Microsoft Sells 200M Win 8 Licenses: Yawn - InformationWeek

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Microsoft Sells 200M Win 8 Licenses: Yawn

Microsoft touts sales of more than 200 million Win 8 licenses. Here are 5 reasons not to be impressed.

7 Mistakes Microsoft Made In 2013
7 Mistakes Microsoft Made In 2013
(Click image for larger view and slideshow.)

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.

Microsoft's Windows 8 sales boast isn't as impressive as it might seem.
Microsoft's Windows 8 sales boast isn't as impressive as it might seem.

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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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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Joe Stanganelli
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Joe Stanganelli,
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2/19/2014 | 2:11:47 AM
Re: "Failure" seems a bit much
FWiW, and maybe this is just me, but I think the rush among UI designers to make everything "tablet-friendly" (whatever that means) is based upon an imagined, false demand.  We're not at a point where everyday users want big things to slide around.  We're happy with little and medium things to point and click.  Obviously, tablets present some interfacing issues when it comes to this, but there must surely be a happy medium.  I don't think MSFT has found that with Windows 8.
Michael Endler
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Michael Endler,
User Rank: Author
2/18/2014 | 10:26:22 PM
Re: Unbelievable
Thanks for the follow-up, petey.

"Not that their products are or were ever perfect, I think it's important to realize just how much of today's technology depends on their products."


Very valid point. Commentators sometimes act like Microsoft is dying, and I know I've sometimes described its problems too aggressively (such as my use of the word "failure" at the end of this story!). But as you suggested, the company is damn-near indispensable to the way the world works today. A lot of people don't realize how much of our business and societal infrastructure relies on Microsoft technologies. Windows 8 is problematic, but legacy Windows software is incredibly important, as are a number of other Microsoft products.

Windows is important to the company's overall strategy, but Microsoft is actually pretty diversified. We can debate how much power and influence Microsoft is positioning itself for, and what that might mean for customers and partners. But it will remain powerful and influential in almost all scenarios I can foresee.

You seem to feel strongly that Microsoft should be given its due respect as a phenomenally important company-- and I agree. Windows 8 is a legitimate sore spot that could open some of the company's strategies to disruption, but most companies would kill to have Microsoft's "problems."
Michael Endler
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Michael Endler,
User Rank: Author
2/18/2014 | 9:57:22 PM
Re: "Failure" seems a bit much
I'll concede that one, Joe. I stand by "underwhelming," which I think the analysis supports, but "failure" is too harsh, at least at this point. I think Microsoft can still turn it around, but we're reportedly at least an update away from a tenable model for balancing the Modern and desktop UIs-- and that's only if the alleged "Threshold" updates are a) real, and b) more motivating to customers than Windows 8.1 has been. It will take a while to wrestle market share away from iOS and Android, as you pointed out, but Microsoft can't afford to move at a glacial pace forever. Microsoft might not have totally failed with Win 8, but given the intrinsic advantages the company wields and the aggressive manner in which it has tried to push the new OS, Windows 8's achievements to date have to fall on the lower end of the expectation spectrum.  
Michael Endler
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Michael Endler,
User Rank: Author
2/18/2014 | 9:48:57 PM
Re: Unbelievable
No disrespect taken, petey, I suppose it's a fair enough question, and I appreciate your active participation in the conversation. The article wasn't necessarily meant to be legacy-defining, though. ;)

Benjamin Disraeli is alleged (by Mark Twain, rather apocryphally) to have said, "There are three kinds of lies: lies, damned lies, and statistics."

Regardless of the phrase's true authorship, I generally agree with its commentary; numbers are used all the time to mislead. As you rightly suggested, it's not an issue of life or death in this case, but the point remains: A lot of statistics get simplified, especially when companies use them for marketing purposes. Granted, Microsoft revealed the 200M figure in fairly low-key fashion this time-- but they (like most big companies) have been guilty before of trying to pass off creative accounting as legitimate financial successes.

Some customers are appropriately skeptical of these statistics, but others not only accept them, but also use them to make purchase decisions, or to otherwise inform their opinions about a certain product or company. As a result, I find it useful to examine provocative statistics from multiple angles, and to encourage a healthy conversation (like we are fortunate enough to have here) about what the numbers actually mean. To some people, 200 million sounds unequivocally impressive under all circumstances. But this is demonstrably not the case; the value of a number is usually, if not always, contextual. What is the appropriate context in this case? Well, that's what I attempted to answer with the article.

Also, if recent InformationWeek comments threads have shown everything, it's that our readers are passionately divided about whether Windows 8 is any good, and whether tablets are really surpassing PCs in relevance. It's fun water cooler discussion, and this article was intended to tap into this vein. If people are going to have "Mac vs. PC" or "Windows 8 vs. Windows 7" or "tablet vs. laptop vs. hybrid" arguments anyway, I hope articles like this one can enrich the debate!

