Microsoft's domino effect: Poor PC sales could unravel company

Microsoft's domino effect: Poor PC sales could unravel company

Summary: Poor PC sales and lackluster Windows 8 sales could have a significant knock-on, domino-like effect to the rest of the software giant's business.

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Microsoft's entire business ultimately rests on PC sales, and PC sales are dwindling globally pretty badly.

The knock-on effect to the firm's entire business could be hit in the coming quarters. Poor PC sales mean fewer Windows licenses sold, and that in turn could lead to a scaling back of business and enterprise servers offered by the company.

All the major technology players are all at the prom, but nobody wants to dance with Microsoft. It's the geeky kid in the corner, sobbing its heart out.

screen-shot-2012-12-03-at-10-51-12
Is Microsoft's Steve Ballmer still smiling? (Credit: CNET)

Microsoft's worries all rest on the mere mortal PC. The software giant has already made steps to alleviate some pressure on the PC market by offering its own post-PC tablet in two forms, the Surface RT and Surface Pro tablets, but is also offering a post-PC capable operating system for the wider PC market and tablets, which should theoretically fill the gap.

Microsoft tried, but something isn't working. The platform is crumbling; the ecosystem isn't being capitalized upon. The worry is that the decline in PC sales could hit other areas of Microsoft's business. PC sales hit Windows sales and Office sales, therefore ultimately server software sales.

And that's where it could all unravel.

1. PC sales are declining, Windows 8 isn't helping 

But research firm NPD said that in the first four three weeks (and one day) following the launch of Windows 8 ending November 17, sales of Microsoft-powered PCs fell 21 percent from a year earlier. Desktop PC sales are down by nine percent, while notebook sales down by 24 percent.

ZDNet's Mary Jo Foley notes that this could be just history repeating itself. Microsoft sold more "standalone Windows 7 software units" during its first week, but Windows 7-based PC sales were lower than they were with Vista. 

Microsoft and PC manufacturers have a vastly symbiotic relationship. PC makers build the computers that Windows sits on, and Microsoft providers the software. But as PC sales are declining in favor of post-PC devices, the other half in the relationship has to try and spur on exciting new software in a bid to revitalize PC sales.

All in all, 40 million Windows 8 licenses have been sold to date, putting it far ahead of Windows 7 sales in the first month. Analytics firm StatCounter says this translates to 1.31 percent of the market compared to Windows 7's first month, while rival Net Applications says Windows 8 is installed on 0.45 percent of all new computers in the first month, double that of Vista's but a far distance behind Windows 7's initial uptake.

It's not catastrophic, but it's not great. Other factors play into the fold. 

2. iPads, Android tablets are eating away the consumer, BYOD market 

This hasn't been a sudden, overnight shift away from the traditional Microsoft-PC combination. The post-PC shift was upon us a year ago and really took force this year. 

PC sales are down nearly 10 percent worldwide year-on-year. It's not that overall device sales are down due to poor macroeconomic conditions or weak currency -- it's surely a factor -- but the shift towards tablets, smartphones and "phablets," or part-phones, part-tablets, is pushing ordinary PCs out of the limelight in favor of post-PC devices.

IDC estimates that in the smartphone market, the BlackBerry will crumble in favor of iPhones and Android devices. By 2016, iPhones and iPads along with Android devices will rule the roost. It's clear to see that bring-your-own-device, (BYOD) employees are shifting away from the more consumer-friendly devices with business appeal. The iPad is a perfect example of Apple not pushing enterprise factors on the enterprise, but allowing them to arrive to their own conclusions over time. 

Apple sold 14 million iPads in the last quarter alone, and sold 4.9 million Macs. In total, that's nearly 19 million devices. In comparison, Lenovo generated 13.7 million shipments, an increase of nearly 10 percent year-on-year, but the rest of the PC market suffered massive declines

Microsoft is expecting 3-5 million Surface tablets to be shipped this quarter. It's clear to see from previous ZDNet crowdsourced research that Microsoft may expect significantly more Surface devices, but it won't fully plug the gap left by the dwindling PC market.

3. Developers are reneging on Microsoft's platform

It's still early days for Windows 8, and to be fair there's no easy way to quantify the claims as actual fact that developers are leaving the Microsoft platform in droves. But developers are beginning to look elsewhere to other sources, and it's a better time than ever following Barclay's carte blanche of the iPad tablet in the enterprise.

One thing is clear: Microsoft's app platform is hardly a hotbed of activity -- a recent report suggested Microsoft had 20,600 apps in its Windows 8 Store -- and Microsoft no longer has the healthy (albeit large) ecosystem of developers it once had.

It all boils down to the competitors again (see the previous point). Many developers are considering whether to go through the heartache of retooling and re-developing their apps for the 'better' platform (or at least the most popular, enterprise-grade platform): the iPad.

