The adoption rate of Microsoft's (NASDAQ:MSFT) Windows 10 is already slowing down according to recent numbers from StatCounter. The firm claims that on a weekly basis, Windows 10's global market share rose 31% for the week ending on August 9, down from 177% growth the previous week. That steep decline prompted The Register to claim that Windows 10 growth had "flattened out".
Source: Microsoft.
A closer look at the numbers
On the bright side, Windows 10 claimed nearly 5% of PC operating systems worldwide, with 53 million downloads in just three weeks. This gives Windows 10 a larger market share than Windows 8, Windows Vista, Mac OS X 10.10, and Linux. However, Microsoft still has a long way to go to reduce fragmentation across the Windows market.
Windows 7 still accounts for 53.5% of the PC market, Windows 8/8.1 controls 17.5%, and 9.7% of users are still clinging onto XP. Windows 7 has been very resilient, with its percentage of users remaining unchanged for the week. Windows 8.1's share fell the fastest, ceding more than one percentage point to Windows 10.
ITProPortal estimates that Microsoft needs to whittle Windows 7's market share down to 30% by the end of the year to ensure that its updates reach as many users as possible. That would also keep Microsoft on track to achieve its goal of installing Windows 10 on a billion devices within three years.
Is Windows 10 veering off course?
That goal relies heavily on sales of new PCs instead of upgrades, which can be both a blessing and a curse.
According to Gartner's estimates, 933 million new PCs will be shipped worldwide between 2015 and 2017. If Microsoft can maintain its 90% share of the PC market, we can assume that 840 million devices worldwide will run Windows 10 by the end of 2017, since new Windows PCs will come with Windows 10 pre-installed. Microsoft claims that various versions of Windows are installed on 1.5 billion PCs worldwide. If just over 10% of those older machines are upgraded to Windows 10, the OS could easily cross the one billion mark in three years.
Therefore, Microsoft's plan relies less on reducing fragmentation on existing machines, and more on older PCs being replaced. Therefore, conversion rates of Windows 7 and 8 users today don't matter that much in the long run.
Spot the red flags
However, the success of Microsoft's three-year plan depends on two constants -- that PC sales remain in line with forecasts, and that OEMs sell their newest devices with Windows 10 pre-installed.
Yet research firms like Gartner and IDC both recently revised their long-term forecasts for the PC market. In July, Gartner lowered its full-year growth forecast for global shipments of all devices (PCs, tablets, and phones) from 2.8% to 1.5%. It also expects PC shipments to fall 4.5% annually this year. In March, IDC trimmed its full-year forecast for the PC market from a decline of 3.3% to 4.9%.
Source: Pixabay.
Gartner also doesn't expect Windows 10 to fuel higher demand for PCs. Instead, Gartner director Ranjit Atwal expects Windows 10 to cause "slowing professional demand for mobile PCs and premium ultramobiles in 2015". Atwal believes that users will simply upgrade their older systems to Windows 10, thus extending the current upgrade cycle of PCs "by three months".
Windows 10 has also been hit by numerous hardware and software problems since its launch, and recent reports indicate that Microsoft might hunt down and disable pirated games installed on the OS. Those concerns, along with serious privacy issues, could convince some OEMs to postpone upgrades to Windows 10. Sony, for example, recently told VAIO owners to hold off on installing Windows 10 until it updated its drivers. Sony no longer sells VAIO PCs, due to the unit's spin-off last year, but it still supports the devices.
What to look out for
Microsoft investors shouldn't fret over Windows 10's week-to-week market share growth or OS conversion figures. Instead, they should pay attention to the long-term health of the PC market and potential hurdles to OEM adoption. If Gartner or IDC lower their PC sales forecasts again, or other PC makers delay Windows 10 upgrades, Microsoft could have a tougher time hitting its target of a billion devices.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool owns shares of 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.
