Microsoft Unveils Windows 8 App Store; Its Next Billion Dollar Business?

MSFT: Microsoft logo

Microsoft (NASDAQ:MSFT) is one of the largest enterprise and consumer software company, which dominates the operating system market with the Windows OS. It’s expected to launch the next version of Windows – Windows 8 in 2012. It has revealed some details about the Windows 8 App Store, an online application marketplace for Windows users, which will be launched with Windows 8. [1] It is modeled after Apple‘s (NASDAQ:AAPL) iOS App Store and Mac App Store, and Google‘s (NASDAQ:GOOG) Android Market.

Windows 8 is expected to be Microsoft’s biggest launch in years, and one of its most crucial ones, as Windows accounts for nearly 25% of Microsoft’s Trefis price estimate and brings in a significant portion of its revenues. Our $32 Trefis price estimate for Microsoft stands nearly 25% above its current market price.

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App Store Crucial for Windows 8’s Success

One of the main reasons why Apple’s iOS devices have been so successful is the availability of hundreds of thousands of apps for the platform. Apple’s iOS ecosystem currently has nearly 500,000 apps, far more than any other mobile platform. Observing the success of the iOS App Store, Apple also launched the Mac App Store for Mac OS X users. These App Stores not only help Apple sell more devices, but also generate additional revenue for Apple – it takes a 30% cut from every app sale.

With Windows 8, Microsoft is targeting both the PC and the tablet market. We expect it to be a bigger hit than Windows 7, which sold around 500 million licenses to date. Microsoft’s new Windows 8 App Store will be the central repository for Windows software, and will allow users to access all the available software from a single location. Microsoft has announced that it will be taking 30% of app sales revenue from software sold in the Windows 8 App Store, just like Apple. However, to attract bigger developers, it says that it will take only 20% of the sales revenue for an app, once its revenues reach $25,000. The price range of apps has been set to $1.49 to $999.99.

Windows 8 App Store: Another Billion Dollar Business for Microsoft?

Microsoft is offering developers various pricing options including demos, trials, free versions, subscription based pricing etc. The Windows 8 App Store uses the Metro style UI. We expect it to be a huge hit, and not only drive Windows 8 license sales, but also become a significant source of revenue for Microsoft in the coming years. Windows apps are expected to be more expensive than smartphone or tablet apps.

Assuming a user base of 500 million after 2 years of Windows 8 launch, and an average spend of $10 per user on the Windows 8 App Store, Microsoft stands to make around $1 billion from the Windows 8 App Store, even if we assume the minimum cut of 20%. Microsoft’s App Store would also make it easier to deploy software in enterprises, and maybe even reduce software piracy, by providing users a convenient option to legally buy software from a single repository.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Microsoft works to lure devs by taking less for app sales, CNET []