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Microsoft exec defends Windows 8 sales pace

Touch-enabled hardware in short supply, explains Tami Reller when asked about reports of slow holiday sales

Defending Windows 8 against reports that sales have been sluggish, one of Microsoft's top executives said it will take time for customers to digest the new operating system and for device makers to ramp up production of the hardware users want: Touch-enabled PCs and tablets.

"We all had a strong sense that unique touch devices, particularly touch laptops and tablets, convertibles would be in high demand," said Tami Reller, CFO and chief marketing officer of the Windows division, in a question-and-answer Tuesday at the JP Morgan Tech Forum, which was held in Las Vegas, where CES kicked off Monday. "[But] the level of demand I think surprised a lot of people."

Apparently even Microsoft's computer-making partners underestimated the attraction of touch, which seems odd on its face because Microsoft has touted touch as key to Windows 8 since the OS was introduced more than a year ago. In September 2011, when then-Windows chief Steven Sinofsky debuted Windows 8, he used the phrase "touch first" to describe the new operating system.

"There's touch first with a keyboard and mouse that works just as well as a first-class citizen, your choice of interaction," Sinofsky said, according to a transcript of his presentation. "It's so important to the fundamentals of Windows 8 that you have this no-compromise experience."

In the months that followed, "touch" became a touchstone for Microsoft.

When asked Tuesday about reports that Windows 8 was off to a slow start at retail -- a trend that persisted through the holidays, according to one research firm -- Reller argued that touch-enabled systems have been hard to come by, implying that was one of the reasons for the OS's inability to boost PC sales.

"Frankly, the supply was too short. I mean, there was more demand than there was supply in the types of devices that our customers had the most demand for," Reller said. "And there was some misalignment between where products were distributed and where there was demand."

Even so, Microsoft has sold more than 60 million Windows 8 licenses in its first 10 weeks, Reller said, calling that "roughly in line" with Windows 7 at the same point after its 2009 release. At that time, Microsoft told investors that the sale of 60 million Windows 7 licenses was a single-quarter record.

Reller's description of Windows 8 sales -- defined as licenses sold to computer makers for installation in their new PCs, plus cheaper upgrades sold direct to customers -- was the same as when she spoke at a Credit Suisse-hosted conference in late November. Then too, she used "roughly in line" to compare the new OS with its precursor.

Within the 40 million of November and the 60 million of this week are an unknown number of licenses on PCs that have been built and shipped, but not yet sold to customers, analysts have said. Without system sales figures from Microsoft's OEM partners or Microsoft itself, it is impossible to tell how many devices with already purchased licenses are not yet in customers' hands.

Some estimates and metrics have hinted that the number is considerable: The NPD Group, which tracks retail sales in the U.S., said PC sales for the holidays were down 11% compared to the same period in 2011.

Meanwhile, recent data from Web analytics company Net Applications put Windows 8 on a slower uptake pace than either Windows 7 or Windows Vista, the latter the 2007 edition that has been decreed a rare Microsoft flop. Through its first two months of availability, Windows 8 collected less than a third of the online usage share Windows 7 had at the same stage in its release, and was slightly behind even Vista.

But Reller's explanation of Windows 8 sluggish retail sales -- that touch-ready devices were in short supply -- jibes with other data, including the NPD Group's, which said five weeks ago that sales of touch-enabled notebooks were one of few bright spots in Windows 8's first four weeks.

It was clear that Microsoft has heard that message.

"We, I think, collectively as an ecosystem and as an industry, want more and more touch assortment," said Reller. "Like if we say, sort of what do we want more of, and what does the market want more from us of? It's more touch assortment, and that's certainly tablets, that's certainly convertibles, touch laptops, touch laptops at great prices, all-in-ones, all-in-ones at great prices, I mean, all of those are proving to be high-demand items."

But Reller also urged patience with Windows 8, and not just because the devices that showcase it aren't available in the numbers Microsoft would like.

In fact, the sheer number of competing Windows 8 devices -- Reller said Microsoft had certified 1,700 so far, up 700 in just a month -- was a stumbling block. "Customers have a lot of choice. So, they are essentially evaluating a new OS and they are then having the opportunity to look at quite a diverse set of hardware options," Reller said. "That takes some time for customers to digest and make choices."

Reller also took questions about Surface RT and Surface Pro, the latter the x86-powered tablet Microsoft is expected to start selling later this month, but she did not reveal any new information, such as Surface RT sales figures or the ship date for Surface Pro.

A transcript of the Q & A with Reller has been posted on Microsoft's investor relations website. A webcast can also be viewed from the same page.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Read more about windows in Computerworld's Windows Topic Center.


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