Microsoft Sells 200M Win 8 Licenses: Yawn

7 Mistakes Microsoft Made In 2013

Microsoft sold more than 200 million Windows 8 and 8.1 licenses during the controversial OS's first 15 months, Tami Reller, the company's executive VP of marketing, revealed Thursday at a Goldman Sachs technology conference.

Sounds impressive, right? Not exactly.

Sure, 200 million is a big number -- that's about one license for every 35 people on the planet, a level of ubiquity most companies would kill for. But Microsoft isn't most companies. Put into historical or aspirational context, Windows 8 and 8.1 have underwhelmed.

Not convinced? Here are five reasons not to be impressed.

1. Windows 8 sales can't keep pace with Windows 7's precedent.
In January 2013, Reller, then CFO of the Windows division, said Windows 8 had sold more than 60 million licenses since launching the previous October. She said the pace roughly matched Windows 7's progress through the same period. In May, when Windows 8's license sales passed 100 million, Microsoft again said its new OS was performing comparably to Windows 7.

Microsoft's Windows 8 boasts have always been a bit suspect, but the company can no longer argue that Win 8 is selling as well as the previous version. Windows 7 license sales topped 240 million in the OS's first year of availability. In three more months, Windows 8 had moved only a little more than 80% as many licenses.

[Are Android apps coming to Windows? Read Microsoft's Windows Strategy Gets Muddy.]

2. Microsoft defines "sell" differently than most of us.
Microsoft's Windows figures refer to "sell-in" numbers, not "sell-through" numbers. Those 200 million Windows 8 and 8.1 licenses, in other words, derive from the volume sold to OEMs and retailers, not the number sold to actual end-users. The number of Windows 8 machines actually active in the wild is lower.

Microsoft's tally does not include volume licenses, such as those sold to enterprises. But analysts say volume deals have been sluggish, too.

Corporate Windows 8.1 uptake hasn't increased outside of isolated tablet projects, and even within mobility deployments, Windows 8 slates are activated less often than iPads, Forrester analyst David Johnson told InformationWeek last month. "Windows 8 and the enterprise aren't things you usually hear in the same sentence," said IDC analyst Al Gillen in a separate interview.

3. Some Windows 8 licenses are more valuable than others.
Windows 8 Pro launched at a promotional price of $39.99, but some Windows 7 users could purchase it for as little as $14.99. In February 2013, though, the Pro version jumped to $199.99, with the standard version coming in at only $80 less. Though Windows 8.1 was released last fall as a free upgrade to existing Windows 8 users, the $199.99 and $119.99 prices still stand for everyone else.

What's the takeaway? A lot of Windows 8 licenses were sold at a discount. In theory, this tactic shouldn't have hurt Microsoft's bottom line -- by sacrificing licensing revenue, the company hoped to encourage Windows 8 adoption and thus revenue for its new Modern UI app ecosystem. In practice, however, this hasn't worked out.

Here's part of the problem: Many early Windows 8 adopters installed the OS on older PCs that didn't have touchscreens and were ill-equipped for Win 8's touch-oriented Live Tiles. Win 8 also shackled the desktop with knuckleheaded UI changes such as the missing Start menu, which only exacerbated the issue.

Windows 8.1 was an attempt to assuage the user discontent that resulted from these problems, but the OS has mostly continued to flounder. Evidently aware that 8.1 wasn't enough, Microsoft is reportedly planning another Windows update to make its new UI friendlier to mouse-and-keyboard users.

4. Windows licenses don't drive device sales as they used to.
Reports last year claimed Microsoft offered OEMs cheaper Windows and Office licenses in exchange for ramped-up production of smaller Windows tablets. While such reports have never been verified, manufacturers have released a rash of Win 8.1 mini-slates in recent months, most of which come pre-loaded with Office. This suggests that just as Microsoft took an early hit with discounted Windows 8 licenses, the company might also have sacrificed upfront revenue to gain some of its more recent sales.

Regardless of behind-the-scenes negotiations between Microsoft and OEMs, many Windows 8 and 8.1 devices have sold well only following hefty price cuts. Microsoft presumably hopes these low-margin devices will eventually stimulate growth in more lucrative areas such as the Windows Store or Office 365 and other of the company's cloud-based services. But so far, much of Windows 8's modest momentum appears to have come at the cost of profit margins.

5. Windows 8 isn't popular on any form factor.
Microsoft apologists sometimes point out that Windows 8 was predestined to post lower sales numbers than Windows 7 because the latter had the benefit of following Windows Vista, whose infamous flop drove demand for a modern desktop OS. Some have also suggested Windows 8 adoption has been stunted by the slumping PC market. With more people using tablets, some older PCs aren't being replaced, and others are being pushed into longer lifecycles. Both trends, or so the arguments go, decrease demand for a new version of Windows.

While these arguments aren't completely invalid, they ignore an important point: Windows 8 was designed as both a tablet and desktop platform. If the OS had been more appealing, that should have insulated it from fluctuations in the traditional PC market.

Unfortunately for Microsoft, Windows 8.1 tablets are still living off Apple and Google's table scraps. A barrage of holiday sales might have helped Windows tablet makers move a few more units -- but they couldn't stop record iPad sales or the continuing proliferation of low-cost Android slates.

Even if the PC slump isn't Windows 8's fault, the OS clearly hasn't helped. In January, Windows 8 and 8.1 accounted for a measly 11.7% of all desktop users, according to Net Applications. Windows 7 runs on almost half of all desktops, and even Windows XP, which will lose support in less than 60 days, more than doubles Win 8/8.1's market share. More than 60% of Win 8/8.1 users are still running the earlier version, indicating that 8.1 hasn't done enough to motivate the market. To add insult to injury, HP has started selling Windows 7 PCs in a "back by popular demand" promo.

Put simply, Windows 8's failure is twofold: It isn't popular among Microsoft's legacy customers, and it isn't popular among the mobile-minded new generation of users.

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