windows the next five ye

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Windows: The Next Five Yearsby Frank E. Gillett, October 22, 2012

FOR: CIOs

KEY TAKEAWAYS

Mobile Has Knocked Microsoft From 95% To 30% Share Of Personal Device OS SalesUntil smartphones arrived, Microso! ruled the PC industry roost. Now smartphone and tablet sales, where Microso! has little share, vastly outnumber PC sales. Microso! has made bold technology, business, and design choices for the Windows 8 launch. But the two user experiences and four processor choices will be di" cult to digest.

Microsoft’s Bold Windows 8 Overhaul Will Succeed Slowly, Taking Hold In 2014Early adopters will jump at Windows tablets. Beyond that, individuals and enterprises will be slow to adopt the new UX, so! ware vendors need a year to # esh out the Windows Store with apps, and hardware OEMs are o$ ering a complex range of options. Windows will ramp in 2014, gain almost a 30% share of tablets by 2016, but will miss out in phones.

Microsoft Needs To Convert Buyers To Engaged Online Service UsersA! er mobile, the PC industry is transforming again, from selling devices to selling personal cloud services. New metrics will be revenue and pro% t per user, not device OS share. Microso! has a large number of user accounts, second to Facebook worldwide, but, in a US sample, it lags far behind Amazon.com and Apple on stored credit cards.

© 2012, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions re!ect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please email [email protected]. For additional information, go to www.forrester.com.

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WHY READ THIS REPORT

&e launch of Windows 8 is a major pivot point for Microso! — and for IT leaders and the individuals they support. &e new Windows 8 user experience (UX) and programming model will transform the Windows experience for end users and for IT organizations, as Microso! redesigns its technology and business strategy to address the rise of mobile touch devices. Microso!’s market share of networked personal devices has shrunk dramatically as the market has been reframed from its 95% dominance of the PC-only market to today’s approximately one-third OS share of all personal device sales, PC and mobile combined. &is report outlines what Microso! is doing to address this shi!, what its near-term challenges are, and what its prospects are for increasing share. We wrap up by predicting how Microso! will continue to adjust its Windows strategy and how that will reshape its hardware ecosystem partners.

Table Of Contents

Two Big Transformations Of Personal Computing Are Under Way

In Response, Microsoft Is Boldly Transforming The Windows Ecosystem

After A Slow Launch Year, Windows 8 Will Take Hold In 2014

In A Heterogeneous Device Market, Success Metrics Shift To Services

WHAT IT MEANS

Windows 8 Is Simply The First Step Of An Ongoing Transformation

Supplemental Material

Notes & Resources

Forrester took brie"ngs from, and had conversations with, Advanced Micro Devices, ARM, HP, Intel, Lenovo, Microsoft, and Nvidia.

Related Research DocumentsHumdrum Hardware: Why Google And Microsoft Are Goading Their Partners To InnovateSeptember 14, 2012

Tablets Will Rule The Future Personal Computing LandscapeApril 23, 2012

Mobile Is The New Face Of EngagementFebruary 13, 2012

The Personal Cloud: Transforming Personal Computing, Mobile, And Web MarketsJune 6, 2011

Microsoft Transforms Windows For The Post-PC EraJune 2, 2011

Windows: The Next Five YearsAs Mobile Device Sales Surpass PCs, CIOs Will Need To Corral A Troika Of OS Leadersby Frank E. Gillettwith Christopher Mines, Charles S. Golvin, David Johnson, Jason Knott, and Michael Yamnitsky

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Windows: The Next Five Years 2

© 2012, Forrester Research, Inc. Reproduction Prohibited October 22, 2012

TWO BIG TRANSFORMATIONS OF PERSONAL COMPUTING ARE UNDER WAY

Microso! enjoyed a near monopoly market share of personal computing operating systems for two and a half decades. But now, the PC-only era is over. Microso!’s Windows business and its personal device OS competitors are navigating two major market and buyer behavior transformations:

! An in-progress shi" from PC-only to multiple personal devices types. Personal computers were the %rst networked personal general-purpose programmable devices. Customers could install an arbitrary assortment of useful so!ware applications from a wide variety of so!ware suppliers. Today’s modern smartphones are the second class of networked general-purpose personal devices and stem from Apple’s iPhone, a reinvention of the category in 2007 a!er the mild success of personal digital assistant (PDA) devices. Now tablets, beginning with Apple’s iPad in 2010, have become a third personal device category, completing the transformation of the personal device market from a monolithic PC-only market dominated by Microso! to a market of three categories with multiple OS contenders.1 &is report explores Microso!’s responses to this shi! and how it will play out in the market.

! An upcoming shi" from device-centric to service-centric solutions. &e past decade has also been marked by a radical shi! from using the Internet to deliver content via websites to using the Internet to deliver so!ware experiences and services. Google has shi!ed from search website to purveyor of a myriad of online services in addition to search, including hosted email, applications, and documents. Apple, Microso!, Dropbox, Evernote, and many others have begun to o$er personal cloud services that capture, organize, share, and preserve personal and commercial content for access from any personal device.2 &is transformation is at an earlier phase of development and will create another set of market shi!s in the years ahead.

As A Result, Microsoft Windows’ Share Of All Personal Devices Has Shrunk To 30%

&e %rst computing transformation, the shi! from PC-only to the multidevice era propelled by mobile devices, has been dramatic. From 2008 to 2012, global smartphone sales exploded from approximately 140 million to more than 660 million, and tablets emerged to similarly explosive growth starting in 2010. And we’re only part way through the shi!; the PC’s share of total personal devices will continue to decline in the coming years, even as PC unit sales gradually grow. &e reality for Microso! is that it holds:

! A small share of smartphones, the largest segment of personal devices. In the face of the success of iPhone and Android, Microso!’s dropped its decade-old Windows Mobile smartphone OS. &e replacement, Windows Phone 7, was announced in early 2010, shipped in late 2011, and garnered good reviews for an original and creative user interface design. Nokia abandoned its Symbian smartphone OS to bet all on Windows Phone; but, so far, Windows phone has captured only a small share of the largest personal device market, some of it with the now obsolete Windows Mobile OS (see Figure 1-1). &e latest version, Windows Phone 8,

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will ship in fall 2012, and we forecast gradual growth in share through 2016 in the face of the well-established competitors, Apple’s iPhone and Google’s Android.

! E#ectively no share, so far, in tablets, the fastest-growing segment of personal devices. Microso!, like the rest of the industry, has been in catch-up mode a!er the launch of Apple’s iPad in early 2010. Rather than follow Apple and Google’s example of scaling up a smartphone OS, Microso! built on its huge Windows PC base to create a touch-friendly Windows 8 that could serve as the OS for both PCs and tablets. Windows 8 is a credible and original tablet OS, but complex hardware choices and a two-headed UX will limit initial uptake a!er its October 2012 launch. Following a slow adoption ramp, we think Microso! will eventually garner almost a 30% tablet sales share in 2016 (see Figure 1-2). Note that Forrester’s de%nition of tablets excludes laptop devices with a tablet mode, tablets weighing more than 1.75 pounds, and those that don’t feature instant-on and always connected standby capabilities.3

! Dominant share of the stagnant PC market, now less than one-third of all personal devices. Microso! still dominates PC OS share, with a more than 90% share of a PC market with slow unit growth. Apple is consistently growing the Mac share of overall PC sales, but in such small increments that it will only reach approximately 10% share of PCs in 2016 (see Figure 1-3). So Microso! will remain the undisputed market leader in PC OSes, but that won’t help grow its overall personal device share.4

! A little less than one-third of the overall market for personal devices, through 2016. As a result of getting such a late start in both smartphones and tablets, Microso!’s share of all personal devices has shrunk to 30% in 2012, even as it ships a growing number of operating systems (see Figure 2-1 and see Figure 2-2). &e growth in tablets and smartphones will help o$set incremental PC losses, maintaining about a 30% share through 2016. It can’t grow much more without a much stronger showing in smartphones than we expect.

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Figure 1 &e Rise Of Mobile Devices Has Breached Microso!’s Stronghold On Personal Device OSes

Source: Forrester Research, Inc.82621

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Global personal computer sales by OS(units, millions)

Note: Forecast includes annual estimates of global IT and consumer purchased devices in 62 leading countries.Source: Forrester Research; company reports.

*Forrester forecast

Global tablet sales by OS(units, millions)

Global smartphone sales by OS(units, millions)

2008 2012* 2016*0

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GoogleApple

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The spreadsheet associated with this !gure contains details about this forecast methodology.

In 2016, Microsoft will retain almost 90% ofthe projected 370+ million PCs sold

1-3Microsoft will gain about 27% share of the tablet market by 2016, from a late 2012 start

1-2

Smartphone sales, where Microsoft has little share, will be more than 1.2 billion by 20161-1

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Figure 2 &e Rise Of Mobile Devices Resets Microso!’s Share Of Personal Devices To About 30%


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Note: Forecast includes annual estimates of global IT and consumer purchased devices in 62 leading countries.Source: Forrester Research; company reports.

*Forrester forecast

After a drastic fall in share, Microsoft will remain stable at about 30% through 20162-2

There will be 2 billion personal device sales in 2016, but most market growth is in mobile2-1

Global personal computing device sales by OS(percentage share)

The spreadsheet associated with this !gure contains details about this forecast methodology.

Global personal computing device sales by OS(units, millions)

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IN RESPONSE, MICROSOFT IS BOLDLY TRANSFORMING THE WINDOWS ECOSYSTEM

Microso! clearly realized the scale of these two market shi!s and has made radical changes to the Windows UX, in addition to starting over with smartphone so!ware — but it’s taken %ve years from the touch-based reinvention of personal devices in 2007 to build touch-native Windows for tablets and PCs. With the new versions of Windows, Microso! is:5

! Creating a cohesive touch-native Windows 8 UX across PCs, tablets, and smartphones. &e new Windows 8 UX, now called the “modern UI” (originally called Metro), is centered on what the company calls elegant text and live tiles that display updated information rather than just a static application icon. &is common design language is being used across all of Microso!’s products and services, including Xbox and Bing. On PCs and tablets, users will be launched into a Windows 8 UX Start screen designed for touch, that also supports mouse-based input. To run existing Windows desktop apps, rather than Windows UX apps, and to access some systems settings and features, users will switch to desktop mode, which looks a lot like Windows 7 but without the Start button. &is dual OS personality will likely confuse many users, at least at %rst.

! Building a new programming model for client-side applications. To take advantage of touch and to attract the growing legions of web and mobile app developers, Microso! is overhauling its client-side programming environment. It’s adding support for HTML and JavaScript to build apps and adapting existing languages to the Windows 8 UX. And it is replacing its core application technologies, Win32 and Silverlight, with a new set of application programming interfaces (APIs) called WinRT.6 With this radical change, existing Windows applications can’t be easily ported to run as Windows 8 UX apps, so they’ll have to run in desktop mode. Today’s Windows developers will have to learn new techniques for the modern UI, and they can continue to use Microso!’s so!ware development tools, which have been upgraded for Windows 8 UX apps.

