Why Microsoft Has Big Challenges Ahead

I genuinely desire for Microsoft to succeed with Windows 8 and beyond. I believe it is healthy to have competition in the market of personal computing and I like the way I see Apple, Microsoft, and Google with Android, pushing each other. Of course everyone has their opinions on who is doing more but I don’t intend to cover that here. Rather, I want to focus on what some of the challenges ahead are for Microsoft to succeed with this next round of software.

Do Consumers Care About Windows?

At the core of this challenge for Microsoft is going to be creating demand and consumer interest around Windows 8. There is a lot of momentum for Apple’s ecosystem and their hardware and software. As I survey and observe the market I don’t see that kind of interest around Windows in general but specifically Windows 8. Granted, Windows 8 is not in the market yet but in a general sense we can confidently say that Windows itself is not the reason notebooks and desktops are selling.

What I think has to be noted is that Microsoft and partners can not simply expect to slap a piece of hardware on a shelf at retail and simply assume that Windows 8 alone will be a driver of interest and generator of consumer demand.

I feel the same way about what is happening with UltraBooks. Just because these new form factors are thinner, lighter, have decent specs, and run Windows 8 does not ensure success in any way shape or form.

My biggest concern for Windows 8 can not be answered yet but it lies with the question of when these products hit the market, will consumers even care?

The Software Challenge

When it comes to software or the selling of software, things like the OS as well as individual software suites, etc, the market has changed drastically for Microsoft. Microsoft has traditionally been in the business of selling suites like their Office solution as well as their Operating System for well over $100. Yet we are now in an “app economy” where consumers are now used to paying quite a bit less for software. Even in Apple’s ecosystem around OS X many of the highest selling software titles rarely go above $29.99. Even Apple’s own operating system, productivity apps, etc, are all well below what Microsoft is used to selling software for and unfortunately for Microsoft I think these software economics are here to stay.

Given Microsoft’s prior business models, which got them to where they are today, I don’t see how the new app economy and software economics are going to work in their favor.

Microsoft has done some good work around re-inventing their operating system. But I still think there is some work that needs to be done for Microsoft to also re-invent their business model around software.

If Microsoft were to have to sell both their new OS as well as stand alone elements of the Office Suite, like Word for example, in the same price range that Apple does, it could have a significant impact on their business. Ultimately I feel that consumers have come to expect this new software pricing ecosystem so I don’t see how Microsoft sells their software for the prices they used too.

The manufacturers who make desktops, notebooks, tablets, and more, are relying on Microsoft to get this right the first time. They simply have no other choice and neither does Microsoft to get it right the first time.

In the end, consumer demand / interest in Windows 8 and the new software economy are all things that I believe present real challenges for Microsoft. All one needs to do is look at the foot traffic in an Apple store vs. the foot traffic in a Microsoft store to see the glaring difference in consumer interest in each companies products.

The world has changed drastically since Microsoft’s last operating system hit the market. It is going to be interesting to watch how they adapt to a fundamentally different landscape than the last time they released on OS.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

5 thoughts on “Why Microsoft Has Big Challenges Ahead”

  1. I think you’re spot on with your comments. After playing around with Windows 8, its Metro UI is unsuitable for desktop use and heavily gesture based in touch devices. There are rumors of nine versions! In its zeal to just have something different, Microsoft does not appear to have made a convincing argument for the necessity of upgrading to Windows 8. One gets the impression that they are still banking heavily on their monopoly position in the enterprise space to move this next generation production into the marketplace while the world moves more toward mobile.

  2. Microsoft sells software; Apple sells the whole package. Microsoft’s PC OS has not had the sexy/cool factor with the consumer that Apple’s whole package does. Windows Phone 7, though interesting, has not sold well.

    Outside the Xbox and Kinect, Microsoft’s market is the enterprise, not the consumer.

  3. Microsoft needs to wean itself from the OS tax it imposes on consumers via PC OEM pre-loads and make the upgrade path to Win8 free (or nearly so, at least around the OSX $29 price point) to hang on to what consumer PC base they are managing to retain in the face of tablet and smartphone mania.

    If they keep and expand a consumer OS beachhead on the laptop/desktop, then they might ;… just might, continue as a viable contender in mobile.

  4. Apple seems to be in such a financial position now that it can afford to write or re-write its rules that even MicroSoft has to keep its eye on Apple’s road map. Apple seems to have accomplished this feat of magic by building its infrastructure such that it rules all the roads. Instead of having to charge premium prices to keep its head above water while supporting research and innovation (prices the faithful were willing to pay) Apple can charge very competitive prices. Besides owning its own stores, both mortar and electronically, Apple now exudes the confidence MicroSoft used to corner. Even the likes of Walmart cannot dictate to Apple and accepts the crumb Apple is willing to share just to have its presence in Walmart stores. And at Future Shop and Best Buy, Apple equipment is no longer lost in some back corners.

    We were used to paying high prices for operating systems but as pointed out this rule change is now Microsoft’s biggest challenge. Apple’s opponents are being challenged on the hardware front by new pricing tactics. In whose dreams was it ever expected the original Apple tablet would not sell in the area around $1000? And now an Apple tablet can be had for under four hundred dollars?

    The price of software and hardware are game changers lead by Apple. Who would have guessed? This part of the world has been turned upside down and Apple seems to have all the loaded guns.

    Looking at Apple stock, something is up. I wonder how many of the manipulators are in trouble with the latest Apple gains which seem relentless. It looks like the tortoise has hopped a different train and the rabbits can’t seem to find the tracks. For the moment, the naysayers seem lost for words or stuck with their feet in their mouths.

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