Microsoft "One Windows" Dream Is Not Yet Dead

  • Microsoft’s “One Windows” was declared “dead,” as such, the anti-windows misogyny continues.
  • While some of the punditry makes good points, it’s worth noting platform advancements and market trends being supportive of recovery.
  • Microsoft’s presence in consumer markets has improved and renews my conviction in One Windows.

In response to an article claiming the “One Windows Dream Dead,” I’m writing this article. Partially because the claims by the blogger were a little overstated, as the author Leo Sun from The Motley Fool makes some relatively bold proclamations over the future of Microsoft Corporation's (NSDQ:MSFT) strategy to unify the disparate parts of the ecosystem.

Also read: Microsoft Corporation Stock On Course To Breach $65

He believes that these factors alone diminish the argument for a unified OS ecosystem:

Microsoft's biggest mistake was overestimating the appeal of a unified OS. Users now mainly use apps that run across various mobile platforms and PCs, and that data is stored in the cloud instead of on a local device.

With Windows Phone accounting for less than 1% of the worldwide smartphone market, there's not much Microsoft can do to expand its "One Windows" ecosystem to mobile devices beyond launching its own iOS and Android apps.

While I’m not going to deny Leo’s familiarity with the Microsoft narrative, I wanted to highlight that the emergence of a unified ecosystem carries with it certain advantages that the author seems to have ignored.

Adding further context to Microsoft’s strategy

Microsoft’s strategy of entering into the mobile smartphone market was thwarted by the launch of competing OS ecosystems that were superior in functionality and usability to the Windows 7/Windows Mobile ecosystem.

Apple Inc. (NSDQ:AAPL) tackled this challenge by creating universal applications as a core component of the OS, which forced the devices to operate in a cloud-based environment prior to the broad implementation of cloud-based initiatives in competing ecosystems.

In other words, Apple didn’t unify the ecosystems under a singular OS interface, but it did force applications to work out of a non-client based environment prior to the broad based adoption of cloud based applications.

Also read: Should You Buy Microsoft Corporation Stock Heading Into 2017?

Microsoft made a strategic shift to unify the OS software architecture to streamline the development of applications that could be made readily available for all devices running Windows. As such, the software developer kits, API integration and backward functionality are a huge component of Microsoft’s strategy that help to differentiate it from Mac/iOS.

The beauty of Microsoft’s ecosystem is the broad availability of productivity applications, compatibility with virtual environments, and the ability to utilize older software designed for older versions.

Mac OS relies exclusively on technological progression to sustain the viability of its ecosystem and in many instances ignores backward compatibility.

Leo makes the argument that Microsoft’s strategy of One Windows was flawed from the outset, but recent trends and empirical data points prove otherwise.

Xbox One and Windows integration the next major pillar

The next evolutionary step in Microsoft’s strategy is the unification of Xbox and PC. Codenamed, “project Helix,” or what Microsoft announced as “Play Anywhere” at E3 2016 for Microsoft titles. This indicates that the game developer studios at Microsoft are committed to the development of multi-platform exclusives for both PC and Xbox via the use of universal software licenses. This sets the stage for unification of game libraries, online communities, and cross platform functionality that did not exist prior to One Windows.

In the past, Microsoft has had multiple false starts at unifying the two walled off communities. But, this time around, it’s a little different. While further accommodations will need to be made for the two separate gaming communities, there’s much greater promise to Microsoft’s strategy when compared to Nintendo or Sony. And yes, Microsoft has the clout to fix many of the major issues prior to full implementation of Play Anywhere.

By creating greater economies of scale, the platform itself becomes far more viable for platform exclusives. Hence, the developer community can easily port over applications originally designed for core Windows into the Xbox app library, which broadens the usefulness of the platform when compared to competing ecosystems.

Today’s Microsoft is different and way more nimble

While Microsoft got whooped by Apple and Google in smartphones, the management team seems to have wised up and is now using the same technology against its competitors.

Microsoft’s steps are more incremental given the fiasco of Windows 8. But, the strong response by technologists, users and even journalists in response to Windows 10 supports renewed conviction in the investor thesis. Furthermore, next generation technologies that were developed by Microsoft as a result of the One Windows initiative has resulted in a perception shift among the technology community.

Microsoft’s efforts to be more inclusive and open to multiple device form factors, peripheral devices, and even third-party developers translates into a massive advantage on the VR front. Microsoft has partnered with Intel to develop Windows Holographic Shell, which puts Microsoft at the forefront of VR/AR technologies when compared to competing ecosystems.

Why isn’t there any criticism directed towards Apple over its total absence in VR and AR technologies?

Because, it’s way easier to narrate Microsoft as the evil villain among tech communities.

However, under the leadership of Satya Nadella we’ve witnessed measurable progress in new device categories with the exception of smartphones. There’s been substantial brand uplift following Windows 10, and even greater acceptance of Windows among members of the tech community.

The versatility of Windows 10 has only helped to not hurt Microsoft shareholders.

