Windows 10 marks a major shift in strategy
Microsoft (MSFT) dominates the operating system space. Earlier, the company used to generate the majority of its revenues from sale of its operating system. However, the increased focus towards mobile and tablets led the company to think twice about its strategy.
According to the Guardian, people are expected to buy three times as many devices running Google’s (GOOG) (GOOGL) Android operating system than PCs. As the below presentation shows, both Apple (AAPL) and Google will see a marked increase in OS market share as compared to Microsoft.
As part of its “mobile first cloud first strategy” Microsoft launched Windows 10, a single operating system for desktops, mobiles, and tablets that Windows 7, 8, and 8.1 users can upgrade for free within the first year of its launch. Thus, the Windows 10 free upgrade marks a major shift in the business model of the company.
If Microsoft is able to cushion its cash reserves, improve cash flow position, and reduce debt, the company will not only benefit its investors, but also ETFs such as the Powershares QQQ Trust (QQQ) and the Technology Select Sector SPDR Fund (XLK), which have 8% and 9.61% exposure to Microsoft, respectively.
Transition towards updated operating systems is low
According to netmarketshare.com, ~24% of all desktops still run Windows XP. This means that over 25% of all Windows desktop systems, or ~1.5 billion worldwide, still run Windows XP. The reluctance to transition to more modern platforms constitutes a very real risk to the Windows ecosystem. The fact that many users don’t see any of the more modern Windows platforms such as Windows 7 or 8.1 as desirable alternatives says something about potential leakage of these users out of Windows.