! Rolling out a new app store so"ware distribution model that upends existing distribution. As part of the shi! to Windows 8, Microso! is embracing many aspects of the Apple App Store model — that is, Microso! will review and approve all Windows 8 UX apps, all consumer apps will pass through the Windows Store or the Windows Phone Store, and Microso! will take a cut of app revenue. Unlike Apple, Microso! only takes a 30% cut up to $25,000 in sales and 20% above that, enables so!ware distributors such as Digital River to work within the system, and allows Windows 8 Enterprise customers to “side load” or directly install custom apps without going through Microso!. Combined with the much lower so!ware prices of today’s apps store, this represents a complete transformation of the existing Windows so!ware ecosystem.

! Adding support for mobile-capable ARM CPUs in addition to x86. Windows has traditionally run only on AMD or Intel x86 processors, but almost all smartphones and tablets to date run on very energy-e"cient ARM-based processors. Microso! decided that it would

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need to support ARM processors in Windows to match competitors’ long tablet battery life and thin designs. Microso! created a separate version of Windows called Windows RT that runs on ARM-powered tablets and laptops, which will also include the three core Microso! O"ce apps: Word, Excel, and PowerPoint, plus OneNote. But Windows RT can’t run any existing Windows desktop apps, because it can only run applications written with the new WinRT programming model.

! Designing and selling two Microso"-branded tablets that compete with partner OEMs. Microso! has always focused on building the OS and has partnered with original equipment manufacturers (OEMs) that build the hardware — until June 18, 2012, when it announced the Microso! Surface tablets.7 Apparently concerned that OEM partners weren’t being innovative enough with hardware and that extra so!ware that OEM’s o!en add muddied the Windows user experience, Microso! will o$er the x86-based Surface Pro and the ARM-based Surface.8

! Using Microso" account to create a consistent Microso" personal cloud service experience. Microso! has used Windows Live IDs to identify customers for several of its online services, such as the Microso! Developer Network (MSDN), Xbox Live, and Hotmail, but it had not linked the Live IDs to the daily experience of Windows users. Renamed Microso! account, it will be the user’s default account on Windows devices, which enables Microso! to create a common user experience across all Windows devices and Microso! services.9 Microso! account will also be linked to Microso!’s increasingly capable set of personal cloud services, such as SkyDrive.

Microsoft’s Windows Transformation Correctly Addresses Many Market Developments

&e new Windows is an original and impressive response to new technologies and competition — it’s the most radical overhaul since the original Windows replaced DOS. And it addresses the innovation and market shi!s that Microso! had been missing out on, including:

! New mobile device types beyond the PC. &e emergence of smartphones and tablets marks a permanent shi! in the types of personal computing devices that people use on a daily basis. Forrester believes that many people will spend more hours on mobile devices than they will on PCs. But Microso!’s new design language shows that it’s thinking about more than just mobile — it’s using it on the Xbox game console, the Bing search engine, the Microso! home page, and more. So Windows 8 UX marks a broad strategy and design shi! that sets up Microso!, not just Windows, for a new era of innovation and competition.

! New user interactions in touch, voice, and gesture. &e capacitive touch technology %rst broadly used in Apple’s iPhone created an entirely di$erent touch-centric user interaction model than the existing mouse-based graphical user interface (GUI). And there are more user interface (UI) innovations on the horizon, with voice input on many smartphones and gesture

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technologies such as the Xbox Kinect. &e Windows 8 UX sets up Microso! to embrace a wider range of the new user interface (NUI) innovations that will emerge in the next %ve years, something that wasn’t easy to do with the existing Windows GUI.

! Broadening use cases — quick, casual, and in context. &e combination of mobile devices with touch has dramatically expanded where and how people can use computing devices. Now they can easily check email while waiting for an appointment, make a dinner reservation in two minutes using an app that already knows their preferences and location, or dash o$ a quick Tweet with a photo to share an exciting %nd. &ese kinds of uses and experiences aren’t possible or practical with existing PCs or Macs.

! Stagnant PC sales, yet growing Mac sales. For a long time, Apple’s Mac seemed an irrelevant niche that Microso! needn’t worry about. No longer. While not an imminent danger, the fact that Apple’s Mac dominates sales of high-end PCs, that the Mac is o!en cited by reviewers as the best PC OS, and that Mac unit sales have gained incremental market share every quarter for more than %ve years has to be a big concern. &e Windows 8 overhaul gives Microso! a position in the tablet market and o$ers a uni%ed UX for tablets and PCs, which Microso! believes is an advantage against Apple’s separate user interfaces for iPad and Mac.

! New app distribution and deployment models. &e existing Windows ecosystem makes buyers work hard to %nd, buy, secure, and update so!ware. Buyers lack a central browsing location to %nd all available so!ware, face multiple purchase outlets, face constantly emerging security threats, and have no central mechanism for updating so!ware. With Windows 8, Microso! is taking many lessons from Apple’s iOS and Mac App Stores, including new Windows stores that o$er one shopping location, prescreened Windows 8 UX/phone apps, and centrally managed OS and app updates. And it stands in contrast to the uncurated Google Play app store experience.

