Market share for Microsoft's (NASDAQ:MSFT) latest operating system Windows 8 is going in the wrong direction.

In July, the two versions of the operating system, Windows 8 and Windows 8.1, ran on 12.5% of desktops and laptops globally, according to Net Applications. That's a .06-percentage-point drop since June. That followed a .1-percentage-point decline the month before, which marked the first time the OS had lost market share since its launch in October 2012. Windows powers about 92% of all desktops and laptops.

In July, Windows 8 ran on 13.6% of all Windows-based PCs. At the same point in its life cycle, the much-derided Windows Vista was running on 14.3% of all Windows-based PCs, according to a story by Computerworld's Gregg Keizer.

Vista, of course, was a famous misstep for the company that likely hastened the development of its successful successor, Windows 7. It's hard to imagine how holding lower market share during the same point in its life cycle can be seen as anything other than a disaster for Windows 8. The results look even worse when you add in the fact that Microsoft dropped support for Windows XP -- which around a third of all Windows machines were still running -- largely to force customers to use Windows 8.

Why is Windows 8 failing?
People don't like Windows 8 because it's a massive change from previous versions of the software.The OS dropped the familiar Windows interface in favor of an icon-based one closer to the operating system on an Apple iPad. The company did offer a back door to the familiar starting screen, but even that lacked the apparently beloved Start Menu. Windows 8 is also optimized for a touch-based computer, which many PC users do not have. Using it without touch can be awkward and less than intuitive.

The criticism for Windows 8 has been harsh, and in some cases undeserved. The OS packs in a lot of added functionality. That has not stopped some from calling for Microsoft to put its wounded product out of it misery.

"It's time to essentially pull the plug on Windows 8," wrote ComputerWorld's Preston Gralla in a blog post analyzing his colleague's piece. "I don't mean abandoning it or giving up support for it. I mean not bothering to spend marketing dollars on it beyond the necessary basics, and not spending development time on it than required bug fixes and security patches. It's clear that Windows 8 is an ongoing bust and can't be saved. It's time for Microsoft to focus on Windows 9."

Dropping Windows 8 may be premature, but Microsoft has not been blind to its failures. 
What moves is Microsoft making?
The company took some steps to make the product more consumer-friendly when it launched the first major update to the OS, Windows 8.1. Those changes did not go far enough for most users and did little, if anything, to change the trajectory for the OS.

Microsoft will release more updates, possibly returning the Start Menu. That change won't be in the update coming later this month, however, and it's possible it gets pushed back to the eventual launch of Windows 9.

Bringing back the traditional look and feel of Windows while offering the added benefit of what used to be called the "Metro" interface -- the screen with the tiles and apps that people seem to dislike -- should make the OS closer to what people want. It remains to be seen whether Microsoft can change the perception of Windows 8, or should just move on with the next model.

Customers see Windows 8 as hard to use, and they have avoided it aggressively. But it's not that difficult, and Metro has a lot of pluses once users grow comfortable with it. This may be a case where reality does not matter. The Windows 8 brand is tainted, and it may not be fixable even if the product is.

How much does Windows 8 matter?
Whether it fixes the problems via a Windows 8 update or waits until the release of the still-in-development Windows 9, it's important to the health of the company to stop the bleeding.

Despite the poor start for Windows 8, the Windows division has generated more than $18 billion in revenue for each of the past three years, according to Microsoft's 2013 annual report.

With added pressure to the OS coming from Google's Android and Chrome operating systems, as well as Apple's offerings, the company has less time to correct its course than it did when it was the only game in town. 

Can Microsoft turn it around?
The past has shown that the Windows brand can survive one bad product cycle. Windows Vista was a bomb, but customers came back for Windows 7.

Windows 8 is not a bad product. It might just be the right OS at the wrong time. Microsoft is right that we're moving toward a touch-based world where customers will want one OS whether they are using a desktop, laptop, tablet, or phone. The problem is that day has not arrived yet.

Until that time comes, Microsoft needs a forward-looking OS that works well on the computers its customers are using now. It's certainly possible to do that under the Windows banner, even if it's too late for Windows 8.

The OS may be a failure, but it's a failure that lays the groundwork for future success. Apple bombed with the Newton, another product doomed by being ahead of its time. But in many ways, that failure led to the iPhone, which led to the iPad, which is essentially Newton 2.0. Microsoft could do the same, and Windows 8 could be a necessary step on the road to building a better operating system.