Microsoft's Huge Bet on Windows 8

abhisht is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Microsoft (NASDAQ: MSFT)  has made the biggest change in its operating system since Windows 95. Windows 95 was the software which revolutionized access to world wide web. It is reported that approximately a thousand applications can use Windows 8. This would in turn encourage developers to create new applications for such apps. Microsoft has also incorporated certain new features in its windows 8 platform, which will enable Microsoft to reduce piracy to a great extent. With Piracy being the major problem in third world countries, I believe that Microsoft might be able to generate higher revenues going forward. 

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While there are two inherent problems with Windows 8, I believe that these are also the features that might help Microsoft in the long run. For one, Windows 8 is primarily based on Windows 7 and so both can be used simultaneously. While there are words of caution on how many CIO's will use and allow such an environment, the stickiness for Microsoft in the enterprise sector might make a way for a Microsoft win. Other than this,  Windows 8 has a different user experience hence, the users might find it difficult to use it. While this is a risk as users are essentially forced to change their habits, it is basically a risk an innovator has to take in order to offer better products.

However, in spite of these small lacunae's, Microsoft has taken certain steps which brings a sense of positivity for its future success. Firstly,anti-piracy efforts has borne some positive results and can boost its revenues. While piracy adversely affects U.S. revenue, the impact on revenue from outside the U.S. is more significant, particularly in countries where laws are less protective of intellectual property rights, as 43% of the total revenue comes from outside US.

Secondly, a major portion of the company's revenues comes from Software assurances which have high probability of being renewed. This being the end period of many such Software assurances, Microsoft can generate healthy revenues from licensing fees.

Thirdly, media and advertising campaign strategy recently used by Microsoft has caused ripples in the consumer market.

Fourthly, Windows 8 tablets have heavy content creating capacity in comparison to other tablets. Hence, it seems to be promising for heavy use cases.

Lastly, Microsoft has a significant free cash flow. There is the possibility that Microsoft can declare some sort of extra dividend to its investors like it did in 2004.

In comparison to Apple's (NASDAQ: AAPL) tablet Microsoft has some exciting features. For instance, the key pad of the iPad tablet is the most tricky aspect where it is nearly impossible to write or e-mail documents with ease. Even though third-party keyboards can be attached to the iPad, they can be clunky. Whereas, Microsoft's tablet keyboard will be part of its Touch Cover, which makes it easy to carry. There will be a version with pressure-sensitive flat keys and another with more traditional raised keys called a Type Cover, hence it can be used with ease. Also, unlike other competitor of Apple, Microsoft is not only stylish but also has the ability to act as a PC or a Laptop.

After the death of Steve Jobs, Apple was not able to launch anything exciting. Even though iPhone 5 was a success, it is limited to US market only and also it has nothing new to offer beyond iPhone 4. With no new advancement, I predict that Apple may loose its sheen in the market.

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On the basis of  these facts it is recommended to hold the stock. Microsoft's main business comes from Windows and Office (profit in excess of 80%) which right now seems vulnerable to tablets. It is feared that in coming period, from iPads and Android based tablets will gain wider acceptance. Microsoft's impatct in this market may be lessened due to saturation.

akgupta88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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