! New SaaS ISVs and apps supplanting traditional ISVs and so"ware suites. &e existing Windows ecosystem was built on the idea of sophisticated PC-resident applications, o!en suites, at prices of $50 to $500 or more. Much of the market has now shi!ed to so!ware-as-a-service (SaaS) delivered via a web browser for free or a low monthly fee and small focused apps at impulse-buy prices of $1 or $5. &e Windows 8 UX will give Microso! a user experience compatible with the new app market model, which didn’t %t at all with the Windows 7 user experience.

! New programming languages and mobile development approaches. Much of the recent innovation in programming languages for client devices had been in dynamic, web-oriented languages such as JavaScript and HTML5, plus new development environments for iOS and Android. Microso! has now matched these by updating its programming platform with WinRT, providing new versions of its existing development languages, and adding JavaScript and HTML5 support.

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But It Will Take Time For Microsoft To Work Through The Windows 8 Transition

Microso! has gambled big by rolling out the new Windows 8 touch interface to all PCs, rather than just tablets and clearly marked touch-enabled laptops. And any company would face daunting challenges in overhauling a complex product regularly used by more than 1 billion people.10 &e Windows 8 rollout features some particular challenges. Based on our analysis, we predict that:

! $e choice of four CPU architectures will confuse and slow tablet and laptop uptake. Microso! and its OEM partners will o$er tablet customers choice on processor, battery life, and laptop touch options in an appealing contrast to Apple’s “black or white” product menu. But customers will face a complex set of personal and enterprise tradeo$s when choosing among the new tablet and laptop choices (see Figure 3). For example, Windows RT tablets using ARM don’t support some traditional enterprise manageability tools, laptop-class Windows 8 tablets won’t feature the lightest designs or longest battery life, while Intel Atom and AMD-powered devices have varying capabilities that %t in between. Customers will have to learn about these choices and tradeo$s, which will delay their purchase decisions and prolong enterprise trials.

! Tablet and touch buyers will like the Windows 8 UX, but many buyers will be put o# by it. Buyers craving a Windows tablet, touch laptop, or a touch all-in-one PC will jump for Windows 8, once they work through the processor choice confusion. For conventional PC buyers, the requirement to use the Windows 8 UX Start screen and the lack of the old Windows Start button will be o$-putting. Improvements such as faster boot times, %le history version backups, SkyDrive integration, and using Microso! account as the Windows login are compelling to power users, but not enough to motivate many users to immediately jump into a new user experience. For some, the prospect of learning a new interface will cause them to consider alternatives, most likely Apple’s Mac; although some will also check out Google’s Chrome OS o$erings.

! Customers will be confused by an inconsistent input experience across di#erent hardware. Users won’t know if a laptop or desktop is touch-enabled until they try it. &at means confusion at retail or when encountering a shared PC and initial struggles with using a mouse in the Windows 8 UX, if the user is only familiar with touch. Touch isn’t just important for touchscreens — it can also be transformative with a touchpad or a mouse, as Apple has shown with touch features in recent versions of OS X for Mac. But touchpads and mice for Windows don’t uniformly implement multitouch support and don’t have a standard way of displaying if they do. So many PC users will experience frustration when borrowing a friend’s machine or using a shared PC.

! It will take a year for ISVs to fully stock the Windows Store with a range of apps. &e new UI and programming model means that existing apps have to be rebuilt from scratch to run in the Windows 8 UX, rather than just the typical compatibility update. Some independent

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so!ware vendors (ISVs) will do what the O"ce team has done — add touch enhancements to make Windows 7 applications work better in desktop mode on touch devices. &e new Windows Store and the massive Windows audience of 100s of millions of PC buyers per year will be a big draw for so!ware entrepreneurs. But it will take at least a year for the so!ware catalog to %ll out — note that there is no date or comment yet on a full Windows 8 UX version of Microso! O"ce, just the touch-enabled desktop O"ce 2013 and modern UI versions of Lync and OneNote. And the somewhat di$erent Windows Phone 8 UI and programming model will decrease crossover appeal for ISVs and customers.

! Microso" will struggle to communicate the richness and complexity of Windows 8 at launch. Our conversations with Microso!, OEMs, and ISVs have convinced us that Microso! and its partners will put on a huge marketing campaign for the Windows 8 UX and its touch features. But it has also become clear that many of Microso!’s partners aren’t comfortable with Microso!’s messaging and positioning plans. &ere’s a lot of uncertainty about customer reaction to Windows 8 and how well Microso! will communicate all the changes, choice, and complexity it is o$ering. We believe the result will be that Windows 8 messaging will have to go through several rounds of iteration while Microso!, OEMs, and retailers work through how to create messaging that works.

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Figure 3 For Windows Tablets And Laptops, Four Processor Options Will Slow And Confuse Buyers


Runs all Windows 8modern UI apps Yes

Windows RT runs all modern UI apps as long as they don't use any desktop code.

Runs Windows 7-type apps(desktop mode)

Runs full MicrosoftO!ce suite

Runs MicrosoftO!ce Outlook

Runs processor-intensive apps well

PC-class graphicsprocessing for videos,

gaming, browsing

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Has long battery life andslimmest design

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Microsoft has no plans for emulators to enable Windows RT to run Windows 7 desktop apps.Windows RT includes special versions of O!ce 2013 Word, Excel, PowerPoint, and OneNote.Outlook 2013 has not been ported to Windows RT.

Processor intensive apps won't run as well on lower power processors.

Graphics processing units (GPUs) boost web browsing and some computations, complementing CPUs.

On PCs, 64-bit support enables more powerful processing and more than 4 GB of RAM.

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status while on standby

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No No Yes Yes

Consumer features suchas StoreSpaces and

Windows Media Player

StoreSpaces allows two drives to appear as one, easing "le management. Neither work in Windows RT.

