Microsoft Tries to Save Windows 8 with Windows Blue

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Microsoft (NASDAQ: MSFT) is preparing to update Windows 8. Codenamed Windows Blue, the update will reportedly change the look of the Windows 8 Metro interface and add some new features.

Given the tepid response Windows 8 has received, some have questioned the longer-term viability of Microsoft’s Windows business. Can Windows Blue turn things around?

How much of a failure is Windows 8?

Has Windows 8 been a total dud? Microsoft’s hardware partners seem to believe so.

Acer’s President Jim Wong told Bloomberg, “Windows 8 itself is still not successful...the whole market didn’t come back to growth after the Windows 8 launch, that’s a simple way to judge if it is successful or not.”

Japan’s Fujitsu echoed those sentiments, calling the demand for Windows 8 “weak.” Meanwhile, the president of Samsung’s memory chip division told Korea Times (via CNET) that Windows 8 was “no better than Windows Vista.” Windows Vista was widely panned by critics.

Samsung’s president went on to blame the struggles of Intel (NASDAQ: INTC) Ultrabook-makers on the “less-competitive Windows platform.”

For its part, Microsoft has fired back. According to The Register, Microsoft has blamed the operating system’s struggles on its hardware partners’ failure to create attractive tablet computers.

Yet, Microsoft’s own tablet computer -- Surface -- has seen lackluster demand. Bloomberg reported that, as of last week, Microsoft had only sold about one million Surface RT tablets since the device went on sale last October. That number looks grim when compare to Apple’s (NASDAQ: AAPL) 22.9 million iPads sold in 2012’s fourth quarter.

Why has Windows 8 failed?

Why has Windows 8 failed to attract adequate interest? Is it Microsoft’s fault, or its hardware partners? It’s likely a bit of both.

With Windows 8, Microsoft created the first major hybrid operating system. That stands in contrast to Apple, which uses iOS on its iPhones and iPads, and Mac OS on its iMacs and Macbooks.

Apple’s CEO Tim Cook has shot down the concept of a hybrid operating system. On an earnings call last April, Cook joked that a hybrid tablet/laptop computer was akin to a toaster/fridge combination.

“Products are about trade-offs,” Cook said. “You begin to make trade-offs to the point where what you have left at the end of the day doesn’t please anyone. You can converge a toaster and a refrigerator, but those things are probably not going to be pleasing to the user.”

Given the sales of Windows 8 devices, it seems as if Cook’s prediction was accurate.

Windows 8 can run on nearly any PC, but to get the full value out of Windows 8, one has to being using a device that might best be called a hybrid Ultrabook. (These include Microsoft’s Surface Pro and Sony’s VAIO Duo.) Hybrid Ultrabooks have the form factor of a tablet, but the internals of a traditional PC: they look and act like tablets, but can run software that tablets like the iPad cannot.

Unfortunately, they carry hefty price tags, over $1000, more than most are expecting to spend on a Windows device. They are also much heavier than an Apple iPad and have less battery life.

Can Blue turn things around?

Windows Blue, which will likely take the form of a service pack update (something Microsoft has done for its previous operating system), might improve on the operating system, but it won’t be enough to fix the fundamental problems.

Blue might make Windows 8 easier and better to use, but the operating system will still require expensive hybrid Ultrabooks to shine. Instead, Microsoft should look to Intel for help.

Intel is currently working on a new processor architecture known as Haswell. The new processor is designed specifically with hybrid Ultrabooks in mind. Haswell combines better performance with lesser power consumption.

Even if hybrid Ultrabooks continue to carry price tags above $1000, Haswell could help solve both the weight and battery life issues. Further, the increased performance should make hybrid Ultrabooks a better value proposition, further exaggerating the difference in processing power between an iPad and hybrid Ultrabook.

Is Microsoft’s operating system monopoly over?

Until a resurgence in early 2013, the PC space had been a bloodbath for months, with PC-related stocks losing out for most of 2012 as consumers opted for tablets and smartphones over traditional PCs. Windows 8 was hailed as a savior to the sector’s ills, but since its launch, the operating system has attracted little consumer demand. Some see Windows Blue as the solution to the operating system’s ills, but in reality it will take hardware innovation to create the devices that are needed to fully demonstrate the power of Windows 8. Investors shouldn't write Windows 8 off as a failure just yet, but Windows Blue won’t prove to be Microsoft’s magic bullet.


Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, 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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