With Windows 8, Microsoft Focuses More On Reach Than Revenues
Microsoft (NASDAQ:MSFT) has made a ton of money selling Windows licenses. It has sold more than 630 million copies of Windows 7 to date, and generated billions of dollars in revenue from its Windows business, which accounts for almost 25% of its overall value. However, as Microsoft gears up for the launch of Windows 8, which is expected to be its biggest release in years, it seems to be focused more on maximizing the reach of its platform rather than maximizing its license revenues. [1]
Microsoft’s Windows 8 will compete primarily with Apple‘s (NASDAQ:AAPL) Mac OS X in the operating system space and Google (NASDAQ:GOOG)’s Android and Apple’s iOS in the tablet space.
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The PC shipment growth has declined in the past couple of quarters, and even the notebook sales growth is not what it used to be. With a focus on ultrabooks and tablets, Microsoft is hoping to drive Windows 8 sales by targeting the notebook and tablet segments.
Because Windows OS licenses have traditionally been priced relatively on the higher side, the piracy rates have also been quite high especially in emerging economies, which has led to a high number of lost sales for Microsoft.
To counter these factors, Microsoft seems to have decided to focus on increasing the reach of Windows 8, and get its platform on as many devices as possible instead of maximizing the total revenues it generates from Windows 8 license sales.
It will offer cheap $40 Windows 8 upgrades to existing users of Windows XP, Vista and 7, and simplify pricing by offering OEM and upgrade versions only, at relatively lower prices than it traditionally has.
You can check out the impact of a decrease in average retail Windows pricing on its value using the chart below.
With such moves, Microsoft is focusing on the long term and is trying to ensure that Windows 8 is used by as many users as possible even if it loses out on revenue and profits due to decreased pricing. By maximizing the reach of Windows 8, it wants to stay relevant in a space which looks increasingly susceptible to disruption.
We currently have a $40 Trefis price estimate for Microsoft, which stands nearly 30% above its market price.
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