Microsoft (MSFT 2.44%) recently revealed some key growth figures and new Windows 10 devices at IFA 2015 in Berlin. Let's discuss three key things we learned from the keynote presentation, and how they might affect Microsoft's future.
Source: Microsoft.
The numbers sound big, but they aren't
Microsoft stated that within its first month, Windows 10 had reached 75 million devices across 90,000 unique products in 192 countries. The company also declared that about a billion out Microsoft's 1.5 billion Windows users now regularly use Microsoft services.
Microsoft believes that Windows 10 will reach 509 million new devices within the next year, keeping it on track to reach a billion devices within the next two to three years. The company believes that the eventual upgrade of PCs worldwide will propel it toward that figure, since 600 million PCs worldwide are now over four years old.
Microsoft's numbers sound impressive, but they're actually fairly conservative. Gartner forecasts that PC manufacturers will ship 933 million devices -- most of them running Windows 10 -- over the next three years. Adding in upgrades of older PCs, new phones, tablets, and Xbox One consoles should help Windows 10 easily reach over a billion devices.
Education, business, and gaming
Microsoft also highlighted the growth potential of Windows 10 in the education, enterprise, and gaming markets. On the education front, Microsoft hopes that cheaper Windows 10 devices, like the Acer's $169 Aspire One Cloudbook, can help it widen its defensive moat against Google's (GOOG 2.49%) (GOOGL 2.30%) low-priced Chromebooks. Gartner expects global shipments of Chromebooks, which are often integrated with Google Apps for Education, to rise 27% annually this year and buck a 4.5% decline in shipments across the entire PC market.
In the enterprise market, Microsoft believes new security features will encourage businesses to upgrade aging devices running outdated versions of Windows. Windows Hello, for example, lets users unlock their devices with facial recognition hardware. New authentication technologies should also make Windows 10 more secure than its predecessors.
As for gaming, Microsoft declared that over 122 cumulative years of Xbox gameplay had been streamed to Windows 10 PCs via its new game streaming feature. It also showcased the DVR function of the Xbox app on Windows 10, which lets gamers record game clips and share them on Xbox Live, YouTube, and other places. It also showcased Asus' $1,399 Rog G752, a Skylake-powered gaming notebook with a 17" 4K display.
Asus' Rog G752. Source: Asus.
"One Windows" is right around the corner
The ultimate goal of Windows 10 is to unify phones, tablets, PCs, consoles, and even Internet of Things devices into a single, scalable operating system. Three of the core services in this push are Continuum, Edge, and Cortana.
With Continuum, users will be able to convert a high-end Windows 10 smartphone into a full-fledged desktop PC by simply plugging it into a dock or larger display. When that happens, the user interface will convert from the tile-based Windows 10 Mobile interface and into a full PC desktop. But during its IFA keynote, Microsoft only demonstrated Continuum in tablet mode.
Edge, Microsoft's new browser, will synchronize user data across multiple devices and integrate with Cortana, similar to how Google integrates Chrome with Google Now. This will help Microsoft tear down the wall between its desktop and mobile ecosystems -- a weakness that Google repeatedly exploited over the years with its cloud-based apps and services. Unfortunately, Cortana failed to answer a simple math problem during Microsoft's IFA demo, indicating that the service is far from perfect.
Continuum, Edge, and Cortana are still experiencing growing pains, but their tighter integration with Windows 10 could eventually throttle the growth of Google services on new PCs. Tying those services together with OneDrive and Skype would further reinforce Microsoft's defenses against Google.
Source: Microsoft.
The key takeaways
Microsoft didn't unveil anything new at IFA 2015 -- it simply highlighted the growth of Windows 10, showcased some products from hardware partners, and teased the imminent arrival of the "One Windows" ecosystem.
Investors shouldn't be too optimistic about Microsoft's future just yet. Its expectations of a billion Windows 10 devices relies heavily on a rebound in PC sales over the next two years. If that doesn't occur, Microsoft could fall short of its target as users stick with outdated PCs running on older versions of Windows. The growth of the "One Windows" ecosystem is encouraging, but it's unclear if that optimism can continue after Microsoft halts free Windows 10 upgrades, and free one-year trials of Office 365 and OneDrive expire.
Investors should keep an eye on these weaknesses and see if Microsoft can overcome them to fully pivot its business model away from rigid OS updates.