Yes Yes Yes No

Enterprise features such asdomain join, group policy,

BitLocker "le encryption,and boot from virtual hard

disk

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Optional embeddedmanagement, such as

Intel's vPro

Some business buyers like hardware management features for improved security and manageability.

Yes No No No

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NotesProcessor brand and type

Nvidia or Qualcomm

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AFTER A SLOW LAUNCH YEAR, WINDOWS 8 WILL TAKE HOLD IN 2014

&e challenges of a new user interface, a complex set of processor choices, and a long ramp to a compelling set of app o$erings in the Microso! Store will translate to a slower than usual Windows upgrade cycle. We’ve already seen comparisons to the Vista upgrade cycle — but these are wrongheaded because there’s little sign of major compatibility problems. So we believe it will take a year for customers and the Microso! ecosystem to digest the transformation of Windows and that 2014 will be the year that Windows 8 gains %rm market traction in conventional and touch devices as:

! ISVs take a year to work through the new UX and Windows Store models. A brand new UX and programming model are a lot to swallow, even for building today’s smaller app experiences. While Microso! has been preparing developers since the Build conference in September 2011, it will still take a full year a!er launch for the apps ecosystem and the Windows Store to mature and #esh out. Windows Phone 8 developers have been hampered by limited information and access to tools before launch, delaying the build out of smartphone apps for the new programming model, as Microso! abandons a di$erent version used in Windows Phone 7.

! Windows hardware makers prepare a new round of hardware for the fall of 2013. With uncertain Windows 8 uptake and success and anemic economies worldwide, OEMs are hedging their bets about the success of Windows 8. In addition, they know the next generation of Intel processors, codenamed Haswell, will o$er signi%cant improvements in power consumption and sensor integration when they ship in summer 2013; this means redesigning PC chassis around the new chips for the fall of 2013. Customers in the know will likely delay signi%cant Windows purchases until the new processors arrive from Intel and others a year from now.

! Consumers initially jump for tablets and then slow up adoption to digest all the changes. &ere will be an initial burst of sales and interest in tablets, followed by a lag prompted by the confusing range of processor choices, the two-headed user experience, and the still maturing Windows Store selection. Eventually consumers will embrace Windows 8 as they have earlier versions of Windows.11 But the slow launch will dampen any halo e$ect based on Windows users having an increased preference for choosing a Windows Phone.

! Enterprises will simply wait on Windows 8, except for trials with tablets. Although Forrester is encouraging enterprises to look at Windows 8 in all use cases, the new Windows 8 UX Start screen is prompting concerns about the need for extensive employee training.12 Having %nally migrated to Windows 7 in signi%cant numbers and released their death grip on Windows XP, many enterprise IT shops are content to stand pat. For %rms not yet fully committed to or satis%ed with iPad deployments for execs and sales sta$, IT will begin exploring Windows tablets. &at will produce a #urry of attention and interest but won’t stimulate early large-scale migrations to Windows 8. And Windows Phone 8 has yet to make a full enterprise push, which will come later.

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IN A HETEROGENEOUS DEVICE MARKET, SUCCESS METRICS SHIFT TO SERVICES

Microso! will survive as the leader in PCs and gain strong sales in tablets, and we forecast it will reach more than 25% share by 2016. But Windows 8, in part because it ties tablets to the PC OS rather than Windows Phone, won’t boost Windows Phone’s fortunes much. So CIOs will face a market in 2016 where Microso! still dominates in PCs sales at about 90%, Apple leads in tablet sales with about 41% share, and Android leads in smartphone sales with almost 60% share (see Figure 4). And, uniquely, Apple will have strong o$erings and a respectable market position across all three categories.

However, by 2016 new metrics will replace unit sales and installed base as the best way to understand which vendors are most relevant in personal computing markets for individuals and for enterprises. &at’s because operating systems and programming languages, while important, will no longer be the dominant drivers to technology selection. Instead, to evaluate the strength of Microso! and other personal computing service ecosystems, we’ll be tracking:

! Engagement with online accounts. More than the number of Windows PCs in the world, what will matter is the number of people with a Microso! account. Today Microso! does very well on this count globally, with reports of more than 500 million accounts for Xbox Live, SkyDrive, Outlook.com (formerly Hotmail), and the former Windows Live ID, which have all been updated to be Microso! accounts (see Figure 5).13 Only Facebook has more. But user engagement also counts, and, in that regard, Microso! doesn’t have the same level of user engagement as Google, Apple, or Facebook — we’ll see if Microso!’s e$orts turn that around. We expect to see user engagement metrics gain prominence, including number of sessions, views, and time spent using the service.

! Stored payment methods. &e number of stored payment methods, such as a credit card, is an excellent metric of user engagement and trust. Based on Forrester survey data and forecasts, Amazon has the lead among US online adults with 79 million; Apple has 45 million US consumers’ credit cards (see Figure 6).14 &e retail and content-oriented ecosystems of these two players gives them a huge advantage over Facebook, Google, and Microso!, which have much lower numbers. Interestingly, Amazon and Apple also lead in card exclusivity, the number of their users who don’t have a card stored online with any other of the %ve services. &e Windows store will help Microso! boost numbers dramatically, as new Windows 8/RT buyers sign up to buy Windows UX apps.

! Revenue and pro%t per user, for the platform vendor and for the ecosystem overall. Of course, the ultimate metric is money — how much do users spend on services and products? News reports suggest that Apple’s mobile users browse more and buy more apps than Android users, making them more attractive to websites and app developers even though there are more Android phones sold. Similarly, accessory makers will be most interested in the ecosystem in which customers spend the most money, not necessarily the largest one.

