We are not for a lack of commentary on Windows 8, but despite all the subjective commentary on the Windows 8 User Experience and the Surface tablet, I think there is a really important story lying under the surface about the revenue potential for Microsoft.
I’m not unlike many computer users – I regularly use a version of Office 2003 I bought five years ago because it just works, and there is no need for me to upgrade. I bought an iPhone when it came out – Apple truly revolutionized the mobile phone space. I installed Ubuntu Linux on my home PC for a few years to learn about the offerings and state of the open source operating system market.
Two weeks ago, I tired of the Windows 8 news snippets and me-too commentary and installed the Windows 8 Consumer Preview on my home desktop to dual boot with Linux. The preview build was a little awkward, no Windows 8 apps for Skype, Netflix, no free music player (ala Pandora, Spotify, etc). The dual-desktop situation took a little getting used to but isn’t the traumatic experience that it is made out to be.
When Windows 8 launched, I installed it on my main laptop PC. First the first time ever, a Windows OS upgrade went incredibly smoothly. I downloaded it from the web, I installed it within an hour or so, it preserved all my files and gave me a genuinely refreshed view of my operating system. More importantly, it really showed me the new revenue paths for Microsoft associated with Windows 8.
Movies and Premium TV
Windows 8 lets me buy movies directly from my PC, from within the core operating system. I dropped premium cable years ago in favor of a Roku device connected to my flatscreen TV. I don’t have a media PC, I hate moving around cables and hooking my laptop up to the TV to watch content online. Roku solved a lot of those problems for under $100, but it is a partial solution. Roku has proven to have a relatively dormant app ecosystem. The Netflix app lacks pizazz, the news apps that were once great have been fragmented into a bunch of awful little network-centric apps. Overall, Roku was the right solution at the time but didn’t solve all of my media consumption needs. I still use it regularly to buy movies on Amazon and watch streaming content on Netflix.
Windows 8 changes this. If I hook my PC up to my television, buy a media specific PC or purchase an Xbox, I can access all my media directly on my TV through Windows 8. More importantly for Microsoft, I purchase the movies from Microsoft instead of Amazon. Amazon, Hulu Plus, iTunes and Netflix all offer a decent experience for me to purchase content but having it built into the OS makes it all that much more seamless and it’ll eventually be the sole place I buy my content. Movies and Premium TV content, I believe, is revenue stream #1 for Microsoft in Windows 8.
I’ve gone from flip phone to iPhone (1st gen) to Android over the last 6 years. I’ve purchased some premium apps, I use a lot of free apps and am comfortable with the ‘App Store’ concept on my mobile devices. Despite the current awkwardness of maintaining the Windows 8 “Metro Style” desktop as well as the old Windows XP/Windows 7 styled desktop – it’s clear that Microsoft is finally moving in the right direction in regards to bringing the vibrant mobile app ecosystem to the relatively stodgy app environment on desktop/laptop PCs. Merging legacy Windows desktop apps into the Windows 8 “Metro-style” desktop will happen eventually, but maintaining both is key for user adoption as it doesn’t require a major shift in usage for those who are most comfortable with the old Start button style interface.
Most importantly, Microsoft has introduced a new generation of fresh applications and revenue for the company. Criticism abounds about the number of apps in the app store for launch. The practical truth of it is they have 10,000 apps available right now – far more than any consumer of Windows has realistically had access to with one-click install in the past. Most are free or freemium, introducing a wave of crisp UIs and laser-focused mobile-style apps to the desktop. Critically for Microsoft, this new app infrastructure is new revenue stream #2 for Microsoft in Windows 8.
I don’t buy music anymore. I use Pandora with Ads, I use Spotify on laptop and desktop and I usually listen to Podcasts while driving. I’ll pay to subscribe to music services, but purchasing physical albums and even dealing with migrating digital music from device to device is too obnoxious. Subscription services like Pandora and Spotify are the future of music consumption. Windows 8 understands this shift and is embracing it. Microsoft built a Pandora-meets-Spotify experience directly into the OS via the Music app. Listen to an artist’s tracks or start up an artist-inspired ‘station’ directly from the OS. I won’t use Pandora any more on my laptop or desktop and, if I did want to purchase a track or album, its built into the OS. I bought a Zune when it came out many years ago. It died with the advent of the iPod and iTunes, but it was an amazing deal for music consumers. Microsoft learned from that and built it into Windows 8, making paid subscription optional in exchange for audio and video ads interspersed with your music. Music subscriptions and premium audio and video ads from the Music app is revenue stream #3 for Microsoft in Windows 8.
There are a host of other ways Microsoft can monetize Windows 8 on a service level. Skype credits to talk to friends overseas (something I’ve already done prior with Skype), now built into the gorgeous new Skype app. Subscriptions for core apps like MS Office (I haven’t purchased Office 365 and it feels like they missed an opportunity in tying that directly into Windows 8) would keep me paying Microsoft a reasonable fee on the monthly basis for my most critical productivity tools. SkyDrive paid storage, for those that exceed the generous free allotment, should be the #1 backup solution touted by Microsoft now with built in OS support, mapped folders and enough free space to get you hooked without giving away enough space to back up all of a digital family’s most important photos, videos and documents.
I think Windows 8 is going to be a cash cow for Microsoft – with 1.5 billion PCs worldwide and 400 million new PCs sold every year, earning recurring revenue from that massive user base could be truly transformative for Microsoft. The latest generation of All-in-one desktop PCs with gorgeous touch screens are very reasonably priced at under $1000. The newest round of laptops, either super-light ultra books or convertible tablets are really attractive and still come in hundreds less than comparable hardware from Apple. Tablet manufacturers finally have a chance to get away from the serious OS-fragmentation that is Android and the introduction of Surface, while I don’t see a massive market for it today, means Microsoft can finally monetize the tablet market that has completely gotten away from it over the last three years. I look forward to monitoring my Movie, App and Media spend with Microsoft over the next year to see if I truly shift dollars away from Amazon, iTunes, Google Play to Microsoft – at this point I don’t see how I could avoid it. Microsoft has released a sexy new operating system while also making itself the #1 recipient of my software and service subscription dollars moving forward.