Recent PC trends support a Windows fueled narrative

While I’m aware Microsoft couldn’t attract much traction in lower-priced tablets, the Windows Ultrabook takes on the forms of convertibles, detachables, clamshells which in some instances is comparable to the tablet form factor anyway.

This transition by Microsoft helped to thwart the rapid expansion of the tablet form factor. In fact, tablet shipments took a nosedive over the past 12 quarters marking an end to all the hype and speculation over the “death of the PC.”

8-28-16 MSFT pic 1Source: Alex Cho, IDC, Gartner, Credit Suisse

Windows 10 symbolizes the death of “categories” as opposed to the “death of PCs” folks.

In the above graphic, the tablet market took a dive in 2015, whereas Laptop shipments made a recovery, but mostly due to the rapid adoption of Ultrabooks. Ultrabook shipments fall under the broader laptop category, and is broken out separately in the above graph.

8-28-16 MSFT pic 2Source: Alex Cho, IDC, Gartner, Credit Suisse

Furthermore, it’s worth noting that the Ultrabook category is growing at a much faster rate than tablets currently. So, labeling Universal Windows, or One Windows a “failure” falls short of reality.

8-28-16 MSFT pic 3Source: Alex Cho, IDC, Gartner, Credit Suisse

In 2014 and 2015, the laptop category expanded by 4.64% and 11.32%, respectively. Recent PC trends also support patterns of recovery, as PC channel checks imply a bottom in Q2’16, whereas tablet vendors are experiencing further acceleration in y/y shipment declines.

Q2’16 tablet shipments declined by 12.3% y/y, according to IDC Worldwide Quarterly Tablet Tracker. In comparison, the PC market declined by 4.5% y/y, according to IDC Worldwide PC Tracker.

In other words, PCs are doing better on an annualized basis when compared to tablets.

Final thoughts

Microsoft’s One Windows has thwarted the pervasive pessimism towards PCs. It was originally perceived that consumer devices would cannibalize the pre-existing PC ecosystem, but given the flexibility of Windows 10, we’ve witnessed renewed strength in conventional categories.

I anticipate Microsoft’s One Windows strategy to work just as effectively in the console gaming/VR space as well. In other words, the sleeping giant from Redmond Washington is back.

As such, I continue to reiterate my buy recommendation on Microsoft.

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Comments on this article and MSFT stock

Dex4Sure
bullish
I'd question whole Motley fool's reliability in many cases... And I do believe even though it hurt Microsoft short term, in the future the "One Windows" strategy is going to be a success. Tech savvy people can see the potential in 1 OS that works flawlessly with both touch and mouse/keyboard... There's more to it than just cloud, no matter what Motley fool says about it. Familiar UI across devices is tempting for many.

The biggest challenge for Microsoft is the fact their app store even right now is very limited compared to Google play store and Apple store. If they can manage to get around that somehow, they could make a comeback most did not expect.

We have to remember the potential of full featured desktop browser. In desktop environment most of the apps found from Google Play Store and Apple Store are absolutely useless. In desktop environment, apart from the few productivity apps, everything is done through the web browser. I've heard it before claimed that apps are thing of the past, and if this is true which I believe it is, there lies unlimited possibilities for Microsoft. I do believe future of the computing is more and more driven to the web browser and cloud. Apps are not the future. One good reason for that is because they have to be constantly updated in the background, and every Android user knows how annoying that is. On top of that its inpractical and even insecure.

Interacting with the web pages through web browser is better because you never need to download local updates (except for the browser itself). Not to mention battery life will significantly increase when everything is handled through the browser instead of apps that run constantly in the background. Its all about designing interface for the browser that feels comfortable to use. Making your favorite sites easy to access, in similar way to apps. If they ever are able to design such UI, apps are dead and Windows mobile platform is not going to be handicapped anymore compared to rivals. So yes, One Windows is far from dead yet. It in fact has much potential because in the recent years Microsoft has become innovative company that listens to feedback (which it was from under Ballmer's rule).
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awallach1975@gmail.com
neutral
Where I live we have to pay to use car parking spaces. Recently, some spaces have the meters removed and use online pay methods. There are apps for android and apple, but not windows. The same applies for federal government services in my country, that have android and apple apps for quick access to their health, welfare, and educational services, but no windows apps.For me as an 'layman,'and not someone with a vested interest in any platform, how long does Microsoft expect me as a consumer to wait for them to catch up to the competition? The appeal of quick access to government services is far more attractive to me than any 'one system' jibber jabber. Further, the university I attend, rated inside the QS Top 20, only upgraded all the PC's on campus from XP to windows 8.1 last year; then this year, rolled them all back to windows 7, rather than upgrade to 10. It is lovely that Mr Cho uses all sorts of pretty charts to show changes in consumer preferences, but just remember Mr Cho, that correlation does not necessarily mean causation. I am seeing very little 'real world'impact when it comes to windows 10. In fact, I am ditching my Nokia 820 running win 8.1-which was quite a good phone-for a new android one, simply so I can access the local app community. Something I think Microsoft have ignored to their detriment.
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