Can stodgy Microsoft reinvent itself?

  • Article by: THE ECONOMIST
  • Updated: October 28, 2012 - 5:41 PM

The company hopes that Windows 8 will be a winner on smartphones and tablets.

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A model displays a laptop computer running Microsoft Windows 8 operating system during a launching ceremony in Hong Kong Friday, Oct. 26, 2012. Microsoft launched a radical redesign of its world-dominating Windows operating system, introducing a touch-enabled interface that attempts to bridge the gap between personal computers and fast-growing mobile devices powered by the company's fiercest competitors.

Photo: Kin Cheung, Associated Press - Ap

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"It truly is a new era at Microsoft," gushed Steve Ballmer, the giant software company's CEO, in his October letter to shareholders. For once, such grandiloquence seems justified.

On Friday Windows 8, the newest version of Microsoft's operating system for personal computers, was released. It looks very different from past editions. It is designed for touchscreens on both PCs and tablets, and it can run on processors designed by ARM, a British company whose allies dominate mobile devices, as well as on chips made by Intel, Microsoft's long-term partner.

Also on sale will be the Surface, a tablet-cum-PC bearing Microsoft's own brand. A version of Windows 8 for smartphones is due on Monday.

Whether the new era will be a successful one is an open question. What is not in doubt is how much is at stake for Microsoft. In its past financial year, its Windows division accounted for about a quarter of its revenue of $73.7 billion. Three-quarters of that came from sales of Windows to PC-makers for installation on new desktops and laptops.

That market has slowed, however. In the first three quarter of this fiscal year, shipments of PCs fell by 8.6 percent, according to IDC, a research firm. The drop largely reflected a clearing-out of stocks by PC-sellers before Windows 8's arrival, as well as the shakiness of the world economy.

People are doing more and more computing on the go, using tablets and smartphones. Apple rules the tablet market, although devices powered by Google's Android operating system have been taking a bigger share. Android devices account for most of the volume, while Apple's iPhone scoops most of the profit.

Windows has a tiny share of smartphones, and in tablets it is invisible. If you lump these in with PCs, says Frank Gillett of Forrester, another research company, Microsoft's share of personal-computing devices drops to only 30 percent.

Microsoft's plan has several parts, starting with the transformation of Windows into a system for touchscreens. "Tiles" replace the icons that have cluttered screens since Windows 95 appeared 17 years ago.

At the same time, Microsoft is taking a leaf out of Apple's book by making and selling its own devices. Although lots of devices will be available, Tami Reller, chief financial officer of the Windows division, calls the Surface "the perfect stage for Windows 8."

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