Is Microsoft Corporation Setting Itself Up for a Huge Win -- or a Massive Mistake?

Microsoft will let support for its hugely popular Windows XP platform lapse in April. Is this a big mistake or a clever growth strategy?

Jan 27, 2014 at 2:00PM

Microsoft (NASDAQ:MSFT) will stop supporting its massively popular Windows XP platform after April 8, ending a stellar 12-year run for the aging system. There are no ifs, ands, or buts about it: Software updates and other technical assistance for Windows XP will simply no longer be available.

You might think it a purely academic problem. What computer user in their right mind would still cling to XP more than a decade after its original launch? Microsoft has moved on to Windows Vista, Windows 7, and now Windows 8. Even the first version of Vista had its security and functionality updates shut off three years ago!

But XP is still run on nearly 30% of all PC systems, according to recent research from Netmarketshare:

The research firm bases its numbers on how often each operating system is used to access its sample of real Web pages. From this angle, Windows XP remains the second-most popular platform today, far ahead of Windows 8 or Apple (NASDAQ:AAPL) OS X systems, and second only to Windows 7.

Keep in mind that Microsoft doesn't want us to move into Windows 7. The end of XP support is supposed to push everyone into Windows 8. This event should -- in theory -- trigger an epic upgrade cycle to Microsoft's latest and greatest software.

That's the potential upside of this move. If consumers and corporate buyers react like they're supposed to, you should see the XP slice of that pie chart shrinking while the Windows 8 and 8.1 portions explode.

But what if Windows 8 is unloved for a reason? What if Windows 8 (and all its variants) goes down in history as a rerun of the Windows Vista debacle?

It's entirely possible that former XP users will go a different route than Microsoft's preferred option. Keep in mind that people who still stick with Windows XP today might not be the most sophisticated computer-users on the planet and that Windows 8 is a radically new experience. The question of better or worse might not even factor into the decision, so long as the learning curve for the replacement system isn't too steep.

Apple could see a surge in Mac sales as disappointed XP fans look for another user-friendly platform -- and Apple's systems are billed as the biggest no-brainer upgrade out there. Corporate users could swing over to Linux systems, leaning on years of Linux system vetting and adoption, rather than throwing resources into exploring a new and radically different Windows 8 platform. For investors, this vector would be a big catalyst for Linux veteran Red Hat (NYSE:RHT), with smaller handouts going to other Linux vendors.

Microsoft might end up with higher Windows 7 sales, rather than the pricier and heavily criticized Windows 8 version. Windows 7 still looks and feels a lot like XP, and it certainly looks more familiar than Windows 8's Metro design. Redmond has so far refused to move back to the old desktop-based model, favoring Metro's big, touchscreen-friendly tiles, and that looks like a big mistake.

Plenty of XP users will probably shrug and move on -- now exposed to the horrors of unpatched security holes. Hackers have seen this event coming from a mile away, and they may have saved some of their dry powder to use in this new era of unprotected XP computing. The PR backlash could be huge when 30% of all desktop PCs suddenly run into brand-new hacking threats with no protection from Microsoft's automatic updates. Again, keep in mind that we're talking about lots of unsophisticated users and some corporate systems that simply cannot be upgraded. Virus scanners and malware protection may be entirely new concepts to many of them.

You may have figured out where I think this story is going next based on the column inches given to the upside and downside alternatives. Indeed, I'm afraid Microsoft is setting itself up for a huge mistake here.

It could be healed in at least two ways -- push the XP expiration date back another few years and wait for those aging computers to die a natural death, or make an XP-style interface the default experience in Windows 8 -- but I'm not holding my breath waiting for either one. And Microsoft is too busy looking for its next CEO to really focus on making its most important product win again.

MSFT Chart

MSFT data by YCharts.

So, Microsoft has underperformed the Dow Jones Industrial Average (DJINDICES:^DJI) since Windows Vista was introduced. Be prepared for another few years of Microsoft losing to the Dow as this story plays out, including a big drop in April when the hammer actually falls on XP to trigger the final catalyst.

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Fool contributor Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days.

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