In 2015, as Microsoft was preparing to release its Windows 10 operating system, a developer evangelist speaking at a technical session during a company event dropped an eyebrow-raising statement. “Windows 10 is the last version of Windows,” he said. But last week, Microsoft announced an online event to reveal “the next generation of Windows.”
Six years after the remarks, the world’s second-most valuable public company has good reason to change direction. While Microsoft has diversified its business in the past three decades, Windows definitely still matters to the company’s identity and its finances. The corporate logo is still a window.
Here are nine possible justifications for Microsoft’s decision to roll out a major update, which some suspect could be called Windows 11, instead of just another twice-per-year enhancement to Windows 10:
- It’s good for business. Shipping new versions of big products such as Windows has in the past led to increases in Microsoft’s revenue growth rate, the company has said. That has come about in part as a result of people buying PCs with Microsoft software pre-installed by manufacturers. Historically, Windows has had a higher operating margin than the whole of Microsoft, and keeping Windows growing can make the company more profitable.
- Tough comps. The coronavirus benefited PC makers including Microsoft as people rushed to buy computers to work and take classes at home. Technology industry research company Gartner estimated that PC shipments in 2020 grew faster than they had in a decade. That lifted growth rates for Windows license revenue tied to consumer PCs. As a result, Microsoft could release Windows updates that entice people to buy new machines, so that comparing results against the pandemic computer crush doesn’t make for weak presentations to investors.
- The Google threat. The threat from Google’s Chrome OS has arguably never been bigger, as people sprang for low-cost Chromebook laptops running the Google operating system instead of more traditional Windows or Apple macOS computers. According to Gartner, computer makers shipped 11.7 million Chromebooks in 2020. That’s still small compared with the 79.4 million shipments of PCs, but Chromebooks grew 200% while PCs grew about 11%. The challenge facing Microsoft is to entice people to return.
- The Apple threat. Apple has posed a threat to the Windows ecosystem by introducing Mac computers that run its own Arm-based M1 chips, which boast more impressive battery life than Intel-based PCs. Microsoft and other PC makers have come out with Arm-based Windows 10 computers, but software compatibility issues have made the machines hard for reviewers to recommend. Microsoft could improve that situation. “If Microsoft and the PC OEM ecosystem is able to offer a nearly-identical user experience across Windows on x86 and Windows on Arm for the fat tail of productivity applications that really matter for users, plus longer battery life, performance per watt, and 5G (via Qualcomm) approaching that of the M1, we think it would be a big winner for Windows,” Rosenblatt Securities analyst John McPeake, who has a buy rating on Microsoft stock, wrote in a note distributed to analysts on Thursday.
- Boosting Surface. It’s not nearly as big as Windows or other Microsoft franchises such as Azure and Office, but Microsoft still sells its own line of Surface PCs that could be made more intriguing on shelves. Surface revenue grew more than 30% in the second and third quarters of 2020, but that’s still far from Chromebook-style growth. A reinvigorated Windows might make consumers take a second look at the Surface Pro convertible tablet, whose basic hardware design hasn’t changed all that much since its 2012 debut.
- Getting older. By pumping out two Windows 10 updates per year, Microsoft is making sure the operating system is staying fresh. It’s still almost 6 years old, which means it’s been around longer than any of its predecessors.
- Enhancing the brand. A fresh 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 might feel that innovation at the company is alive and well, and that might make them more willing to pay for other Microsoft products, such as Office productivity software subscriptions.
- Developers. If Windows gets revamped, software developers might want to bring their software to the operating system to capitalize on renewed public attention. “Windows, of course, succeeded in large part because developers chose to build their applications for Windows,” Chris Capossela, Microsoft’s chief marketing officer, said during a conversation with Evercore analyst Kirk Materne on Monday. The company could benefit by getting more hot properties into its app store for Windows. If people spend more time in the store, they might 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 alerts about software updates. “Our aspiration with Windows 10 is to move people from needing to choosing to loving Windows,” Microsoft CEO Satya Nadella told analysts on a conference call days before the company released the operating system in 2015. A documentation page on Microsoft’s website says that “Windows 10 has a much higher Net Promoter score than Windows 7.” That means users are more likely to recommend Windows 10 to friends or colleagues. It’s a positive development, but it doesn’t mean that Microsoft has achieved Nadella’s Windows nirvana.