Subscribe / Unsubscribe Enewsletters | Login | Register

Pencil Banner

Windows phones' free-fall may force Microsoft to push harder on Windows 10 adoption

Mark Hachman | April 25, 2016
Microsoft needs to protect its access to your wallet.

Viewed through the lens of “constant currency” adjustments that discount inflation, Microsoft’s strategy seems to be working: commercial Office 365 license revenue was up 7 percent, consumer Office 365 license revenue by 6 percent. Windows non-Pro revenue growth was 15 percent, though Pro revenue to the commercial market dipped by 11 percent. Xbox Live active users are now at 46 million, up 24 percent from a year ago. 

Hidden dangers 

Peer a little closer, though, and you begin to see signals that may be worrying the more impatient sectors of Wall Street. For one, device revenue is expected to continue falling. Save for a $12.7 billion holiday quarter, revenue in Microsoft’s “More Personal Computing” group has bumped along each quarter for the past year at about $9.3 billion or so. It's expected to fall to between $8.7 billion and $9 billion this quarter, CFO Amy Hood said, apparently all attributable to the decline in phone sales.

The PC is the most frequently used device to access Microsoft services, Verto found, with 195.6 million monthly users. The smartphone is second, with 85.8 million users—but few of those devices are Windows phones.

lumia950att
Microsoft Lumia hardware is getting rarer by the day.

”Microsoft is clearly in an interesting position,” said Hannu Verkasalo, the chief executive of Verto, in an emailed statement. Microsoft has said in the past that the service matters more than the device, and the company does have software traction. “They have quickly pushed their mobile reach with their new device agnostic strategy," Verkasalo continued.

Here's the catch: "Even though they still have twice as many users using Microsoft services on PCs versus smartphones," Verksala pointed out, "the mobile segment is the growth area.” Lacking a viable mobile device, Microsoft is missing out on opportunities to get even closer to users—and their wallets—in this growth area.

There’s also some evidence that Microsoft isn’t selling services as quickly as it could. Microsoft added just 1.6 million Office 365 consumer subscribers during the quarter, for a total of just 22.2 million users. Remember, at least 60 million Windows 10 PCs were sold during that quarter alone. 

Keep your eyes open

All this means that the process of locking in customers to the Microsoft platform might be taking longer than expected. To date, investors haven't minded, generally cheering Nadella’s leadership and sending the company’s stock up to near its all-time high in 1999.

But given Microsoft's lower earnings and revenue—and downward guidance in key business units—it’s possible Microsoft may come under greater pressure to make its Windows 10 vision a reality. That’s not necessarily great news for consumers.

 

Previous Page  1  2  3  Next Page 

Sign up for CIO Asia eNewsletters.