Will Windows 8 App Store be a Billion Dollar Business?

Microsoft (NASDAQ:MSFT) will launch the next version of the Windows OS called Windows 8 in 2012. Windows has traditionally been one of the largest revenue generators for Microsoft and accounts for more than 25% of the total Trefis price estimate for Microsoft. Windows 7 was launched back in 2009 and has since sold over 400 million copies. However, its sales have been slowing and Microsoft’s revenues from Windows dropped 2% last year.

With Windows 8, Microsoft expects even more sales as it will support tablets in addition to desktops and laptops unlike its predecessor. Concurrently Microsoft will roll out its App Store for Windows 8 that we believe holds sizable potential if it gains traction. As Apple (NASDAQ:AAPL) is its only major competitor in the operating system space with its Mac OS X offering, we look at

We currently have a $28 price estimate for Microsoft, which implies a 10-15% upside to the market price.

Windows 8 App Store to Be Microsoft’s Next Billion Dollar Business?

In a blog post about Windows 8, Steven Sinofsky, President of the Windows Division at Microsoft, confirmed that Microsoft will be launching a Windows App Store for Windows 8. ^[1]

Apple launched its iPhone App Store in 2008, which has been a huge hit, and the company recently announced that it has paid out more than $2.5 billion to app developers. ^[2] After accounting for its 30% cut, it means that Apple made more than $1 billion from the App Store alone.

Apple currently has more than 200 million iOS users, and the average price of an iOS app is close to $1.99.

Though Microsoft is no Apple in terms of building the same ecosystem behind integrating hardware and software to support its products, we expect Microsoft to sell at least 400 million copies of Windows 8 in a year of its launch. We discussed this in a recent note titled What Windows 8 Means to Microsoft’s Stock where we highlighted that Windows 8 will be the single most important driver to Microsoft’s stock next year.

The expected average price of a Windows app could also be around the same price if not a little higher than iOS apps. After accounting for all this, we think that the Windows 8 App Store could easily become one of Microsoft’s billion dollar businesses.

Check out our complete analysis of Microsoft.

1. Building Windows 8, MSDN, August 17, 2011 [↩]
2. App Store hits 15 billion downloads, $2.5 billion paid by Apple to developers, Engadget, July 7, 2011 [↩]