal isn't as good as Apple's $20 upgrade, it's still a very good one indeed.

Rumors are also circulating that Microsoft is getting ready to drop the retail versions of Windows 8 and offer only OEM "system builder" and upgrade versions which would dramatically simplify the buying options available. It's also been rumored that this switch will be accompanied by a price reduction. Considering that a full version of Windows 7 Home Premium has a $199 price tag and the upgrade alone costing $119, this price drop is long overdue.

The way that Microsoft has taken a scalpel to Windows prices suggests that the company is less concerned about the effect that this will have on its bottom line and more concerned about the long-term effect that Windows 8 failing, similar to the way Vista did, would have on the company. Microsoft's priority, it seems, is to get Windows 8 installed on as many machines as quickly possible as possible.

Given the huge paradigm shift that the new operating system represents, not to mention introducing a new platform -- Metro -- that the company has to nurture, Microsoft is willing to take a hit in terms of revenue in order to get as many eyeballs on the new OS as possible.

Image source: Gartner.

Topics: Windows, Microsoft, Operating Systems, PCs

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139 comments
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  • Could it be

    First I don't think a 0.1% decline is a sign that the PC industry is in serious trouble. Although I do agree with you that PC's are lasting longer.

    So perhaps Microsoft has figured this out and has decided to shift some of it's revenue for Windows from the retail box to the Windows App Store? Everyone wants to get caught up in all the changes to the way Windows looks, the packages that Microsoft sells, but the biggest addition to the Windows eco-system is the Windows App store! Maybe Microsoft figures that they will make up the difference by taking 20-30% of all app sales from the public store.

    Could it be, Microsoft has already moved past this kind of thinking and are now setting up their next cash cow?
    rwalrond
    • You must not read much of AKH's work

      The picture should say it all. He comes off overly confident with what he's saying, but there is rarely much truth because of all the twisting he does of information.

      Only Adrian would say that an industry as large as computers is in trouble when it's declined 0.1% over the last year (during a global recession no less). That's like saying underwear companies are screwed if shipments were down 0.1%... guess what, everyone needs underwear... everyone still needs computers.

      Of course, if you look at the numbers closer, it isn't really all that scary. HP and Dell, companies more known for business machines these days than anything, yet are having trouble adopting to industrial design, are slipping up. Heck, HP was about to scrap making computers... would that mean the industry is dead or that HP doesn't want to compete in in the razor-thin margins market? Don't you dare tell Lenovo, Asus, Acer that the market is dead or else we have some really bad accounting/sales recording going on.

      The reality is the big technology makers from 10-15 years ago... HP, Dell, Compaq, Palm, Motorola, Nokia, Gateway, etc. are all on the decline, dead, or taken over. Motorola and Nokia are at least making what appear like solid attempts to get back into the fold with the Motorola Razr and Lumia lines... I'm not implying they are all successful though. HP, Dell, Gateway, etc. are all slowly dying because they failed to keep up with the times, similar to Motorola and Nokia, but aren't really putting forth the effort to put out solid products. Instead, HTC and Samsung came along and gulped up tons of the mobile market and wouldn't be surprised Samsung becomes an even bigger player in the tablet/PC market and HTC joins it. Who would have thought 10-15 years ago that Apple would be where it is or that Amazon, an unknown 10 years ago and just a newborn baby 15 years would have a relatively successful tablet/ereader line?
      ikissfutebol
      • Why would anyone want to give a newborn baby an electronic toy?

        All the baby will do is slobber (or do other things) on it and cause a short circuit, complete with "zap" noise...

        The PC industry will not die, but smartphones have evolved and are sufficiently possible to do actual work, when placed in a cradle or other venue that attaches to a proper sized monitor, mouse, and keyboard interface. If anybody wants to hype up touch-based interfaces and incessantly tap on a piece of glass for 8 hours, preferably one that's 4", be my guest but don't complain about it... :D Complaints are good for questioning paradigms that one is stuck in. Not out of situations of choice where they support the paradigm in question.
        HypnoToad72
        • HypnoToad. YOu are right about new devices allowing actual Work.....