Also, just to make sure I wasn't understood (per #3 in your mesage), the point was not that Microsoft is dying. Outside of Windows, most of the company is actually doing really well. But Windows has been a traditional cornerstone of the company. I don't think Windows is going to die, per se, but it's changing in relevance, which means the whole company's emphasis is changing. I think this is relevant to many people who use Microsoft products, especially those with investments that will be impacted by the company's future strategies.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Author
2/17/2014 | 11:42:07 PM
"Failure" seems a bit much
I'll stipulate to "underwhelming," but I'm not sure "failure" is the right word here.  Rome wasn't built in a day, and it's all part of Microsoft's mobile strategy of integration -- and it will take some time to wrest the power away from Android and iOS.

Besides which, no doubt the release of 8 has helped provide a much-needed kick in the pants to get customers to migrate from XP to at least 7 -- where threats to cut off support have not worked.
Michael Endler
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Michael Endler,
User Rank: Author
2/17/2014 | 8:23:33 PM
Re: 100 million since may 2013
"#3 neglects to account for the 100 million well after the promotional period.   You can't denigrate the 100 million by claiming that they were discounted when the discount period had expired already."

I don't think so. As the article states in point #4, there's evidence that Microsoft slashed license costs to OEMs-- which would mean some of the licenses after the initial discount period were also beneath historical margins. Not a sure thing, but another point to consider.

And as point #1 details, it's undeniable that Windows 8/8.1 licenses have sold substantially slower than Windows 7 licenses did-- a point that is true of both the discount period, and the time since.

Also, to be clear, this article's premise wasn't that Windows 8 was a disaster; rather, the premise was that Windows 8 is not particularly popular in any meaningful context, and that Microsoft's 200 million license sales aren't impressive. There's a big difference between "disaster" and "not impressive"/"underwhelming." As I indicated in some of the other comments, I think Microsoft could still shake things up. April's Build conference could bring anything from a Windows 8.1 update that makes the OS friendlier to mouse-and-keyboard users, to a version of Office for the iPad, to a converged Windows Phone-Windows RT platform, to a million other potentially helpful things. Microsoft is by no means doomed. But should it be celebrating its Windows 8/8.1 accomplishments to date? Definitely not.
Michael Endler
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Michael Endler,
User Rank: Author
2/17/2014 | 8:03:35 PM
Re: 100 million since may 2013
It sounds better to me, too. I'm surprised some of the workarounds haven't appeased more users. I know people increasingly expect things to "just work" out-of-box, but it's curious that some of the current solutions haven't caught on. It doesn't take a lot of time or expense to adjust the necessary settings and install the necessary apps. Makes you wonder about the alleged plans for Windows 9, since it will reportedly integrate some of the UI features the aforementioned apps already enable.
Michael Endler
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Michael Endler,
User Rank: Author
2/17/2014 | 7:58:44 PM
Re: Really...this again?
Thanks for the thoughts, kgreenhow530.

I think it would be more accurate to say "Microsoft is big enough to influence the future of computing." But is it inevitable that Microsoft will "dictate" the future? I don't think so. Given the Windows weaknesses I discussed in this article (and further elaborated in some of the comments), I think Apple and Google have much more influence in terms of mobile computing, and might (among others) have as much or more industry influence overall. Microsoft is a strong company. Outside of Windows 8, a lot of things are going well. But its clout (and thus its ability to dictate) isn't as strong as it used to be. The company is powerful, but no longer a monopoly. The current state of Windows has played a big role in that distinction. It's ridiculous to say that Microsoft is dead or dying. But in terms of resources and existing assets, it's lost important ground.

As for comparing Windows 8 to OS X in terms of profitability, I think the battle is probably closer than you think. As I mentioned in this article, Microsoft is making less upfront money than it used to on many Windows licenses. Microsoft partners, meanwhile, are dealing not only with lower sales, but also lower margins. And though legacy Windows software remains indispensable, Windows 8/8.1 haven't yet generated tons of new revenue via apps or accessories. Apple, meanwhile, gets to keep 100% of the profits from hardware, and its machines boast an average selling price around $1300. Among computers over $1000, Apple machines have regularly outsold PCs for years. Many PC brands lose money or subsist on slim margins. Macs are not only profitable-- they're very profitable. Apple doesn't have a ton of PC market share, but when it comes to the most desirable customers, Apple cleans up. I'm not trying to say that OS X is somehow vastly more valuable than Windows. But OS X is much more valuable than its market share might suggest.
Michael Endler
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Michael Endler,
User Rank: Author
2/17/2014 | 7:43:30 PM
Re: 200Million Licenses ??
That figure comes from the most recent Net Applications numbers: http://www.informationweek.com/software/operating-systems/windows-81-still-resisted-by-desktop-users/d/d-id/1113682


These figures aren't official, but they come from a pretty large sample (as the linked article elaborates). If I recall, Microsoft has referred to Net Applications figures before, at least for marketing purposes. Net Applications only tracks desktop traffic and users in this report, soit wouldn't include all activity from all new Windows devices.