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Customer demographics will matter as much as the volume of customers. So CIOs will need to compare the demographics of their particular employees, partners, and customers to those of the leading ecosystems to understand which devices and online services to support.

Figure 4 No Platform Vendor Will Dominate Across Personal Device Categories In 2016


PC Tablet SmartphoneApple Apple Mac will be the alternate

PC platform, and the premium choice, but with just under 10% share.

Apple will be a strong No. 2 in smartphones at about 25% share, but as the premium choice, it will have adisproportionate market in!uence.

Google Google Chrome OS devices willestablish a niche but no more.

Google Android tablets willstall at about 7% share.

ProprietaryAndroid

brands

There will be no presence in PCs.

Content purveyors like Amazonwill create popular andinexpensive media tablets forclose to 25% share.

The consumer market for proprietary Android smartphones will be emerging to match media tablets.

Microsoft Microsoft will become No. 2 intrue tablets, at about 27%share, after a bumpy Windows8 inauguration in 2013.

Microsoft will be the No. 3 player at about 14% share.

Note: Market share references are in percentage of units sold in 2016.Source: Forrester forecast.

Apple will be the strongest tablet player with about 41% share of the market, and thepremium choice.

Google Android will dominateby volume, with almost 60%share.

Microsoft will be dominant at almost 90% share.

Market dominance

The spreadsheet associated with this "gure contains details about this forecast methodology.

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Figure 5 Microso! Has A Large Number Of User Accounts, Which Could Help It Preserve OS Share


Source: Microsoft Download Center; “From Town Hall Forums to Xbox LIVE, Microsoft Focuses on Involving Young People in the Political Process for 2012 U.S. Presidential Election,” Microsoft press release, August 23, 2012; Matthew O’Day, “Hotmail Still New and Cool — Even After 15 Years,” , July 5, 2011; Sundar Pichai, “Chrome & Apps @ Google I/O: Your web, everywhere,” , June 29, 2012 ; “Key Facts,” Facebook website; Chloe Albanesius, “Apple iOS 5, Lion: Magical Innovation or Blatant Copying?,” , June 7, 2011; “Inside Amazon,” Amazon.com; Eddy Cue, “Apple Keynote,” Apple Special Event, September 12, 2012

Global user accounts of major personal computing ecosystems(millions)

iCloud150

GoogleApps

42

Gmail425

SkyDrive60

Outlook.com(formerly Hotmail)

360

Microsoft account500

Apple Google

Microsoft

XboxLive40

Facebook1,000

Amazon152

iTunes435

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Figure 6 To Succeed, Microso! Must Increase Its Count Of Stored Payment Customers


(number of US online adults in millions)

Base: US online adults 18+

Source: North American Technographics® Telecom And Devices Online Benchmark Recontact Survey, Q3 2012(US) and Forrester Research World Online Population Forecast, 2012 To 2017 (Global)

*Exclusivity refers to the percentage of credit card users who do not have credit cards stored with any othercompany mentioned above.

Base: US online adults 18+ with credit cards on !le with the companies mentioned above

The spreadsheet associated with this !gure contains details about this methodology and additional sample size information.

79

45

14

5

4919

205

5

2

11

31

54

1

1

Note: We display a limited set of overlap between services used. See spreadsheet for more combinations.

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W H AT I T M E A N S

WINDOWS 8 IS SIMPLY THE FIRST STEP OF AN ONGOING TRANSFORMATION

Microso!’s strong share of the PC market will enable it to claim a meaningful share of tablet market share and survive the shi! to a mobile-dominated world, where apps are built for mobile %rst, despite not having a strong position in smartphones.15 But the transition to Windows 8 is simply the %rst step of Microso!’s transformation into a %rm focused on personal cloud services and its share of total engagement and spending by individuals, as well as what enterprise IT spends. We believe that Microso! will:

! Move to update Windows annually, with Windows 9 arriving by 2014. Apple’s OS X for Mac and Google’s Chrome OS for PC-like devices are now on an annual cadence for upgrades with multiple updates during the year, to match the pace of mobile OS developments and the pace of updates at online services such as Facebook. Microso! can’t continue with its three year development cycle for Windows. It will have to %gure out a way to update Windows more regularly — and enterprises will have to learn to deal with that, since with consumerization they no longer control the upgrade cycles of info workers’ personally owned technologies used for work.16

! Split Windows into a desktop-only version and a new pure Windows version. &e Windows desktop — in other words, Windows legacy compatibility mode — makes sense in some PCs but not in all, such as the newest tablets. &e backlash from traditional users that resist the new Windows UX will result in a signi%cant number of users that continue to install Windows 7, which Microso! will continue to sell. To get customers moving forward to the crucial step of using Microso! account, Microso! will %nd a way to o$er Windows 8 desktop without the Windows 8 UX. And as the Windows UX is built out in subsequent versions, Microso! will no longer need to drop users into desktop mode for some tasks and settings, making it unnecessary to include it. But the company will have to solve the awkwardness of the Windows 8 UX on large screen PCs.

! Expand Microso" brand hardware o#erings while partnering with a handful of premium OEMs. Today’s massive and diverse Windows OEM base has become too fractured and too focused on low cost to create a consistent Windows hardware experience, which is why Microso! was compelled to develop the Surface tablets. Microso! will expand to o$er more premium PC and tablet o$erings itself, while partnering with select OEMs, such as Lenovo or HP, to o$er a more varied set of premium products that match Apple’s products but with more diverse capabilities such as ruggedized or vertical o$erings. &e special Windows Phone relationship with Nokia is an example of what this will look like. &at will leave a second tier of commodity Windows OEMs that continue to build inexpensive Windows PCs that lack the polish or full complement of new user interface features such as multitouch — think of them as legacy Windows suppliers for Windows desktop.

