Windows 8 Has Strong Start Despite Worries

The newly appointed Chief Marketing Officer and Chief Financial Officer of Microsoft’s (NASDAQ:MSFT) Windows division, Tami Reller, announced that the company has sold approximately 40 million Windows 8 licenses during its first month of launch. Reller believes that Windows 8 is keeping pace to match sales of Windows 7, which sold approximately 670 million licenses worldwide. ^[1]

Overall, we think these figures should put to rest some concerns from investors about the popularity of the Windows 8 operating system. We think that the company has taken a step in the right direction with the Windows 8 OS. We also expect sales of Windows 8 to benefit the Microsoft ecosystem across platforms and help boost Microsoft services such as Bing. 

See our complete analysis of Microsoft here

User Interface Success

One key information that came out of Tami Reller’s statements was the fact that the new Metro UI (user interface) on Windows 8 has been relatively successful. Reller said, Microsoft has logged 1.5 billion actions on the new user interface, showing that consumers have successfully made the transition from the traditional Microsoft interface to the new tile-based Windows 8 UI.

Another plus point is that customers are personalizing their start screen by adding applications to the platform. For example, an average customer added 19 tiles to their start screen within the first three weeks of using their Windows 8 PC. If we assume that all 40 million licenses were in use and all the tile additions were done via the Windows store, it meas that 760 million applications have been downloaded from the Windows store during this time period. We think these figures should subside some of the worries that Microsoft investors have about the popularity of Windows 8.

Convertible PC Appeal to Consumers

In our opinion, the competitive advantage that Windows 8 has is its touch screen compatibility. This feature has prompted original equipment manufacturer’s such as Acer and Lenovo to release touch screen laptops, a feature that isn’t yet matched by Apple’s (NASDAQ:AAPL) Macbooks.

We think that the touch screen feature is extremely appealing to consumers torn between the decision to buy a laptop or a tablet. With a convertible laptop to tablet, users can take advantage of both features carrying around a portable machine with both productivity and consumption in mind. We think that this line of products can result in drop in tablet sales over the longer term if laptops continue to get thinner and faster. This could spell trouble for tablet manufacturers as users could opt to buy a small laptop which converts to a tablet versus buying a standalone tablet. If this materializes, we could see PC sales increase faster than our forecasts, consequently providing an upside to our current price estimate for Microsoft.

Benefit To Bing

Another major beneficiary of Windows 8’s success is likely to be Microsoft’s search engine, Bing. At present, the search engine has struggled to capture substantial market share, which stood at around 4% globally in 2011.

While we don’t yet have data on market share for searches done on Windows 8, we estimate that Bing has higher market share on Windows 8 when compared to its market share on PCs overall. This is the case because Bing is the default search engine on the OS, which has an effect on the choice of search engine used by consumers, especially in tablet mode. Bing has done a good job with its Windows 8 app, creating a faster search experience with a new easy to use tile interface, both of which improve its usability among consumers. We will have to wait for Microsoft to release specific numbers for Bing, but we believe an increase in market share is likely.

We currently have a $42 price estimate for Microsoft which is approximately 50% above the current market price.

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1. Microsoft: 40 million Windows 8 licenses sold, PC World [↩]