Loyalty among Microsoft developers is fraying. Compared to a year ago, it's far easier to appease the BYOD crowd with iPad-ready apps than it is to stick with Microsoft's platform.

The fact is, the vast majority of Windows software is private and outside the app store ecosystem. Microsoft's dominance in the private space isn't changing much.

But Microsoft and Research in Motion's platforms are being shut out by developers because traditionally, hobbyists would focus on the iPad and Android ecosystems.

The application development shift is becoming more enterprise sponsored, in that a business plan has to sign off on an application, and will only do so if they know where the money is. The money is in the iPad and Android tablet market. Windows 8 and BlackBerry 10 will therefore likely be shut out in the cold. 

4. Windows Phone is going nowhere 

The 'perfect' companion to Windows 8 and Surface tablets is without doubt the Windows Phone platform, just as Windows Mobile was some years ago before it morphed into its present incarnation. But because Surface has yet to take off, despite its higher-than-expected sales orders from the start, it remains a hobbyist device and remains a far cry away from being an enterprise standard device.

If Windows Phone actually takes off, it'll likely be more by accident than anything else. 

BYOD employees remains focused on smartphones, but tablets still has yet to reach its peak. Analysts and research firms expect this to rocket in the coming years. 

Latest comScore figures peg Microsoft's mobile operating system at 3.2 percent, a month-on-month decline. RIM's heavy and consistent decline will likely see Windows Phone take over, despite its own falling figures, in the first half of next year. 

In spite of Microsoft's partnership with Nokia with the Lumia smartphones, it may not stop the company from falling out of the sky into the abyss of the smartphone ocean.

Considering how poor Lumia sales have been in the last year, Microsoft's only hope in order to revive its slumping smartphone division is to either build its own device or rest its hopes on more market leaders in the mobile space, such as Samsung, which has propelled Android sales through the roof -- to the point where Apple wants to sue the living daylights out of it.

5. The knock-on effect of poor Windows, Office sales could hit other Microsoft businesses

The ultimate knock-on effect here of poor PC sales, ergo poor Windows sales, is that Office will become less important. That is, unless Microsoft can continue its steady momentum into cloud-based services that offer document sharing and collaboration in the cloud as it has with Office 365.

But servers and enterprise software is where Microsoft makes the vast majority of its revenue. With long-term business contracts and licensing sales, it can guarantee a steady stream of revenue. Though, if Windows and Office dwindles in the face of rival hardware and operating systems -- notably with the post-PC curve -- Microsoft's back-end technologies will become less and less important.

Microsoft's Server and Tools division brought in more than $4.5 billion in revenue during the company's first quarter, and $5.5 billion from its Business division. Servers and enterprise tools are at the heart of Microsoft's business, but without Windows PCs to operate and serve, the firm's back-end software business could begin to crumble.

Topics: Microsoft, Tablets, PCs, Windows

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259 comments
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  • zack

    Zack obviously has no idea what hes on about... as MS doesnt rely on windows as it isnt even the biggest earner for MS.....

    We shall just ignore the other blatent errors in the article as it isnt even worth rebuffing... Do some research... learn about your target... report correctly.....
    danjames2012
    • Yup

      I would not go so far, but yeah there are quite a few 'inaccuracies' in that report.
      Shistram
      • WARNING: Users of Microsoft devices will get abandoned.

        Don't shoot the messanger. The post-PC era really is here.

        Users who buy devices based on Microsoft's failed platforms will get burned. We saw this happen before with Windows Mobile. After it failed, Microsoft took away the services and locked the store so people could not buy new apps.

        Then it happened again with Microsoft's Kin phone. Failed in market, Microsoft quickly closed down all of its services. Users got burned again.

        Now Windows 8 phones and tablets are headed the same way. People should be warned by the failure of all Microsoft's portable device platforms to date.
        Vbitrate
        • Windows Mobile this isn't . . .

          "We saw this happen before with Windows Mobile."

          Windows Mobile this isn't - I'm not sure I really see the comparison, either.

          Okay - Microsoft has had its share of flops. But that's not to say it hasn't had its share of successes either. I'm sure they'll be okay for the foreseeable future.

          This isn't the first time people have predicted their death.
          CobraA1
          • Wow

            my co-worker's ex-wife makes $71/hour on the laptop. She has been without a job for 7 months but last month her pay was $12458 just working on the laptop for a few hours.(Click on menu Home more information)
            ......http://goo.gl/Splzu
            RitaMata
          • You should hit that

            Sounds like you co-worker's ex-wife has some cash. Get her to buy you some stuff, take you on a trip. Sure, she might be fat and ugly, but hey for a new car I'd hit that :)
            A Gray
          • ~LOL~

            Thanks for the laugh!!
            DontUseMicrosoftAtAll
          • Yeap...!! Thanks for the laugh

            it is so fresh among all the things you read here to have somebody to make you fall from the chair..!!

