Microsoft's (NASDAQ:MSFT) Windows 9, which will reportedly be released in April 2015, could be the make-or-break product that could define the future of the tech giant.
It will also make Windows 8 the shortest-lived operating system in Microsoft's history with a lifespan of just two and a half years. Its predecessor, Windows 7, lasted for three years before being succeeded. Even the much-maligned Vista lasted for two years and nine months before being replaced.
Confirmed details about Windows 9 are scarce, but a report from Neowin suggests that Windows 8 users will receive the Windows 8.1 Update 2 in August or September, followed by a possibly free upgrade to Windows 9 for Windows 8.1 users next year.
Although the notion of Microsoft completely abandoning its traditional Windows business model of paid upgrades seems extreme, CEO Satya Nadella has already made some unconventional decisions, such as launching Office for Apple's (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android devices. However, Windows 9 will have to overcome three major challenges before it can win over new users.
1. Windows 7 is 'good enough'
Microsoft tried to boost Windows 8 sales in the past with a $39.99 upgrade offer for Windows XP, Vista, and 7 users last year. Customers who purchased Windows 7 after June 2, 2012, were eligible to upgrade to Windows 8 for $14.99. Those customers received the Pro version of Windows 8, which has a retail price of $199.99 per PC.
That effort wasn't as successful as Microsoft had hoped. Windows 8 and 8.1 still only control 12.6% of the OS market worldwide, according to Net Market Share. Its predecessors are far more popular -- Windows 7 controls 50%, while Windows XP still has 25%. Microsoft's Windows offer, along with similar upgrade offers for Office and deals to secure exclusive video games, contributed to $1.66 billion in deferred revenue last quarter and shaved $0.16 off the company's diluted earnings per share.
Microsoft's biggest problem is that Windows 7 is now considered the "new Windows XP." Windows 7 users who feel that the OS is simply "good enough" won't voluntarily upgrade unless they purchase a new PC with Windows 8 pre-installed. The chance of that happening has fallen dramatically due to sluggish PC sales. IDC forecasts that global PC sales will fall 6% year-over-year in 2014, then continue declining through 2018. However, IDC expects global tablet sales to rise 12% in 2014.
As a result, Windows 9 will have a tough time carving out a niche between Windows 7, XP, and Vista when it arrives next April. Even if Microsoft offers Windows 9 as a free upgrade for Windows 8/8.1, it could be as poorly received as its previous upgrade discounts for Windows XP, Vista, and 7 users.
2. The Surface design dilemma
A shrinking PC market and growing tablet market won't necessarily seal Microsoft's fate, but Microsoft has proven repeatedly that it simply doesn't understand the tablet market.
Its first mistake was Windows RT, its "tablet" operating system for ARM processors. RT's fatal flaw was that it was incompatible with Windows software from older versions like XP and Windows 7, rendering it nearly useless as a productivity device. It could also only install apps from the Windows Store.
That leads into Microsoft's second big mistake -- the Surface. Windows RT was launched as a way for Microsoft to sell a cheaper version of the Surface. Unfortunately, neither the Windows RT nor the Windows 8 version of the Surface was well received, resulting in $1.2 billion in losses for Microsoft.
The Surface represents the sharp rift in Microsoft's OS design philosophy. On one hand, it is optimized for touch screens with its Modern/Metro UI, but on the other hand, it wants to be a productivity machine.
Windows 9 could suffer this same identity crisis. ZDNet's Mary Jo Foley recently stated that there will be three versions of Windows 9: a traditional one, a touch based one, and an enterprise edition. The enterprise edition reportedly includes the ability to completely disable the Modern UI, while other reports claimed that the Start Button will finally return to the desktop UI.
3. 'One Windows' is a dangerous dream
Microsoft is a victim of its own legacy. Its operating system is built upon decades of aging software compatible with different versions of Windows. Entire businesses and countries depend on Microsoft to continue supporting this fragmented universe of operating systems with security updates.
Google has a key advantage in this department because it expanded into operating systems much later than Microsoft -- first with Android in 2008 and then with Chrome OS in 2011. There weren't decades of legacy features to fret about, so Google was able to easily unite its smartphone, tablet, and Chromebook ecosystems over the cloud.
That kind of unity is Microsoft's goal with its new "One Windows" philosophy. However, customers don't always need their home computers and mobile devices to access the exact same ecosystem of apps. Apple, for example, proved that two separate systems work fine on its Mac and iOS platforms.
In my opinion, Windows Phones, tablets, and hybrids belong in a single ecosystem, while productivity laptops and desktops belong in the other. Microsoft has blurred this distinction with Windows RT and the Surface, which actually do more harm than good by frustrating both mobile and PC users. Therefore, Windows 9 must clearly appeal equally to the demands of both groups with distinct OS versions, or risk getting crushed in the middle like Windows 8.
The Foolish takeaway
In conclusion, I think Microsoft should tread carefully with Windows 9. It could be an excellent opportunity to atone for the mistakes of Windows 8, but it could also be a fatal misstep if it tries to accomplish too many things at once.
Microsoft needs to temper its dream of unifying the desktop and mobile markets, focus on creating clearly defined operating systems for both markets, and stop letting the Surface dictate its OS design if it wants Windows 9 to succeed.
Leo Sun owns shares of Apple and Google (C shares). The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.
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