By Shira Ovide
Microsoft CEO Satya Nadella spent his first year on the job
making the company less dependent on Windows. This week, when Mr.
Nadella is scheduled to show off the next version of Microsoft's
most famous product, will reaffirm the operating system's key role
in his company's fate.
At a day-long press session Wednesday, Mr. Nadella and other
Microsoft officials are expected to give the most detailed glimpse
so far of Windows 10, slated to launch later this year.
Microsoft also will explain how Windows will work more
seamlessly with upgrades to the popular Office productivity
software bundle and the Xbox videogame system, and it may offer
views of a voice-activated digital assistant and a new mobile Web
browser.
Windows is no longer the beating heart of Microsoft, and Mr.
Nadella has won plaudits for stressing other products such as
Office and Azure, a service for corporate cloud computing. But the
operating system remains a linchpin of Microsoft's strategy, and
the direct or indirect source of an estimated 80% of the company's
profit. That makes the first Windows launch on Mr. Nadella's watch
a fraught assignment.
The stakes are particularly high for Windows 10, which must
solve several problems for Mr. Nadella. Microsoft must recover from
missteps from the previous version, establish a gateway for new
add-on services, and help salvage its struggling smartphone
business.
In prior previews of Windows 10, the company acknowledged it
went off the rails with some elements of the earlier version,
called Windows 8. (Microsoft unaccountably skipped Windows 9.)
Microsoft is de-emphasizing a screen offering smartphone-like apps,
introduced in Windows 8, that confused some users with its fusion
of mobile and PC conventions. Microsoft officials will continue to
stress that Windows 10 is more like the Windows that people have
come to expect.
"What Microsoft has got to do is continue to provide a stable,
familiar-to-use version of Windows," said David MacDonald, chief
executive of Softchoice Corp., which sells technology and services
to companies. Mr. MacDonald said few of his corporate customers
installed Windows 8 on workplace PCs, preferring to stick with
prior versions.
Microsoft also hopes Windows 10 will fulfill its long-standing
promise to establish a common software foundation for PCs, tablets,
smartphones and Xbox. Those products now require four fairly
distinct operating systems. Unifying them could allow for seamless
activities across devices, such as letting Xbox users shift in
midgame from the console to a Windows PC.
The larger benefit of a cross-device operating system, however,
is creating a bigger base of users to appeal to software
developers--a crucial constituency for Microsoft's flailing
smartphone business. Microsoft's Windows Phone software is used on
just three out of 100 new smartphones sold world-wide, and one
reason is a lack of popular or buzzy mobile apps. Microsoft hopes
to burnish its allure to developers with the promise that apps
created for Windows phones will also run on hundreds of millions of
Windows PCs.
Windows' role in generating revenue makes every new version a
high-stakes venture. The PC operating system accounted for about
19% of Microsoft's revenue in the year ended June 30, and it
generates roughly 30% of the company's earnings, Nomura Securities
stock analyst Rick Sherlund estimates.
Those figures actually understate the operating system's
financial potency, because sales of Office are closely tied to
sales of Windows devices. The sum of revenue related to Windows and
PC versions of Office accounts for roughly 80% of Microsoft's
operating profit, according to estimates from Jefferies &
Co.
Windows 10 may usher in some business-model tinkering. Microsoft
executives have hinted the company will experiment with new ways to
make money, perhaps by pitching people on add-on services or apps,
such as Microsoft's Skype video-calling service, OneDrive file
storage and digital video downloads.
Some analysts have also speculated that Microsoft could give
some people the option to buy Windows 10 as an annual subscription,
rather than a one-time purchase. That could shift the Windows
revenue engine into overdrive.
The Week Ahead looks at coming corporate events.
Write to Shira Ovide at shira.ovide@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires