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Windows revenue takes another bad beating

Gregg Keizer | July 24, 2015
Microsoft on Tuesday said that Windows revenue again declined by double digits, the third straight such quarter, with sales of licenses to computer makers down 22 percent from the same period last year.

Also in play, although not stressed much by Microsoft, perhaps because it's a broken record: The underlying problems of the PC industry, which continued a 14-quarters-and-counting contraction, and seems destined to be almost entirely a replacement market, with little signs of any meaningful growth down the line.

Both Hood and CEO Satya Nadella, who was also on the call, spun the Windows declines as less about the loss of revenue in the quarter just past and more about the opportunities ahead with Windows 10.

"With Windows 10, we expect momentum to build throughout the year, as we and our partners bring new devices, applications, and services to market," said Hood. "We expect this to benefit our business results in the second half of the fiscal year." Microsoft's fiscal year runs from July to the following June, so Hood was referring to the first half of 2016.

Nadella pitched in as well. "Our aspiration with Windows 10 is to move people from meeting to choosing to loving Windows," he said, repeating remarks he made earlier this year.

Not surprising -- because it's part of every CEO's job description, no matter what industry or under what circumstances -- Nadella was confident Windows 10 would turn around the company's OS fortunes, if not in direct licensing revenue then in sales of after-market services and software, and advertising opportunities in its Bing search site.

"While the PC ecosystem has been under pressure recently, I do believe that Windows 10 will broaden our economic opportunity and return Windows to growth," Nadella said. He touted the large number of devices and configurations in the testing process for Windows 10 certification, most of which won't be available until later this year, as well as some revenue and gross margin growth possibilities from Microsoft's own hardware, primarily the Surface Pro portfolio.

"Third, we will grow monetization opportunities across the commercial and consumer space," Nadella pledged. "For consumers, Windows 10 creates monetization opportunities with store, search, and gaming."

The three money-makers Nadella ticked off were the same ones Hood outlined to financial analysts in May, when she fleshed out the firm's "Windows as a service" monetization strategy. Microsoft intends to shift revenue generation from its decades-long practice of licensing Windows to one more reliant on revenue from search ads within Bing results, gaming and apps sold through the Windows Store.

That strategy has led Microsoft to a number of radical decisions, including giving away Windows licenses to smartphone and small tablet makers -- a move that hasn't done much for the OS's share in those categories -- subsidizing Windows to makers of cut-rate notebooks, and most importantly for Windows 10, giving away upgrades to the new OS from Windows 7 and Windows 8.1.

 

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