          Enter MS surface tablet. Everything you need, including a large enough screen and an awesome keyboard all in a package no bigger than current tablets that don't include a true user interface device. Unless of course you pack a keyboard and mouse. AT that point, why not use an ultralight notebook. Obviously much more capable for work.
          MSFT got this right. Win8 is amazing and that fact will not be lost on the public no matter how many SJVN blogs claim that win8 is DOA.
          xuniL_z
      • Actually this article is DEAD ON

        It slipped world wide by .1% but in the US as high as 6-8%. The US is saturated and is moving on to new devices. In developing countries PC sales are still strong....when there are users that don't have one yet.

        He is dead on about Microsoft's pricing reasons. It is a KNOWN fact that most people don't upgrade their OS, they just buy a new computer with a new OS. Microsoft is pulling out all the stops to entice upgrading because they know that sales of new PC's are on the decline. They know that tablets and smartphones are more popular hence Windows 8 is a tablet OS. Its a good move even though I don't like the OS on a PC/Desktop. But they have to do it, get all of your developers making apps that work across all devices from Windows Phone 8, Surface, Laptops, Desktops....even the new Xbox.

        The evidence is all around. HP almost ditched this market. Dell is buying companies practically every month...all of them in the Enterprise/Data Center sector...away from the dying PC market.

        PC do last longer because so much is integrated theses days. Gone are they days of add in cards (for 98% of PC buyer). A single motherboard with everything on it. CPU's that sip power and generate way less heat compared to 5-10 years ago. Because of the "Green initiative" a modern PC probably sleeps more than not, again keeping it cool and prolonging its life. SSD's are only going to increase the life as you remove a big source of failure with spinning HD's. CPU's are way more powerful today especially for what mainstream users do with them. 98% of the population could probably get away with a .22nm i3 with onboard graphics for their computer needs.
        JeveSobs
        • PC lasting longer, exactly what I was thinking

          PCs might last longer, but there is also the fact that they are way more powerful than what most people need them to be, so they can go through many OS upgrades without feeling the need for a new CPU, maybe a bit more RAM here, bit more HDD space there, but that is easily fixed.

          A Pentium 4 with a decent AGP video card is able to run Windows 7 with acceptable performance, I would assume it will also run Windows 8 as Windows 8 is even less demanding than Windows 7 on CPU, it might be limited on the graphic side of things though.
          lepoete73
    • I had the same thought

      With apps sold through its store, Microsoft will take a share of the revenue, and may also be able to effectively prevent piracy of apps. Without pirated apps, the value of pirated Windows would be substantially reduced. This could potentially push users in countries where piracy is rampant to actually pay for the software they use instead of stealing it -- but that requires sufficiently low prices. If Microsoft can get more users to pay for Windows, and apps, higher volume combined with app revenue could offset lower prices for Windows.

      Any gains from the more controlled Metro ecosystem will only come if apps move to Metro, which means attracting developers away from Win32 (and iOS, Android, etc.). To attract developers, Microsoft need a large installed base of Metro-capable systems. The traditional approach of gradually replacing the OS as hardware is upgraded is unlikely to build the installed base quickly enough, especially since the PC market is stagnant right now (which is very different from 'dying').

      Beyond the core PC market, Windows RT tablets and Windows Phones need apps to be able to take on the incumbents, iOS and Android. By rapidly transitioning the PC installed base to Metro, Microsoft create a critical mass of Metro-capable systems, attracting developers and apps. These apps will then also work on Windows RT tablets and, perhaps, Windows Phones. In the latter case, it's important to note that the 'snapped' view of apps in Windows 8 is similar to a mobile phone screen, which points to a plan for 'hybrid' apps that could work across all Windows devices, with 'large' and 'small' screen modes.
      WilErz
      • Given Microsoft encourages piracy, who cares what they think?

        Amongst other articles, go find "How Gates Conquered China" - but Gates isn't the only one who encouraged China to pirate Windows, because they want their OS to have the exposure and use when compared to dreaded free-market competition... so they will stoop beneath ethics and morals (even their own claimed ones!!) just to get around.

        It's not about stopping piracy. It's about how the company can profit the most at customer expense.

