Sometime in early 2014, Microsoft (NASDAQ:MSFT) will appoint the third CEO in its history, and the first that was not part of the original founding team. Microsoft has been transitioning into a devices and services company, and the next CEO will have the tough job of maintaining Microsoft's dominance in its core businesses while adapting to the changing technological landscape. 2014 will be an important year for Microsoft, and here's why.
Windows 8 was released about 14 months ago, and in that time the operating system has been slow to be adopted. On the PC side, users of Windows 7 have little reason to upgrade, and likely won't until a new machine is purchased. On the tablet side, up until recently there simply weren't any decent, affordable Windows 8 tablets available to consumers. This changed at the end of 2013, with Intel releasing its energy efficient Bay Trail processors, and 2014 should see more budget-friendly Windows 8 tablets and convertibles hit the market.
On the consumer side, there's no doubt that Windows will continue to dominate desktops and most laptops. Low-end laptops are threatened both by tablets and Google's (NASDAQ:GOOGL) Chromebooks, which have reportedly been selling well recently, although not as well as some headlines would lead you to believe. Microsoft needs to have Windows 8 devices priced competitively with Android tablets and Chromebooks, and currently there are just a handful. There should be more in 2014, with the upcoming International CES tech conference likely to lead to some announcements by OEMs.
On the enterprise side, Microsoft has a big advantage. Since almost all enterprise computers run Windows already, integrating Windows 8 mobile devices makes more sense than using Android tablets or iPads. Microsoft's PC dominance should leak into the tablet market, helping the company fight off Google and Apple in the enterprise.
A recent survey done by Bernstein Research suggests that demand for Windows 8 tablets in the enterprise is getting stronger. 81% of CIOs surveyed are either issuing or planning to issue Windows tablets, up from just 56% six months ago. The release of the first major update to Windows 8, Windows 8.1, as well Bay Trail's efficiency leading to a long battery life for Windows 8 devices, are likely the root causes of this increase in demand. Only 15% of CIOs plan to issue Android tablets, down from 23% six months ago, a big blow to Google's enterprise ambitions.
Smartphones are the last piece of the puzzle for Microsoft, and significant progress was made in 2013. While adoption of Windows Phone in the United States has been slow, Europe and Latin America have been strong markets for Microsoft. In Europe's five biggest markets, Windows Phone has surpassed a 10% market share, significant growth compared to a year ago. With Apple only selling high-priced iPhones, it seems inevitable that Windows Phone will eventually become the number two smartphone OS in the world.
With the acquisition of Nokia's phone operations, Microsoft has put itself in the position to push the Windows Phone platform without having to rely on OEMs to make quality devices. At the same time, Microsoft is reportedly offering incentives to phone makers, with Sony considering launching a Windows Phone as early as this year.
While 2014 may not be the year that Windows Phone finally breaks through in the United States, worldwide growth of the platform should continue. Windows Phone now has over 200,000 apps, still far less than Android or iOS, but the "app gap" is quickly closing. This lack of apps has been one of the major complaints about the platform so far, and the progress in that area is encouraging.
The bottom line
With Intel finally offering chips which make low-cost Windows tablets and convertibles a reality, Windows 8 should begin to find itself on an increasing number of affordable mobile devices. Enterprise adoption is key, and demand going into 2014 looks strong. Consumer adoption may be slower, but as more devices roll out I expect Windows 8 to begin gaining share in the tablet market. For Microsoft, 2014 will be the year that both Windows 8 and Windows Phone finally break through.
Timothy Green owns shares of Microsoft. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.