Net Applications does provide insight into a very specific group, however: desktop users. These users were ostensibly the ones who took the most umbrage with Windows 8's UI departures. One would think these disenchanted users would have downloaded 8.1 the second it became available. But Windows 8.1 only accounts for 3.95% of desktops overall, or 37.3% of combined Windows 8/8.1 share. That seems strangely low, given people were unenthusiastic about Windows 8, and that Windows 8.1 addressed many of the problems. It could be that people just relegated their Windows machines to niche use, as I suggested in another comment, or that Windows 8.1's changes simply don't go far enough (e.g. why isn't boot-to-desktop enable by default on non-touch devices, and where is the start menu? etc).

For reference, OS X Mavericks, which is free to most Mac users, is running on over 40% of Apple computers. Mavericks and Windows 8/8.1 aren't perfect comparisons-- but users of previous Mac versions weren't vocally voicing discontent, or declining to update, like Windows users were. It seems reasonable to infer that Mac users had less urgency than Win 8 users to upgrade. Nonetheless, Mac users have done so at a faster clip.


Incidentally, while looking up the link for the Net Applications story, I found a slight inaccuracy in this article. Windows 8 and 8.1 accounted for 11.7% of Windows desktop systems in January, not 11.7% of desktops overall. Windows 8 and 8.1 were 10.58% overall. Not a significant difference in the context of the point I was making, but better to correct the mistake.
Michael Endler
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Michael Endler,
User Rank: Author
2/17/2014 | 7:10:57 PM
Re: Unbelievable
petey,

200 million is a big number; as I said at the beginning of the article, 200 million equates to roughly one license for every 35 people on Earth. As your comments suggest, very few products are so widely spread. But it's not "insane" to call Windows 8's sales disappointing.

As the article elaborates, when Microsoft says "200 million," that doesn't mean 200 million customers have actually decided to upgrade to Windows 8 or 8.1. So in that sense, 200 million is not 200 million.

Moreover, if we look at the OEM numbers that enable Microsoft to claim 200 million, we find additional concerns. As the linked article is this story elaborates, reputable publications such as The Wall Street Journal have reported that Microsoft might have substantially slashed Windows and Office licenses fees in order to stimulate OEM production of ~8-inch Windows tablets. Admittedly, we don't know if this is true, but manufacturers produced a lot of smaller Windows tablets last fall, and most of them came with Office-- so that's at least circumstantial evidence than some behind-the-scenes dealing occurred. Certainly, key executives at many Windows OEMs were publicly criticizing Windows 8 throughout last spring and summer.  The trash talk from Microsoft's alleged friends doesn't suggest many of them were eager to invest more in Windows 8 without some motivation. If we assume, for the sake of argument, that Microsoft did indeed reduce license costs, then the company is clearly earning less money on each Windows 8 license than it did on licenses for previous versions of Windows. If this tactic eventually stimulates Windows Store revenue, then perhaps Microsoft's gamble will end up paying off. But for the present, the Windows app ecosystem is problematic. All of this reinforces that 200 million Windows 8 sales are less valuable than 200 million sales of previous versions.

The preceding point is somewhat speculative, but turning back to verifiable facts, we know many early Windows 8 licenses were delivered at a discount. So again, some of the Windows 8/8.1 licenses are more valuable than others. This point doesn't rely on the OEM reports; if those reports are true, they'd simply exacerbate an objectively problematic situation. As I indicated above, it would be moot to talk about the relative value of different license types if Microsoft's various tactics had resulted in blockbuster device sales or stimulated developer interest in the Modern UI. But Microsoft has seen disappointing progress on these fronts. The company might still have some cards up its sleeve (stay tuned for Build in April), so the Live Tile interface might not be down for the count. But currently, Windows 8 has sold more slowly than Windows 7, and probably at lower margins. It also hasn't provided tangential benefits. In all ways, that sounds like a product line headed in the wrong direction.

To be clear, Microsoft is very strong overall. Outside of Windows 8, most things are going well. Azure, for example, could become for the cloud era broadly what Windows was to the PC era. But Windows has been a traditional cornerstone of the company's strategy, and no small part of the influence it's been able to wield among customers, competitors and partners. 200 million licenses might sound like a lot, and in certain ways it is-- but from a sales perspective, the OS hasn't lived up to its heritage. Some people say that Microsoft is doomed. That's ridiculous. But that doesn't mean that Microsoft isn't experiencing disruption, with Windows at the epicenter.
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