        Flash was a competitor to Apple's game store. Canabalt for free vs Canabalt for $3.99*, which is the better deal for you, the customer? Flash was a threat, their CEO is on record saying how he hates competition, steals ideas, and other things from other sources (web searching is your friend), Apple threw a tantrum, and the rest is history. Especially battery life where plenty of games sap up battery life faster than you can say "Need a recharge" yet Apple never banned any one of those... tally up all the real life factors and Apple was using spin and deception. And, yes, iOS can crash as well. All that isn't to say Flash is perfect, but the attacks against it were a bit melodramatic at times... and told by a person who hates the free market, because only champions of the free market would encourage competition and allow it to thrive...

        * Or $2.66 or whatever after Apple takes its share of the profit that the hard workers who spent all that time, energy, and money for equipment to MAKE Canabalt to begin with
        HypnoToad72
    • The author is right and wrong

      The author is right about the latest trends which report that laptops or desktops have
      sold less in the last quarter, but I think it is rather a problem
      temporary, since the author does not say is that this is due in large part to the
      customers are waiting for the Windows 8 launch to market.

      On the one hand the Ultrabook now being sold in the market, which
      you may upgrade to Windows 8 at a low price, however these computers
      do not have touch screen, which means that the end user won't have
      the same experience on the Metro UI.

      I think that consumers once that new machines ar sold with
      Windows 8 will go first for a hybrid that has Windows x86 and Metro
      in one device, this will bring back the idea that the PC is still not dead,
      but evolves into a device that can be used for both human consumption
      and as a productivity device. Only time will prove if the author is right that
      the PC this market in a clear decline.
      Gabriel Hernandez
    • Goog point

      though I'm still at a loss as to how AKH connects his dots. It's like he throws a few of his own in just so he CAN connect the dots.
      William Farrel
    • Not disagreed

      As a short-term value, 0.1% is nothing.

      But, long-term, there are signs that PCs won't be needed as much. Some forms of content creation will run much quicker on a proper PC, and to use the internet as a crutch for a remote session to use server resources - that's not going to fly. Even current high-end T1-based systems can slow to a crawl given the right impetus or two...

      Microsoft is going nowhere, thanks to its server infrastructure. Windows for clients will be around and maybe not updated as quickly since the profit margin won't be there or as big...

      What amazes is me is how people have flocked to the online app stores and how developers don't mind losing 30% of every sale. Why do developers love to devalue their own work, time, and labor?
      HypnoToad72
      • App Stores

        "What amazes is me is how people have flocked to the online app stores and how developers don't mind losing 30% of every sale. Why do developers love to devalue their own work, time, and labor?"

        Toad,

        30% isn't a terrible margin, really. As a software developer myself I wouldn't feel like my work was being "devalued" if I could just hand it to a 3rd-party who would do all the marketing and provide the delivery medium. Developers get a lot for that 30%. Developing and marketing software is very expensive. If all it costs is 30% of the final ticket price to have all that taken care of I'd say that's a bargain.
        Max Peck
        • Be very concerned

          With the proliferation of apps, unless you are a noted (in the news forefront) developer or a big dev company, the odds of you getting any sustained effort ($) is minimal.
          The current store model is a dead end. There is so much crap ( stuff I care not at all about ) that unless an app i may want is put in front of me, I don't have the time or inclination to go look. And finder apps are as bad a time waster.
          rhonin
    • Lets think about this...

      This part is a fact:
      "Another problem is that PCs are being made to last longer, both in homes and businesses, and this is contributing to the decline in sales"

      And its not just the PC's themselves, its the operating system as well that stays capable longer than the "old days".

      Before, in years gone by, the case was that hardware was advancing in leaps and bounds, there were some quite noticeable improvements one could see in getting a new PC, even if your current one was only 2 or 3 years old. The difference between a 2002 model and a 2005 model could easily provide for some great upgraded parts that would make a real difference. There is not nearly the difference between even a 2007 or 2008 desktop and a 2012 model for most people. Meaning simply, if you got a really good computer in, lets say 2007, and you haven’t suffered a hardware failure, the 2007 hardware is probably still good enough that its grinding out all the work, fun and games and such the average user is throwing at it. Its not that new hardware wouldnt be better, its just that the old hardware is still "good enough".

