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Why Microsoft is Releasing a New Version of Windows

Satya Nadella, CEO of Microsoft Corp. speaks at an event in San Francisco, California, USA, on Thursday, March 27, 2014. Nadella unveiled Office software for Apple Inc.’s iPad and describes how he plans to more aggressively push corporate applications on rival platforms after Windows to mobile devices did not get hold of.

David Paul Morris | Bloomberg | Getty Images

As Microsoft was preparing to release its Windows 1

0 operating system in 2015, a developer evangelist speaking at a technical session during a corporate event dropped an eyebrow-raising statement. “Windows 10 is the latest version of Windows,” he said. But last week, Microsoft announced an online event to unveil “the next generation of Windows.”

Six years after the remarks, the world’s second most valuable public enterprise has good reason to change direction. While Microsoft has diversified its business over the past three decades, Windows certainly still matters to the company’s identity and its finances. The company logo is still a window.

Here are nine possible reasons for Microsoft’s decision to roll out a major update, which some suspect could be called Windows 11 instead of another twice-yearly improvement to Windows 10:

  • It’s good for business. Shipment of new versions of major products like Windows has previously led to increases in Microsoft’s revenue growth, the company says. This is partly due to the fact that people buy PCs with Microsoft software pre-installed by manufacturers. Historically, Windows has had a higher operating margin than the whole of Microsoft, and by keeping Windows growing, it can make the company more profitable.
  • Tough comp. Coronavirus benefited PC makers, including Microsoft, as people rushed to buy computers for work and take classes at home. Technology industry research firm Gartner estimated that PC shipments in 2020 were growing faster than they had in a decade. It raised the growth rates for Windows license revenue linked to consumer PCs. As a result, Microsoft was able to release Windows updates that entice people to buy new machines, so comparing results with pandemic computer crashes does not give weak presentations to investors.
  • The Google threat. The threat from Google’s Chrome OS has undoubtedly never been greater, as people jumped for cheap Chromebook laptops running the Google operating system instead of more traditional Windows or Apple macOS computers. According to Gartner, computer manufacturers shipped 11.7 million Chromebooks in 2020. That’s still small compared to the 79.4 million shipments of PCs, but Chromebooks grew 200%, while PCs grew about 11%. The challenge for Microsoft is to entice people to return.
  • The Apple threat. Apple has posed a threat to the Windows ecosystem by introducing Mac computers running its own arm-based M1 chips, which boast more impressive battery life than Intel-based PCs. Microsoft and other PC manufacturers have come out with arm-based Windows 10 computers, but software compatibility issues have made the machines difficult for reviewers to recommend. Microsoft could improve this situation. “If Microsoft and the PC’s OEM ecosystem are able to offer an almost identical user experience across Windows on x86 and Windows on Arm to the fat tail of productivity applications that really matter to users, plus longer battery life, performance per “Watt and 5G (via Qualcomm), which are approaching M1, we think would be a big winner for Windows,” wrote Rosenblatt Securities analyst John McPeake, who has a buy rating on Microsoft shares, in a note that was distributed to analysts Thursday.
  • Boosting Surface. It’s not nearly as big as Windows or other Microsoft franchises like Azure and Office, but Microsoft is still selling its own line of Surface PCs that can be made more exciting on the shelves. Surface revenue grew more than 30% in the second and third quarters of 2020, but it is still far from Chromebook-style growth. A refreshed Windows may make consumers take another look at the Surface Pro convertible tablet, whose basic hardware design hasn’t changed that much since its 2012 debut.
  • Getting older. By pumping out two Windows 10 updates a year, Microsoft keeps the operating system fresh. It is still almost 6 years old, which means that it has existed longer than any of its predecessors.
  • Improving the brand. A brand new Windows could help with the company’s overall perception. Windows 10 is the world’s most popular operating system with over 1.3 billion devices using it. If the company can persuade users that the operating system is evolving, they may feel that innovation in the company is alive and well, and it may make them more willing to pay for other Microsoft products, such as Office productivity software subscriptions.
  • Developers. If Windows is modernized, software developers may want to bring their software to the operating system to take advantage of renewed public attention. “Of course, Windows was largely successful because developers chose to build their applications for Windows,” said Chris Capossela, Microsoft’s marketing manager, during a conversation with Evercore analyst Kirk Materne on Monday. The company could benefit from getting more hot properties in its app store for Windows. If people spend more time in the store, they may also spend more money in the store.
  • The pursuit of perfection. There is still room to improve parts of Windows 10, which annoys some users with product promotions and software update alerts. “Our ambition with Windows 10 is to move people from the need to choose to love Windows,” Microsoft CEO Satya Nadella told analysts at a conference call days before the company released the operating system in 2015. A documentation page on Microsoft’s website says “Windows 10 has a much higher Net Promoter score than Windows 7. “This means users are more likely to recommend Windows 10 to friends or colleagues. This is a positive development, but it does not mean that Microsoft has achieved Nadella’s Windows nirvana.

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