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! Struggle to win emerging markets consumers. Sandwiched between cheap Android products and premium Apple products in the world’s high growth markets, Microso! will struggle to %nd footing as the a'uent early adopters are drawn to the Apple ecosystem by iOS, while Google Android phones and proprietary Android media tablets carve o$ the price-sensitive, %rst-time buyers. Legacy compatibility won’t matter much in these markets, so Microso! will be challenged to %nd a di$erentiator in the mobile-%rst world of most emerging market consumers.

! Fully untether O&ce from Windows. O"ce is already o$ered on the Mac, although only as a partial subset of the full O"ce suite. Forrester believes that Microso! will develop full versions of O"ce for iPad, as well as for the new Windows 8 UX. With the new subscription model tied to a Microso! account and accessible from up to %ve devices, and O"ce Web Apps, the O"ce business will pursue the large number of customers now available beyond the Windows installed base. To remain relevant in world where mobile devices outnumber PCs at least 2 to 1, the O"ce team will have to %gure out ways to make O"ce equally accessible on Mac, iOS, Android devices, proprietary Android tablets, and the web.

SUPPLEMENTAL MATERIAL

Methodology

For the North American Technographics® Telecom And Devices Online Recontact Survey, Q3 2012 (US), Forrester conducted an online survey %elded in July 2012 of 4,731 US individuals ages 18 to 88. For results based on a randomly chosen sample of this size (N = 4,731), there is 95% con%dence that the results have a statistical precision of plus or minus 1.42% of what they would be if the entire population of US online individuals ages 18 and older had been surveyed. Forrester weighted the data by age, gender, income, broadband adoption, and region to demographically represent the adult US online population. &e survey sample size, when weighted, was 4,650. (Note: Weighted sample sizes can be di$erent from the actual number of respondents to account for individuals generally underrepresented in online panels.) Please note that this was an online survey. Respondents who participate in online surveys have in general more experience with the Internet and feel more comfortable transacting online. &e data is weighted to be representative for the total online population on the weighting targets mentioned, but this sample bias may produce results that di$er from Forrester’s o'ine benchmark survey. &e sample was drawn from members of MarketTools’ online panel, and respondents were motivated by receiving points that could be redeemed for a reward. &e sample provided by MarketTools is not a random sample. While individuals have been randomly sampled from MarketTools’ panel for this particular survey, they have previously chosen to take part in the MarketTools online panel.

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For Technographics Clients

How To Get More Technographics Data Insights

Forrester’s global Consumer Technographics® online surveys include many additional questions and parameters by which you can analyze the data contained in this report. If you wish to subscribe to Forrester’s Consumer Technographics services, please contact your account manager or [email protected]. If you are an existing Technographics client, please contact your data advisor at [email protected].

As part of the forecast modeling, Forrester develops comprehensive historical and base-year market size estimates based on a variety of sources, including public %nancial documents, executive interviews, Forrester’s proprietary primary consumer and executive research, and analysis of the Internet tra"c database.

All of Forrester’s forecasts are designed by a dedicated team of forecasting analysts who build the models, conduct extensive industry research, and manage the process of formally building consensus among Forrester’s analysts. Forecast analysts have backgrounds in investment banking, management consulting, and market research, where they developed extensive experience with industry and company forecasting.

For more information on Forrester’s ForecastView o$ering, including access to additional details and metrics not included in this report, please contact us at [email protected].

Companies Interviewed For This Report

Advanced Micro Devices

ARM

Hewlett-Packard

Intel

Lenovo

Microso!

Nvidia

ENDNOTES1 Forrester anticipated the importance of design and style, plus the growing variety of PC form factors in

2007. See the June 25, 2007, “The Age Of Style In Consumer PCs” report.2 &e personal computing experience for individuals is broken and ruptured by the fragmentation of

personal information across PCs and mobile devices and the scattering of content across a multitude of online services. &is report describes the emerging personal cloud ecosystem, which will dramatically transform market opportunities for web properties, PC makers, OS providers, mobile device manufacturers, ISPs and telcos, and enterprise so!ware vendors. We spell out the emerging set of personal cloud core and component services, the three leading players and a variety of contenders, and the range of information types handled by personal cloud services. We forecast the number of users and paying subscribers to

mailto:[email protected]


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personal cloud services through 2016, and break down the business models behind what will become a $12 billion market. See the June 6, 2011, “The Personal Cloud: Transforming Personal Computing, Mobile, And Web Markets” report.

3 Today’s tablets are de%ned by how they’re used, not by simply being a touch-enabled slate device. &e convenience and portability of these true tablets makes them a di$erent experience than using a conventional PC, which is optimized for complex input tasks rather than quick and easy convenience and light content creation. See the April 23, 2012, “Tablets Will Rule The Future Personal Computing Landscape” report.

4 &e global online population has more than doubled since 2005, but not all countries have reached saturated levels of online penetration. While the majority of consumers in the US, Europe, and metropolitan China regularly use PC Internet, online usage in Russia and metropolitan India trails behind. Globally, we see regional uptake variations in the computing devices that consumers use to connect to the Web already. &is document examines global consumers access the Internet, and it helps market insights professionals understand how uptake in computing devices varies by region and how that will change in the future. See the June 12, 2012, “Global PC And Broadband Penetration” report.