      And Windows XP, as we well know, seems to still be plenty good enough for many users.

      These are the primary reasons why the PC market has stalled. Sure, people are spending plenty of money on tablets and smartphones, but thats because thats what people dont have and thus are buying them. Not to mention, that market, the products are still developing and improving (hopefully) the way PC had to into a product that didnt need to be replaced every 2-4 years.

      The PC market isnt dying, its just matured, on a number of levels. The PC market will never die until you can figure out how to make a tablet that is both portable, has a 24" screen or larger, has high end graphics currently only available in expensive video cards, has stogage capacity in excess of 500GB and potent processing power. I dont know how you can make a truly portable 24" screen tablet, certainly not a smartphone so it may well be, what we think of as the traditional desktop may be with us in "SOME FORM" forever.
      Cayble
      • Good point, Cayble. Here are a few more corollary items to consider as well

        What software applications are still the most important ones installed on a PC these days? Which software apps do major corporations still rely upon in the enterprise sector? Or, which software apps still rank as a MAJOR source of revenue for Microsoft?

        The answer is, of course, the MS Office suite of apps. Those apps have defined what acceptable hardware performance and productivity benchmark levels are over the past decade or so. It is almost a factual statement to say if a computer does not run Office well, than that computer hardware platform fails the productivity test.

        However, it has been obvious since Windows Vista days that even "low end" PC computer hardware designs have supported Office apps at a more than acceptable performance level. (I mean, how powerful does a CPU or GPU need to be in order to display large Excel spreadsheets or large Word documents? Not to mention the other MS major software applications.) That level of CPU and GPU performance capability has existed for years.

        If that is the case (and I doubt I will get too many negative opinions on this matter), the NEED to upgrade enterprise and home consumer PC systems to run Office applications at an acceptable performance level has been eliminated.

        For corporations (and perhaps consumers as well), only the need to upgrade their existing network infrastructures still remain. Because of this reality, Corporations and consumers can effectively bypass several hardware upgrade cycles or until their current PC hardware breaks down (for whatever reason).
        kenosha77a
  • Not correct AKH

    "While the deal isn't as good as Apple's $20 upgrade, it's still a very good one indeed."

    What is the better deal: a $1.99 chocolate bar on sale for $1.98 or a $250,000 Ferrarri on sale for $1.99? According to you, the chocloate bar is the better deal because it is less expensive.

    Windows for $40 is a far better deal than OS X for $20 considering what you get for your money. OS X releases are service packs, nothing more. MS charges $0 for service packs.
    toddbottom3
    • False Analogy

      OS X upgrade, while more frequent than new Windows upgrades, are far from mere "service packs." Apple releases point updates (they are on 10.7.4 and are testing a 10.7.5 for release, probably simultaneously with Mountain Lion for machines not capable of running the new OS).

      Apple has added features with every new version of OS X, often significant new features. Service Packs from Microsoft are mostly bug fixes and compilations of bug fixes.
      KPOM1
      • Yes, there are 200 *new* features in Mountain Lion

        Like this one:
        Keyboard shortcut for Save As
        Use Command-Shift-Option-S to save a document using a different name and location.

        This ad brought to you by Apple Munchkins.
        toddbottom3
        • Toddy...

          You actually do get new features and functions in an OS-X Lion upgrade. Where esle do you think MS gets its ideas for "innovation?"

          You also get 5 upgrades for $20 which would cost what for Windows 8? Yes $200.

          While I don't personally like some of the new features in Lion, it's a great deal for $20. As for W8, I don't see any new features other than Metro and the claim of finally supporting dual monitors as well as OS-X has for at least the last 5 years. Metro, though, is such a crappy "new" feature that I would not upgrade any Windows PC I have (5 ATM) even if MS gave me $40.

          Thanks but no thanks. Not gonna happen...
          Splork
          • I invited you

            I invited you to watch "Windows 8 Full Keynote" at youtube, it would help you to understand that Metro is just one piece of the cake. One of the biggest and strongest thing that's comming with W8 is the Store...but why bother...you should get some info before making trolling comments.
            Fer A.