Broken Windows: The Necessary Risks of Microsoft's Windows 8 Strategy
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The barbarians are at the gates in Redmond. Microsoft (NASDAQ: MSFT)'s core PC operating system business is under attack. Apple (NASDAQ: AAPL) systems running OS X now account for a respectable proportion of computer sales. Google (NASDAQ: GOOG) continues to refine its subversive, cloud-centric Chrome operating system. Yet it is iOS and Android, the challengers’ mobile operating systems, which seem to pose the greatest existential threat to a company that not so long ago staked its brand on a marketing campaign in which celebrities, toddlers, and frazzled moms alike declared, “I’m a PC.”
Fewer and fewer electronics consumers are primarily identifying as PCs of any description. Steve Jobs pursued practical handheld and tablet computers because he understood that consumers would be willing to trade the capability of a traditional PC for more convenient devices focused on communication and media consumption. And new Android tablets like the Google Nexus 7 and smartphones like the Samsung Galaxy S III and HTC One series are only making this new paradigm, one for which Microsoft was unprepared, more competitive.
Windows 7, introduced in 2009, includes touch support, but its decidedly evolutionary interface was optimized for a keyboard/mouse/trackpad. It is also restricted to the X86 processor architecture of traditional computers powered by Intel or AMD chips, ill-suited for mobile devices. Windows Phone 7, introduced in 2010, is an innovative, attractive mobile operating system. Although it excels in speed and ease of use, WP7 remains an immature platform, and has yet to capture consumers’ imaginations.
Microsoft will be debuting Windows Phone 8 in the fall, but the primary focus of industry observers is where the stakes are highest: the new Windows 8 operating system. Reviews of the developer preview and beta have been very positive. Although some analysts question whether it will be a successful product for reasons discussed below, actual reviews have ubiquitously praised its modernity and intriguing potential.
Windows 8 encompasses two interfaces, two hardware platforms, and an entirely new mindset about managing the Windows user experience.
The new operating system features Metro, a touch-optimized interface which borrows heavily from Windows Phone 7. It is simple, fluid, beautiful, fast, modern, and ideal for tablets. Programs resembling mobile apps are launched from tiles which can display information such as weather forecasts and social media feeds. The traditional windows graphical user interface is tucked behind its own tile, to accommodate content-creation and legacy programs best left to a traditional PC.
This carries two major risks. The first is consumer confusion. For example, there are two versions of Internet Explorer 10: Metro and desktop. The second is uncertainty among developers, particularly of traditional windows applications. The two IE10 versions in Windows 8 differ radically. Designers must make significant choices early on in the process of creating a new program, e.g. about how and whether it will run in the two different ecosystems. Interestingly, the greatest risk of fragmentation in Windows 8, an issue currently dogging Android, comes from this dualistic software ecosystem, not hardware inconsistency. One bright spot is that Metro could supercharge the development of apps well-suited for Windows Phone 7 and 8, an area where Microsoft’s mobile offerings lag significantly.
Windows 8 is also cross-platform. In addition to X86, it can run on ARM architecture in Metro-only form. Developed by ARM Holdings (NASDAQ: ARMH), this computing platform has been at the heart of the mobile revolution now threatening Microsoft. Windows 8 tablets and even super-portable laptops built on ARM architecture will offer the battery life and simplicity consumers expect within the new paradigm. Downsides include the obvious limitations of Metro sans desktop, and cannibalization of higher-margin X86 device sales. Of course, iPads, Kindle Fires, and now Nexus 7 tablets are having that effect, not to mention smartphones. Microsoft has finally decided that it wants to minimize the damage by participating.
Windows’ Band-Aid-level ubiquity has become a liability: people take it for granted, unable to distinguish it from a present that is quickly becoming the past. With Windows 8, Microsoft is attempting to address contemporary threats and future opportunities while recognizing that it cannot simply discard the strengths that helped it dominate the old paradigm. It understands that to survive, it must totally change its perspective, which includes taking control of how consumers experience its most important product. This is why Microsoft plans to build its first computers, the Surface line of Windows 8 tablets. (Apple has controlled the full user experience for years; Google has produced Nexus Android devices as developmental reference points.) But doing so creates tension with traditional hardware partners.
Signs have been promising hitherto. Windows 8 is imaginative and bold given the myriad competing interests it caters to. Yet even if the landscape stopped evolving right now, Microsoft’s approach would remain as risky as it is necessary.
Motley Fool blogger Luca Gattoni-Celli does not have a financial interest in any of the aforementioned firms. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.