Windows 10 Week: Why Microsoft won’t hit 1 billion Windows 10 installs

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Windows 10 Week: Why Microsoft won't hit 1 billion Windows 10 installs

At last year’s Build conference, Windows and devices chief Terry Myerson announced one of those "bold ambitions" that Microsoft’s CEO Satya Nadella is so fond of: "Within two to three years of Windows 10’s release, there will be 1 billion devices running Windows 10".

That wouldn’t be just upgrades or even new PC sales; it would include Surface Hub, Xbox One, the upcoming HoloLens and Windows Mobile phones.

Surface Hub was delayed for some months. It took longer than expected to ramp up the brand new factory Microsoft was building in Portland, but they’re shipping now. Xbox One sales dropped in Microsoft’s most recent financial results, but it’s already announced the Xbox One S and Project Scorpio.

HoloLens isn’t on sale yet, but businesses as well as gamers are interested in the promise of mixed reality. But having taken a long, hard look at the smartphone market and the rise of local phone makers in China and India who are taking share from Apple and Samsung alike, Microsoft seems to have decided not to compete in the budget smartphone market where the bulk of device sales are made.

Typically, it's larger businesses that are adopting Windows 10 faster

Shifting goalposts

Talking to investors when Microsoft announced its most recent financial results, Nadella pointed out that Windows 10 has had the fastest adoption rate of any version of Windows (helped no doubt, by the free upgrade offer), but admitted "given changes to our phone plan, we’ve changed how we will assess progress". Microsoft will now report not just how many devices have Windows 10 installed, but in active use, and 2018 is no longer the target.

A Microsoft spokesperson confirmed that to TechRadar. "Windows 10 is off to the hottest start in history with over 350 million monthly active devices, with record customer satisfaction and engagement. We’re pleased with our progress to date, but due to the focusing of our phone hardware business, it will take longer than FY18 for us to reach our goal of one billion monthly active devices. In the year ahead, we are excited about usage growth coming from commercial deployments and new devices – and increasing customer delight with Windows."

There's a steady stream of businesses planning to move to Windows 10 in the next year

With no new phones from Microsoft so far this year (and only a few new models from the OEMs Microsoft is now relying on), phone revenue in their latest financial results was down 71%, and sales have dropped 57% from the previous year.

Microsoft seems to be doing better at bringing Office 365 to iOS and Android than on shifting its own mobile devices.

It’s not that Microsoft is abandoning phones entirely; Terry Myerson confirmed at Build this year that Microsoft is "fully committed" to phones and plans to "do some cool things with phones" but for 2016, they’re important but they’re not the focus that PCs and Xbox and HoloLens are, because they’re not the right place to reach a lot of customers.

The anniversary update to Windows 10 Mobile certainly improves the platform, but it still has a number of rough edges (the previously impressive shape-writing keyboard and Wi-Fi have both been problematic in recent builds).

What businesses like in Windows 10

Bigger in business

Until those new cool things come along, where Windows Mobile is most likely to prove popular is with large businesses like BT, Telefonica and Delta who want to buy phones that they can run the same apps on that they’re building for Windows 10. That’s a reasonable market, but it’s not the same as the huge consumer market for phones.

IDC analyst and VP Al Gillen agrees that phone sales are an issue. "Without a meaningful contribution from Windows Phone, Microsoft won’t get to one billion Windows 10 devices until 2019 or 2020. We project the total to be at about 700 million units by the end of Microsoft’s Fiscal Year 2018, when the company had hoped to get to one billion."

But it’s not quite such bad news for Microsoft as it might sound. While the shift to smartphones and tablets that we’ve been seeing for several years continues, PC sales are also higher than was predicted (and sales no longer include PCs that qualify for the Bing promotions Microsoft had been using to reduce Windows licence prices). Fewer PCs are being sold, but the drop is less than IDC expected; between April and June 2016, 62.4 million PCs were sold worldwide.

Why businesses say they don't want Windows 10

That’s helped Microsoft’s numbers. The recent financial results beat predictions and Windows was partly responsible for that; revenue from consumer versions is up 27% even though PC sales are flat in western Europe and down worldwide.

Microsoft is predicting that it will make as much or more money in the next three months from Windows (or at least from the More Personal Computing division that includes Windows and devices like Surface and phones). The prediction of $ 8.7 to $ 9 billion is close to the $ 8.9 billion it made in April, May and June. And while it’s down from the previous year, when revenue was $ 11.3 billion, the latest results and the predictions for next quarter are only slightly down from $ 9.2 billion this time last year.

In other words, while phones and tablets have changed the world, PCs don’t dominate any more but they aren’t going away either. And that means prospects for Windows 10 are still healthy, says Gillen.

"While this has been spun up as a miss by Microsoft, the reality is the movement to Windows 10 is going especially well, and this product is seeing a faster growth rate (in terms of the percentage of market total) than any previous Windows product.

"For instance, if we look back at Windows 7, one year after release, it accounted for 15% of the worldwide, paid Windows installed base. By comparison, one year in for Windows 10 and it is sitting at 24% of the Windows installed base. By the end of this calendar year, Windows 10 should be at about 33% of the worldwide, paid Windows installed base. Windows 7 didn’t get to 33% until it had been on the market for over two and a half years."

Laptops and desktops are where Windows 10 is a hit

The recent Spiceworks survey shows that the business adoption is a little better than that, especially in larger businesses; while Microsoft says 96% of its business customers have "active pilots", 38% of organizations in the Spiceworks study are running Windows 10 on PCs and tablets, although only 10% on phones. 42% of those are still testing, but 58% have it in active use. They picked it for the better performance, the new features, because their existing OS was out of support – and because the upgrade was free.

How quickly businesses are planning to move to Windows 10 – or not

That makes 62% of businesses in the survey who aren’t running Windows 10; less than half say they won’t switch in the foreseeable future, but 11% will upgrade in the next year, 22% in the next two years and 16% after that – which means a steady trickle of business adoption. Laptops and desktops will get the majority of those upgrades; 34% of tablets and 11% of phones in those businesses will have Windows 10 within a year.

So far, Windows 10 growth has actually been slightly better than what Microsoft would need to get to those billion devices by 2018, but that’s with the free upgrade offer. Without phones, new consumer PCs and business upgrades will make up the numbers.

It will take a couple more years, and two-in-one tablets will be a much bigger part of Windows 10 family than phones, which means you should expect more features that work with pen – like the new Ink workspace – and connect up a much wider range of phones than just Microsoft’s models.

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