Microsoft Starts the Hard Sell for Windows 8

Microsoft (MSFT) has busily pressed the flesh with developers about Windows 8 -- and how it plays with smartphones and tablets -- as well as with financial analysts, who want to know whether the company can dig itself out of the smartphone and tablet market doldrums. Notice a pattern here?

CEO Steve Ballmer can say that Microsoft will ship 350 million units of Windows and that no other operating system can make the same claim. And that may be true -- for now. But Apple (AAPL) and Google (GOOG) are moving quickly. Their shipments put together have whittled Microsoft's lead. If the company doesn't figure out how to please these two groups -- and primarily the developers -- along with some key other ones, like consumers, it will begin to fade. Quickly.


Windows is a rusty key
There's no question that even with Apple's growing sales in desktops and laptops, Microsoft rules the personal computing operating system roost. But Ballmer and the rest of his staff finally know, after years of denial, that the PC's best days are behind it.

Plenty will argue that the personal computer is changing, and that it could never die. That's what they used to say about vaudeville. But from a commercial view, the PC as it has existed, and all the infrastructure that it represented, has a sell-by date on it. IBM got out of the business because it could see where the market was heading. HP (HPQ) is trying to get out, only years too late.

Prices for hardware continue to plummet, which means that the total margin available to companies is also in a nosedive. Furthermore, whether the PC crowd likes it or not, the vast majority of consumers and business users don't need the power that a PC offers. Big screen? Sure. Keyboard and mouse? For now, though the Windows 8 design recognizes how important touch has become in interfaces and the critical need to address the tablet space. So plug a handheld box into the display peripherals you need and have at it.

If Microsoft were to fully lose control of the desktop and laptop OS market, it would be disaster for the company. The bulk of its financial success depends on control of the operating system and the relationship with the users. Once that goes, you've kicked out the single biggest support.

Breathing down their necks
Thet 350 million units a year Ballmer mentioned is becoming far less impressive. In July, Google announced 550,000 Android activations a day on new equipment. That's more than 220 million a year, or almost 60 percent of Microsoft's volume.

As for Apple, RBC Capital did a survey and expects huge demand for the iPhone 5. (I know, you're shocked.) Analyst Mike Abramsky is guessing between 105 million and 110 million units in fiscal year 2012 -- without counting the iPad or iPod touch. Even though iOS is trailing Android, because of the different business strategies, it's almost up to a third of Windows volume, with a growth rate you'd normally associate with a young startup.

As people count more on smartphones and tablets, the importance of a hit there is impossible to minimize. So far, Windows Phone has done diddly in the smartphone market and is a virtual no-show in tablets.

Microsoft may have a chance
But Microsoft is finally doing some very smart things. As Apple moves toward the unification of its iOS and Mac OS X operating systems, the folks in Redmond are doing something similar. Despite its slow start, Microsoft is still close to a single operating system for all platforms.

It is betting that because of its entrenched position in PCs, it's still not too late to move to the new version of Windows, get people tied in to using it, and then riding that familiarity to success in tablets and smartphones. There's something to making use of mass numbers and a use-it-everywhere consumer inclination.

But this is likely Microsoft's last chance. Outside of gaming consoles and even search, where it continues to expand market share, management has blown every single opportunity to keep the company important to emerging industries. Getting investors pumped up may be nice and be good for the stock price, but in a practical sense it won't badly affect the company.

Having excited developers is one key point. Regular people have to like and want to use the new version and hardware vendors have to see it as a road to success. If Microsoft doesn't get massive adoption, not just because Windows ships on new systems, but because people really like and want it, this is probably the last gasp to remain what it is. Otherwise, it's a long dwindling future of lessening importance, relevance, revenue, and profit.

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