Windows 8 Cracks 10% Market Share, But MSFT Still in Danger

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Microsoft (MSFT) received some good news to start off the new year after reports that its Windows 8 and Windows 8.1 operating systems made gains through December to crack the 10% barrier of total PC installs. That’s 11.6% of all Windows users.

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Perhaps even better, Windows XP — the OS it released 12 years ago and has been supporting ever since — saw a significant decline, finally dropping below 30% of total PC users (or 31.9% of all Windows users). While both stats sound encouraging, Microsoft is still way off the pace considering the competition, and there’s a lot at stake for MSFT in convincing its customers to upgrade.

If you want to put that Windows 8 adoption rate in context, look at the performance of Apple (AAPL) with OSX, the operating system powering its Macs and MacBooks. Windows 8 has been in release for well over a year and 8.1 has been available since October 2013.

When Apple released the latest version of OSX last fall, it was installed on 11.8% of all Macs within five days. At this point, OSX 10.9 is now on 37% of all Macs and combined with OSX 10.8 (released around the same time as Windows 8) accounts for nearly 60% of all Macs.

So yes, the 10% mark is a big milestone for Microsoft, and having 11.6% of your customer base on one of your two newest OS versions is a start — but MSFT has a long way to go before Windows 8 can be considered mainstream in the PC world.

Those XP holdouts in particular are costing Microsoft more than just the opportunity to sell a new copy of Windows 8. They’ve been costing the company money through more than a decade of security and service patches.

Microsoft insists it will cut off this security blanket in April, although there are rumors the company may back down on the ultimatum and continue to address critical issues going forward. It faces a public relations nightmare if PCs running its Windows operating system (even if it’s the outdated Window XP) become infected en masse in the spring, compromising consumers and business systems –Microsoft is going to face criticism and backlash over any resulting cyberattack catastrophes.

On the other hand, if Microsoft can spur a mass transition of those XP boxes to Windows 8.1, there’s considerable financial upside. There are nearly a half a billion XP users still out there; that’s a lot of possible Windows 8.1 copies to be sold — and once the PC owners have made that leap, they’re also going to have to buy a new copy of Office. And Office is one of MSFT’s most profitable products.

Windows is also the key driver of Microsoft’s Internet Explorer web browser, which helps generate revenue through display adds and its Bing search engine. Those XP users are going to have to upgrade their hardware to run Windows 8, which means Microsoft PC partners like Hewlett-Packard (HPQ) may finally see the sales boost that Windows 8 was supposed to deliver.

Additionally, continuing the dominance of the Windows and Office combination for business users makes Windows 8 (and Office availability) the primary selling point for Microsoft’s Surface tablets. In a world where PC sales are falling and tablets are increasingly finding their way into the business world, that Windows/Office combination is the only real advantage Microsoft has.

Android enjoys a huge marketshare lead, Android tablets are far cheaper, and Apple’s iPad continues to be a consumer favorite. Shifting to Windows 8 would show a corporate commitment to continuing their Windows investment, in turn making it more sensible to choose a Windows tablet for employees over Android or an iPad.

However, Microsoft is in a tricky position — while it would love to have nearly a third of its customer base move to Windows 8.1, carrots (like cheap PC offers) haven’t worked very well. The stick approach of leaving XP users to fend for themselves risks annoying these customers to the point that they make the leap to an alternative like Apple product — or even worse (from MSFT’s perspective), a Google (GOOG) Chromebook instead of buying a new PC and adopting Windows 8.

And then there’s the scenario mentioned earlier that XP owners will do nothing, resulting in what many computer security analysts have been referring to as a “security nightmare.”

Everyone’s going to be watching closely to see what happens come April 2014. With a third of its customer base in play, MSFT couldn’t have more at stake.

Will businesses and consumers finally be inspired to buy new PCs running Windows 8.1, or will some be fed up with ultimatums or scared off by the rough reception Windows 8 received and jump ship to a competing platform like Google’s Chrome? If XP users don’t change, XP computers could be left to become instant targets for cyber criminals, unless Microsoft caves and continue to keep Windows XP alive through ongoing security patches.

Whatever happens, MSFT stock is going to reflect that outcome.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2014/01/windows-8-marketshare-10-msft/.

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