Windows 9 “Threshold” Could Pose a Real Problem for Microsoft’s Partners

For the last 30 or so years, Microsoft has created new versions of their OS, usually in four or five year increments and each new major iteration has driven strong growth in PC sales. Their hardware partners count on this to help them deliver more PCs to customers since demand for PCs rise when a new version of Windows comes to market and a company or individual may finally upgrade or refresh their PCs.

The last major upgrade that drove PC growth was Windows 7. Microsoft and their partners had expected Windows 8 to move the refresh needle again when it came out. Unfortunately, Windows 8 was a disaster and clearly did not help any PC OEM grow their PC business. Even Windows 8.1 has not helped drive new PC sales even though its iteration is clearly better than Windows 8.0.

What is important to any upgrade cycle in the past is, as with all new versions of an OS, Microsoft charges both the OEMs a licensing fee as well as charges new users a fee for upgrading. The OEMs in most cases add a fee for the new OS and, for them, it is a source of revenue. But the big thing is a new full version of an OS historically has driven PC sales as well as helped deliver new profits to the OEM partners who sell these PCs.

But for the first time in Microsoft’s history, we are hearing Windows 9, code named Threshold, will actually be a free upgrade to OEMs and any Windows PC machines that can run it. While Windows 9 does emphasize touch, like Windows 8.0 and Windows 8.1, it is designed to be backward compatible with most existing PCs. From a big picture viewpoint, this is good news for consumers as well as software developers. Indeed, the reason Microsoft would be making this upgrade free is to try and populate as many PCs still in use with a new OS and UI and show developers the amount of PCs that could use this new OS will be huge. By expanding the market for this new OS, Microsoft believes it will finally entice software vendors to write new and innovative apps for the Metro UI and Windows 9.

But there is a downside to giving this new OS away for free. The ODMs and OEMs are concerned this move could actually keep people from upgrading their PCs. Indeed, their fear is a new, free OS would actually encourage people to keep their present PC longer and, unless it was very old, they would not see a reason to upgrade. I don’t think this is a misguided fear. People are already keeping PCs longer than in years past and while Windows 9 is a major upgrade, there is a real possibility it would not cause any real growth in PCs for the next two years at the very least.

To be clear, demands for PCs have been down for the last two years, thanks to tablets taking some of the workload for business and consumer users. But surprisingly so far in 2014, we have actually seen an uptick in PC demand and, while we were off about -10% in 2013, researchers say we may be only off -3 to -4% in 2014 and could see even better demand in 2015 — since people now know where tablets fit in their lives and more and more are turning back to desktops and laptops to meet computing needs that are starting to expand.

But a free version of a major new OS could actually harm any new growth potential and, in the end, might help Microsoft but keep demand for new PCs from growing. If this plays out as I suspect it might, I expect the demand for PCs to contract in the new year and perhaps be stalled of any possible new growth for at least the next two years.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

10 thoughts on “Windows 9 “Threshold” Could Pose a Real Problem for Microsoft’s Partners”

    1. No, PC uptick is happening across the board. Lenovo, Dell, even HP, are seeing stable sales returning. All are returning to post-dip levels, and of course Mac is doing well as well.

  1. Realistically, how big is the upgrade market? The millions of people who are still running XP are unlikely to upgrade Windows on their very old hardware and I doubt many are still using XP because of the cost of a new Windows disc or download. Similarly, I doubt many users running Windows 7 will upgrade to Windows 9, especially the millions of enterprise users for whom the upgrade costs go far beyond the price of Windows. On top of that, Windows is not known for being an easy in-place upgrade. The difficulty is directly related to the age of the hardware and the version of the existing Windows installed. That leaves Windows 8/8.1 users, the number of which is relatively small.

    Looked at another way, Microsoft might be considering making Windows 9 a free upgrade because they know it will not cost them much.

  2. The suggestion that a free operating system would encourage people to keep their old PC for longer is very interesting. It is probably based in the historically large difference between the price of retail copies of Windows, and the price that OEMs pay Microsoft.

    In the past, instead of paying several hundred USD for a copy of Windows, it made more sense to pay a few hundred USD more and get a new PC. Not so anymore.

    Although I had never thought of it this way, in hindsight, it is quite obvious.

    When you think of the situation this way, it’s possible to reach a different theory on why Microsoft is pushing PCs with touch screen. The idea of converging the PC and tablet experience may not only have been a miscalculation on Microsoft’s part. It might have been an effort to push consumers to upgrade their PC, on behalf of the OEMs.

  3. I’m not sure price is that much of a hurdle to OS upgrades. In spite of the $500 cited below, “upgrade” price is much lower (90€ for Win 8.1 currently, probably the same in USD) and discounted surprisignly often, I got a “Family 3-pack” for that same price (90€) a few weeks after launch. 30€ for th

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