With the arrival of Windows 10, phones, tablets, PCs, and Xbox One consoles can all download apps from its universal app store. This strategy leverages Microsoft's (NASDAQ:MSFT) strength in PCs to increase the number of apps for weaker platforms like tablets and phones.
However, Microsoft plans to expand that "One Windows" app ecosystem beyond its own walls by encouraging Android and iOS developers to port their apps to Windows with a tool known as "Windows Bridge." Windows Bridge for Android remains in a private beta, but the iOS version recently entered its first public preview. Microsoft expects the final versions to be launched in the fall.
Microsoft's app problem
In the past, Microsoft's app strategy was a mess. It had one app store for Windows Phones, and another one for Windows 8/RT devices.
This was further complicated by the fact that Windows RT devices, which ran on ARM-licensed processors, couldn't run older Windows software for x86 devices. Due to the fact that Windows Phones, Windows 8, and Windows RT were all unpopular operating systems, developers shunned Windows apps.
At the beginning of 2015, the combined Windows Store had 560,000 apps, compared to over 1.4 million apps in Apple's App Store and the Google Play Store. Apple and Google both take a 30% cut of sales, while Microsoft retains 20% to 30%, depending on cumulative sales.
Last quarter, Microsoft reported that its Windows OEM revenue declined 22% annually, or $683 million, due to PC market declines and anticipation for the launch of Windows 10. Since that slump will likely continue with free Windows 10 upgrades, Microsoft can use app store revenues to slightly offset those declines.
Apple reported that its apps generated over $10 billion in revenue for developers in 2014 after it took its 30% cut, or about $4.3 billion. Last June, Google stated that it paid over $5 billion to developers over the previous 15 months, implying that it retained roughly $2 billion.
Microsoft doesn't disclose exactly how much revenue its Windows Store generates. But based on Windows Phone's 3% market share in smartphones and Windows 8/8.1's 16% share in PCs, it probably isn't a meaningful figure yet. But if Windows 10 consolidates the Windows market and blurs the lines between PCs and mobile devices, that figure could rise.
Microsoft CEO Satya Nadella recently claimed that Windows 10 will be installed on one billion devices within the next three years. That's a big figure, but we should remember that Apple sold its billionth iOS device back in January, and annual Android shipments topped one billion last year. However, Nadella's declaration likely got the attention of developers, who can now bring their apps to Windows phones, tablets, PCs, and Xbox consoles with Windows Bridge.
Microsoft's strategy is clever, but it also has some obvious weaknesses. Many touch-screen apps won't work well on non-touch PCs or Xbox Ones. Mobile apps would also look terrible on large monitors and TVs if they're stretched out without boosting the resolution.
Unless those apps are carefully optimized and approved, the Windows Store could be flooded by low-quality apps. This already happened once, after Microsoft offered $100 for apps submitted to the Windows Store in 2013. As a result, Microsoft spent the following two years clearing out poor apps and tightening up its approval standards.
A solid start
Microsoft probably won't close the "app gap" with Apple and Google in the app store anytime soon, but launching a universal app store for Windows 10 and simplifying the conversion process are clearly steps in the right direction.
Instead of exposing its weaknesses with a confusing app store for its unpopular phones and tablets, it's highlighting the strength and simplicity of a "One Windows" ecosystem. These moves could generate additional app revenue and help Microsoft gradually reduce its dependence on Windows licenses.
Leo Sun owns shares of Apple. 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.