5 Forrester has been impressed with the bold changes from the %rst announcement in June 2011. See the June 2, 2011, “Microsoft Transforms Windows For The Post-PC Era” report.

6 One Microso! platform era is ending and another is beginning. &e .NET era as we’ve known it is winding down. .NET doesn’t go away — it becomes Microso!’s preferred server environment for a broader platform that also includes Windows 8 clients, the Windows Runtime (WinRT) application programming interface (API), and the Windows Azure cloud environment. &is collection of technologies will de%ne the new platform era — Forrester calls the set the new Windows platform. Microso! has endeavored to make an introduction of its new platform technologies evolutionary, and AD&D pros won’t face a forced march to the new technologies. But few AD&D leaders are yet to see the big picture of the new Windows platform, much less understand its implications for their .NET strategies. &is report will advise you on how Windows 8, WinRT, Windows Azure, and .NET Framework 4.5 can help you develop and support mobile and cloud applications, create new styles of web and desktop applications, and deliver solutions faster, all while minimizing the disruptions to your current .NET activities. See the August 24, 2012, “The Future Of Microsoft .NET: New Options, New Choices, New Risks” report.

7 Source: Matt Burns, “&e Microso! Surface, A 10.6-Inch Windows 8 Tablet From Microso!,” TechCrunch, June 18, 2012 (http://techcrunch.com/2012/06/18/the-microso!-surface-a-10-6-inch-windows-8-tablet-from-microso!).

8 Google’s and Microso!’s e$orts to launch %rst-party hardware, form exclusive partnerships, and acquire partners are disrupting the status quo within their ecosystems. &ese changes are driven largely by the failure of Google’s and Microso!’s original equipment manufacturer (OEM) partners to deliver innovative hardware that is able to compete against Apple’s (as well as against devices in each other’s ecosystems). To compete in today’s post-PC environment, OEM product strategists must abandon their PC-era race-to-the bottom strategies and instead adopt strategies geared toward product innovation. In this report, we discuss proven strategies for delivering innovative products and provide advice on how OEMs can refocus their









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strategies for innovation. See the September 14, 2012, “Humdrum Hardware: Why Google And Microsoft Are Goading Their Partners To Innovate” report.

9 “Microso! account” is the new name for what used to be called a “Windows Live ID.” Your Microso! account is the combination of an email address and a password that you use to sign in to services like Hotmail, Messenger, SkyDrive, Windows Phone, Xbox Live, or Outlook.com. If you use an email address and password to sign in to these or other services, you already have a Microso! account — but you can also sign up for a new one at any time. You can also use a Microso! account to sign in to any PC running Windows 8. Source: Microso! (http://windows.microso!.com).

10 As Forrester forecast in 2007, the global PC installed based surpassed 1 billion units in 2008 and is on a path to exceed 2 billion PCs in use by 2015. Note that PCs have a longer useful life, about %ve years, than the typical two years or so for smartphones and tablets. See the June 11, 2007, “Worldwide PC Adoption Forecast, 2007 To 2015” report.

11 Forrester consumer surveys showed consumers initially very interested in a Windows tablet in early 2011, but as iPad sales grew, consumer preference for a forthcoming Windows tablet shrank. See the November 29, 2011, “Microsoft’s Shrinking Window For Tablets” report.

12 Approaching Windows 8 UX designs will require signi%cant investment in training, learning, and prototyping. Source: David Johnson, “Windows 8: &ink You Can Skip It? &ink Again,” David Johnson’s Blog For Infrastructure & Operations Professionals, March 8, 2012 (http://blogs.forrester.com/david_johnson/12-03-08-windows_8_think_you_can_skip_it_think_again) and see the August 24, 2012, “The Future Of Microsoft .NET: New Options, New Choices, New Risks” report.

13 Source: Microso! Download Center (http://www.microso!.com/en-us/download/details.aspx?id=30477).14 Using data from one of Forrester’s North American Technographics surveys as well as Forrester’s

ForecastView forecast of online population, we’re able to estimate the number of stored credit cards among US online adults that have credit cards. Source: North American Technographics Telecom And Devices Online Benchmark Recontact Survey, Q3 2012 (US); and see the October 24, 2011, “Forrester Research World Online Population, 2011 To 2016 (Global)” report.

15 By 2016, smartphones and tablets will put power in the pockets of a billion global consumers. Mobile is not simply another device for IT to support with a shrunken website or a screen-scraped SAP application. Rather, mobile is the manifestation of a much broader shi! to new systems of engagement. &ese systems of engagement help %rms empower their customers, partners, and employees with context-aware apps and smart products. See the February 13, 2012, “Mobile Is The New Face Of Engagement” report.

16 &e rise of mobile devices and broadband Internet access at home is driving new behaviors by information workers. Our surveys of almost 10,000 global information workers and 2,300 IT hardware decision-makers enable us to quantify how info workers are using many devices for work purposes and blending work and personal use across their full set of devices. We quantify the portion of workers who report spending personal funds for speci%c device types and the amount of spending they control. &is report suggests how technology markets will evolve as a result, and it gives examples of how vendor strategists can plan for and take advantage of the new market conditions. See the February 22, 2012, “Info Workers Using Mobile And Personal Devices For Work Will Transform Personal Tech Markets” report.













Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 17 key roles at major companies providing proprietary research, customer insight, consulting, events, and peer-to-peer executive programs. For more than 29 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit www.forrester.com. 82621

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