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.