Can Microsoft survive?

Windows 8 has had a lukewarm welcome, Surface RT sales have bombed, and now the man at the top of the company is bowing out. Is Microsoft in trouble? In this first of a five-part series, we examine the future of Microsoft’s major business divisions, starting with Windows

Can Microsoft survive?

Is Windows in trouble? With the PC market in decline, and user resistance to changes introduced in Windows 8, the evidence appears to be strong.

However, according to Microsoft’s financial statements, revenue from Windows has continued to grow over the past three years – the period during which Apple released the iPad, Android tablets emerged, and the Mac has steadily increased its market share.

“Roughly 95% of PCs worldwide are shipped with Windows,” says Gartner analyst Annette Jump, and until 2012, the decline of the PC in mature markets such as the USA and Europe was offset by growth in emerging markets.

Windows directly accounts for around a quarter of Microsoft’s revenue

According to IDC, the worldwide PC market shrank by 3.7% in 2012, with a further 1.3% decline expected in 2013. It remains a huge market, which IDC expects to return to “limited growth in 2014 and 2015”, but to contract thereafter. Still, more than 350 million PCs were shipped worldwide in 2012, and most of those run Windows.

However, the division of the market into PCs and other devices is artificial, particularly as iOS and Android tablets gain more productivity features. The worldwide market for devices including mobile phones and tablets has been growing steadily. According to Gartner, 2.2 billion such devices were shipped worldwide in 2012, of which only 15.6% run Windows.

Gartner expects that Android, Windows and iOS/OS X will all continue to grow in unit terms, but sees Windows stuck at around 15% as far ahead as 2017. Android will be the big winner with an estimated 50% of all devices. Analyst projections are no sure guide to the future, but it’s no longer true that Windows dominates client computing.

Windows directly accounts for around a quarter of Microsoft’s revenue and almost 40% of its profits, although its strategic importance goes beyond that thanks to synergy with other products, such as Microsoft Office.

From Windows 1 to Windows 8

Windows goes back a long way. The first version of Windows shipped in November 1985, although the first truly successful release didn’t arrive until May 1990 with Windows 3. It didn’t include any security features, which Microsoft failed to fully address with Windows NT. These errors had an enduring impact, making Window less robust and secure, and Windows XP, the first consumer version of Windows built on the NT kernel, failed to deliver the security that was needed in the internet era.

Microsoft responded by focusing on security to the detriment of features. While Windows XP Service Pack 2 helped to improve security, it delayed Windows “Longhorn” – a major code refresh with features that were seen by some as a potentially significant step forward for the OS, including the WinFS file system. A year after it was announced, the Longhorn project was “reset” – the code was dropped in favour of using Server 2003 as a base – and the result was the much-delayed and derided Windows Vista.

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