            Merry Christmas by the way..!!
            dkaparunakis@...
          • Sounds more

            like a wish, than an objective observation.
            timspublic1@...
        • Warning - Zchro is trolling again

          I know, people where expecting that.
          William Farrel
          • Zchro is making a salient point relative to the article

            Underlining Zchro's comment, which is based in verifiable fact, are literally years worth of documented instances in which Microsoft consumers are left holding the bag. Holding the bag because they invested in products which (1) failed and (2) were abandoned by MS Support.

            We can all Google "Plays For Sure" "Sidekick" "Kin" "Windows ME" "Windows Vista" "Zune" "Zune HD" etc. It's not a matter of opinion.

            It's verifiable, historical fact that no amount of Kill The Messenger can alter.
            gregv2k
          • Stretching the truth just a bit?

            You say the word fact and then follow up with hyperbole. How exactly did Windows Vista fail or was abandoned? Not that you don't have a few good examples, but why the need to misrepresent reality in attempt to make your point look valid?

            Interestingly the one fact you do overlook is that Microsoft has the longest support period for computer operating systems of anyone.

            Windows8 and Windows8RT are going to have 5-10 years of support and more likely longer as Microsoft often extends support life for their O/S.
            Emacho
          • Long term support

            Come to think about long term support.... isn't this because of the long term support (licensing) contracts Microsoft have with the customers they managed to lock-in? Breaking an contract like this is not something even a company of the size of Microsoft should experiment with.

            As a side effect, consumers get extended support of outdated technology, like Windows XP. Don't get mad at me: it is outdated. It's just that the "new and improved" version is actually incompatible -- why so many people hold on to the older stuff.
            danbi
          • No, those are different...

            "Come to think about long term support.... isn't this because of the long term support (licensing) contracts Microsoft have with the customers they managed to lock-in? "

            No, this is different. This is the support Microsoft offers their mainstream customers. Support contracts for individual businesses are a completely separate matter, and wouldn't have much influence on the support Microsoft offers the general public.

            Of course, you know all this. Careful, danbi - you seem to be getting a little desperate here. Playing dumb to be dishonest isn't a good way to win debates.
            daftkey
          • Software vs. hardware

            Point taken. It's harder to say that failed software like ME and Vista hit a brick wall the way failed hardware like Zune does. With upgrades like W7, Vista fades into the background. A Zune, on the other hand, just sits there - no more OS upgrades, no more compatible apps, no more accessories from third parties nor performance enhancements from the mother ship. The "iPod killer" that would overtake the iPod Touch will never be more than iPod Photo.

            I still have my iPod Photo, because I like the engraving on the back, but I never use it. With all my music in the cloud and free streaming apps like Pandora, Spotify, iHeartRadio and others providing an impossible wealth of endless options that I don't have to pay some cumbersome, outdated subscription fee to enjoy, the old device just sort of sits there. The engraving looks cool though.
            gregv2k
          • "Windows Mobile" and "Windows Phone 7" would have been better examples

            If iOS 6 had come out with a note that it wouldn't work on any phone other than the new iPhone 5 and iPad 4, iOS owners would have revolted.

            Microsoft keeps boning the faithful that way... It's gotta get harder and harder to defend them.
            gregv2k
          • IOS 6 does not run...

            on old Apple hardware. IOS 6 includes all the new features... only a few of which funtion on older hardware. Apple is just dishonest in their naming convention for OS updates. Keep on trollin'.
            kstap
          • Is that your tag line?

            So that's what you do, keep on trollin' Making stupid statements like Apple being dishonest in their naming convention make me wonder if you are that idiot bottom feeder, he loves to claim that.

            To all the haters and fanboys in this thread, none of us of a crystal ball so we have not idea what will happen.
            non-biased
          • You for got Windows Mobile, and WP 7

            If you bought a phone with Windows Mobile 6 on it, to get 6.5, you had to buy a nw phone. Same goes with WM 6.5, ans WM7 (WP 7). each Upgrade was only available if you buy a new phone. Someone buying a Lumia 900 in September, has a non upgradable phone. If it was any other OS is would have 30 articles written about it, The Microsoft shills would copmplain hunderds of times using all their multiple log ins, etc.
            Troll Hunter J
          • Pandora Free?

            Last I checked Pandora was only free up to a certain number of hours. Then you had to pay a fee, it's not totally free. I didn't even bother about the other services because I was turned off by Pandora's 'free' music service not being free.
            Maha888