As Microsoft launches Windows 8, and with it, an attempt to stabilise a precipitous decline in its share of operating systems for “personal devices,” 2013 is going to be a tough, very tough year, research firm Forrester said today.
“This is a pivotal movement for Microsoft,” said Frank Gillett, an analyst at Forrester and the lead on the report “Microsoft: The Next Five Years,” that was released Monday. “But 2013 is going to be ugly.”
Gillett based that on a rapid drop in Microsoft’s share of operating systems since the debut of Apple’s iPhone in 2007.
When traditional PCs, tablets and smartphones are combined — Forrester dubs the three as a category called “personal devices” — Microsoft’s 2008 share of all operating systems in 2008, a whopping 95%, has fallen to 30% in 2012. The exploding growth of smartphones, where Microsoft has little traction, and tablets, where it has essentially none on the eve of Windows 8 and its offshoot Windows RT, have not only negated Microsoft’s gains in Windows users of traditional PCs, but put it in the hole.
For the next five years, through 2016, Forrester’s said, Microsoft will retain that 30% share. But it’s lost the dominance of this “personal device” category — that ship has sailed — and has virtually no chance of getting it back.
What Microsoft can do — what Windows 8 and its successors must do, said Gillett — is hold on to what it has.
“Microsoft will lose incremental share [between now and 2016], but they’ll stabilise at 30%,” said Gillett. “Unit sales will increase … by 2016 they’ll be ahead of where they are now in terms of users. Microsoft will survive, but we don’t see a way they can reclaim lost ground.”
The two companies that Microsoft faces — and with which it now shares the personal device OS market — are, of course, Apple and Google. Both California firms have large shares in smartphones, with Google’s Android leading Apple by a wide margin in 2012 and going forward, and Apple’s iOS the dominant tablet operating system.
Microsoft’s Achilles’ heel is smartphones, where it has a very minor share currently, and by Forrester’s estimate, will have no more than a 14% in 2016. “Smartphones are their weakest link,” said Gillett.
In tablets, Forrester is predicting a 27% share for Microsoft in four years, while it will hold onto nearly 90% of traditional personal computer operating systems.
“The growth in tablets and smartphones will help offset incremental PC losses [for Microsoft] through 2016 [but] it can’t grow much more without a much stronger showing in smartphones than we expect,” the report stated.
It’s not academic. Virtually every analyst and pundit, and technology companies themselves, often begrudgingly, have pointed to smartphones and tablets as contributing factors in the decline of PC sales.
Even Microsoft has regularly admitted as much when it has had to explain to investors and Wall Street why Windows sales have declined year-over-year in three of the last four quarters.
To keep that 30% share — which is predicated on owning a quarter of all tablet sales in 2016 — Microsoft’s ambitious Windows 8 must take hold, succeed if not in the short term, then in the long.
Gillett is betting that that’s what will happen. But the transition will be bumpy, he argued, and not show much fruit until 2014.
Which brings one back to his “2013 is going to be ugly” prognosis.
Calling Windows 8 — a catch-all for the PC, tablet and smartphone operating systems Microsoft launches this year — “bold” and “original” and “impressive,” and “The most radical overhaul since the original Windows replaced DOS,” Forrester’s analysts nevertheless see next year as especially difficult. Customers must adapt to the new user interfaces (UIs), developers will struggle to write new or rewrite old software for the “Modern” (nee “Metro) app environment, and with the exception of minor buys for tablet trials, enterprises will largely ignore the OSes.
And customers, said Gillett, will be initially confused by the four different architectures — two each, x86 and ARM, on both laptops and tablets — and thus delay their purchase decisions and drag out enterprise assessments of Windows 8.
Those factors, all of which Forrester believes will present Microsoft, its OEMs (original equipment manufacturers) and retailers major challenges, are not new to research firms: Many analysts have been citing them since Microsoft first showcased Windows 8 in September 2011.
Time will heal some wounds. For example, Gillett said he believed Microsoft and its partners will have to go through several iterations of how it pitches Windows 8 to customers before it gets it right, and that hardware next fall will, because of upcoming Intel processors, bring significant power consumption benefits. But other problems will require specific actions by the company over the next five years.
“The transition to Windows 8 is simply the first step of Microsoft’s transformation,” Forrester wrote in the report.
Among Forrester’s predictions of the moves Microsoft will make: A shift to a faster Windows release cadence, splitting the OS into a desktop-only edition and one that’s all Modern or Metro (or whatever term Microsoft has applied); expanding the line of Microsoft-branded hardware while simultaneously partnering with a handful of “premium OEMs” to craft products that can compete with Apple on polish; and “untethering” Office from Windows.
“They’ll decide they can’t keep insisting people use both UIs,” said Gillett of the dual, and in some minds, dueling, interfaces in Windows 8. “They’ll figure out an alternative strategy to offer Windows 8 desktop without the Windows 8 user experience.”
And the company will pick up the pace, Gillett predicted.
“In the face of Apple and Google, they have to figure out how to release Windows faster than every three years,” he said. “Microsoft’s pattern is relatively big changes infrequently, but everyone else does smaller changes more frequently. That’s how things work on the Internet and in mobile, [and] they have to come up with a way to dynamically move with the market.”
Just as important, the Redmond, Wash. developer has to bite the bullet and rake in revenue from Office on every platform, not just Windows, and to a minor extent, OS X.
“To remain relevant in a world where mobile devices outnumber PCs at least 2 to 1, the Office team will have to figure out ways to make Office equally accessible on Mac, iOS, Android devices, proprietary Android tablets, and the Web,” Forrester said.
That makes financial, if not corporate cultural sense: Last quarter, Office earned 72% more revenue than Windows. Over the last 12 months, Office’s revenue was 43% greater than Windows’.
Hard decisions, tough chores, Forrester acknowledged. But even with the dramatic drop in OS share in the last four-plus years, even with a difficult transition ahead of it, talk of Microsoft’s death is, to paraphrase Twain, greatly exaggerated, said Gillett.
“Microsoft remains relevant,” he said. “Anyone who says different is talking rubbish. They matter, they have a very important part to play. But they’ve gone from being the only game in town, being firmly in the driver’s seat, to constantly wrestling with two other drivers for the wheel.
“The ground has shifted a lot. They just have to figure out how to make hay with what they have,” Gillett said.
