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Can Microsoft Survive If Windows 8 Fails?

Microsoft is betting the farm on the success of Windows 8--its new and radically different operating system.

That at least is the uncompromising view espoused by Steve Ballmer, the company's chief executive. "Our hardware partners are all in, companies like Verizon and AT&T are all in, there are hundreds of operators and retailers around the world who are all in, developers are all in, and--if anyone wasn't convinced yet --Microsoft is all in," he said at the San Francisco launch of the desktop version of the software in October.

But in financial terms, Microsoft may not be quite so "all-in" as Ballmer suggests: The company has plenty more chips on the table to use if its gamble with the new look Windows fails to deliver. Last year the company's revenues from operating system sales accounted for just 25 percent of its total sales, and almost half of that came from its enterprise licensing agreements which generate cash regardless of whether customers chooses to upgrade to Windows 8 or not. (That's probably just as well for Microsoft--only 4 percent of enterprises questioned in a recent Forrester survey have specific plans to deploy Windows 8 desktops in the next 12 months.)

Windows 8 First Impressions for CIOs and IT Pros

So however Windows 8 is received, Microsoft will be just fine financially. But what would the failure of Windows 8 really mean for the future of Windows? Could it spell the end for the Microsoft's client operating system business?

"The current Windows code is now 20-years-old, so for Microsoft doing nothing is just as risky as attempting to introduce the new Windows.

--Michael Cherry, Directions at Microsoft.

"Anything can fail and disappear," says Michael Cherry, an analyst at Directions on Microsoft. "Wang was once the big name in word processing but it has gone, and DEC is no longer around today," he points out. "Windows is used in so many places that it would take more than a single screw-up by Microsoft for Windows to disappear, but I wouldn't say that it could never happen."

Windows 8 Cheat Sheet: Visual Tour

Windows 8 Video Roundup

This Isn't Like Vista

Failure for Windows 8 would certainly have more far reaching consequences for Microsoft than did the failure of Windows Vista. When that operating system proved not to be the hit that the company had hoped, Microsoft simply moved swiftly on and released Windows 7, a stable and (relatively) secure operating system that is popular with consumers and, increasingly, enterprise customers.

But things are different this time around because Windows 8 is not just a new operating system for the desktop, but part of a whole new Windows 8 ecosystem that also includes operating systems for the increasingly important tablet computer market and for smartphones--all with the same tile-based user interface. That means it can't back away from the new desktop user interface without leaving its "one interface for all devices" strategy in tatters.

So Microsoft is apparently hitching its Windows desktop fortunes to a user interface which was originally designed for Windows Phone. And there's no getting around the fact that Windows Phone has spectacularly failed to impress thus far: IDC's Q3 2012 figures show Android was biggest selling phone operating system with 75 percent of the market, with iOS in second place with Apple in second place with just under 15 percent.

Windows Phone, by contrast, commands less than 4 percent. (Some may argue that there are other reasons why Windows Phone is failing, like a lack of apps, but that didn't hold iOS or Android back in their early days.)

In fact, Windows Phone may be irrelevant to the fortunes of Windows 8. That's because the key purpose of the "one interface for all devices" strategy is to capture a sizable chunk of the rapidly developing tablet market, says David Johnson, a senior analyst at Forrester Research. "The big value proposition is the communality across form factors," he says. "Microsoft's best chance is that employees want to use Windows tablets and bring them in to their workplace."

Tablets Are Key to Windows 8 Impact

So what's most important for Microsoft is that the new Windows 8 interface proves popular on tablet computers--either the consumer oriented ARM-based ones running Windows RT, or the Intel-based ones running Windows 8 Pro which can be managed by IT departments, and which are thus more suitable for enterprise use.

9 Things Enterprise IT Will Like About Windows 8

And the good news for Microsoft is that although sales of Windows Phone devices have been poor, there appears to be a high level of interest in Windows tablets. A recent Forrester survey found that 20 percent of respondents plan to use one for work, compared to 26 percent who plan to use an iPad.

But it's important to remember that Forrester's survey was carried out before any Windows 8 tablets had been released, and there's still a risk that people will reject Windows 8 on tablets the way they seem to be doing with Windows Phone devices. If neither of these platforms take off then Microsoft will be left with a desktop operating system with a user interface that has no reason to exist -- one that has been adopted to match a tablet and phone user interface that no-one is interested in. "If enterprises are slow to adopt Windows tablets or don't see the value proposition then that whole strategy is at risk," Johnson says.

This view is echoed by Michael Silver, a research vice president at Gartner. "If Windows 8 on the phone doesn't take off then it's really no big deal for Microsoft. But if they do poorly with the tablet this has much bigger implications." The only driver to deploy Windows 8 at this stage is to provide a unified operating system for tablet and PC users, so if Windows tablets fail to take off then that driver disappears, he adds.

The barriers to adoption of Windows 8 would remain, however: A new interface means a new way of working, and probably a certain amount of training or experimenting before productivity levels return to pre-Windows 8 levels.

"The new user interface is less of a problem than it would have been ten years ago because people have got used to mobile interfaces, says Johnson. "But our surveys show that companies are concerned about this, they don't think the user interface changes are good changes."

10 Must-Have Features for Windows 9

Perhaps what Ballmer meant with his "all-in" comment was simply that there is no going back from the changes that Windows 8 introduces: If Windows 8 fails, there will be more of the same, including the new interface, in Windows 9. "Windows 8 should be seen as the start of a journey," says Michael Cherry at Directions at Microsoft. "The current Windows code is now 20-years-old, so for Microsoft doing nothing is just as risky as attempting to introduce the new Windows. At some point they really do have to get off the old plumbing," he says.


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