- 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 (NASDAQ:MSFT) strategy to unify the disparate parts of the ecosystem.
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. (NASDAQ: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.
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.”
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.
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.
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.
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.