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With Windows 8, Microsoft Makes Big Shift Away From PCs Towards Tablets

October 26, 2012 at 12:00 AM EDT
Microsoft has revealed its biggest makeover so far to the operating system found on nine out of every 10 computers in the world. Ray Suarez talks to Forrester Research's Charles Golvin about how Microsoft's decision to focus on tablet-style computers will impact consumers and the greater tech industry.
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JUDY WOODRUFF: For more than two decades, Microsoft has been a dominant force in the worlds of business and technology. But its position has been challenged and, in some ways, surpassed by Apple, Google and others in recent years. Some question its ability to innovate.

Now Microsoft is facing a pivotal moment and a crucial test, as Ray Suarez reports.  

(APPLAUSE)

STEVE BALLMER, Microsoft: It really is an exciting, exciting day.

RAY SUAREZ: Like other CEOs, Microsoft’s Steve Ballmer often tries to generate buzz with his product launches. But the company’s big event in New York yesterday had a different vibe. The company’s well-known operating system, now called Windows 8, is getting its biggest makeover in nearly two decades.

For the first time, Windows’ design is built around touch-screen capabilities and utilizes apps similar to its competitors that Microsoft calls live tiles.

The software went on sale today as part of a global launch in countries like Japan and China. The company is aiming directly at the mobile device market.

STEVE BALLMER: What we have done is actually reimagined Windows, and we have reimagined essentially the whole PC industry. In addition to notebooks and desktops, we introduced the PC as tablet, which I think will be phenomenal.

RAY SUAREZ: Microsoft still dominates the PC market. Its systems are used in nine of every 10 computers in the world. But it’s trying to compete differently, and showed off its new Surface tablet, the latest entry in an increasingly crowded field.

On Tuesday, Apple introduced the iPad Mini, a smaller version of its popular predecessor. Today, executives at the tech giant said they expect lower profits this holiday season. And that sent Apple’s stock below $600 a share for the first time since July.

Also battling for a share of the tablet marketplace, online retailer Amazon with its Kindle Fire, and Google is expected to reveal its newest Nexus Device next week.

Some deeper context now about what’s at stake for Microsoft as people increasingly shift away from PCs.

We’re joined by Charles Golvin, an analyst at Forrester Research. He’s in Los Angeles tonight.

And, Charles, do these Apple — the Microsoft releases represent a big change in direction for the industry, not just for Microsoft, but for other makers?

CHARLES GOLVIN, Forrester Research: Absolutely.

We have seen a real shift here in the competitive dynamics. It used to be about the PC And now people are spending more and more time on these mobile devices, whether it’s tablets or smartphones.

And that’s really a place where Microsoft is extremely weak compared to Amazon, Google, and Apple especially.

And so this represents a real shift for Microsoft trying to be as relevant in this new computing world as they have been in the past.

RAY SUAREZ: Well, it’s the largest single supplier of operating systems in the world. Once a player like Microsoft decides the future’s in touch, does it move so much — have so much of its own momentum that the future’s in touch, that’s it?

CHARLES GOLVIN: Well, I think Apple has already established that that is the case, and others have followed.

You know, I think Microsoft is with the launch of Windows 8 not just trying to reimagine the PC, as we heard Ballmer said, but also to be relevant in that touch world and deliver the kinds of productivity and other computing experiences where computing has been focused in the past.

But, today, it’s all about applications and things that you do on the go, not what you do sitting in front of a desktop.

RAY SUAREZ: So, really, are you no longer centered. Your computing world is no longer centered on a box on your desk; it’s wherever you are?

CHARLES GOLVIN: It’s wherever you are. It’s whatever is in your hands. But it’s not just about the device.

It’s also about all the content that you can buy, TV, movies, books, magazines.

It’s about the cloud services where all of that content lives and you can access on any one of these devices. And it’s also about your social connections to the people that you care about, and how you can most easily connect with those people.

RAY SUAREZ: With not only the new operating system, but the Surface, is Microsoft, which has had some pretty rocky product launches in the past, taking a big risk?

CHARLES GOLVIN: It is a big risk, but it is a risk that they have to take.

Unfortunately, one of their business — biggest segments that they sell to, that is the business market, the enterprise market, is very cautious about this new product, even though I think consumers are maybe more enthusiastic.

But when we asked enterprises back in 2009 about whether they were planning to deploy that latest version, Windows 7, about two-thirds of them said yes. Today, when we asked them about Windows 8, it’s only half as many say that they plan to deploy it.

RAY SUAREZ: People still think of Amazon largely as a retailer, Google largely as an online service provider, even with the success in cellular and other kinds of handheld computing.

What is the thing that they’re all converging on? They don’t want to be just retailers or online service providers, do they?

CHARLES GOLVIN: No, that’s true, they don’t.

They really want to cement customers’ loyalty across the devices that they use, the content that they buy, where they shop, their social connections to other people, and really fundamentally their loyalty across all of those things, trying to make it so that no matter what the customer wants to do, they’re going to come first to them as a service provider, as a device-maker, as a provider of connections to the people and the things that they care about.

RAY SUAREZ: So play this out a couple of years down the road. Does — does one or another of these big companies become a space, a feeling, a notion, as much as they are a company that makes stuff or sells you things?

CHARLES GOLVIN: Well, I think we have already seen this.

So, you know, Apple used to be just a device-maker. Now they’re one of the largest retailers of content.

And they’re also one of the most profitable physical retailers in the world, in fact, I think the most profitable in terms of revenue per retail square footage. Amazon is not just about selling you books, razor blades, and other household goods, but pretty much anything that you want to buy, you can get from Amazon.

And Google really then is providing you that gateway into the online world, no matter what it might be. But all of those are really becoming one experience as we live our lives online more and more. And so I think, as we look to the future, it’s — all of these companies are trying to be all of those things to consumers.

RAY SUAREZ: So where does that leave the companies that are still very much anchored in the world of making things, the Sonys, the Lenovos, the Dells? Will they have to make a partnership at some point or another with these companies that have bigger ambitions?

CHARLES GOLVIN: Those companies who are really focused around making devices are in a very tough place, because more and more of customers’ loyalty is being tied to the software, the applications, the services that these larger companies provide.

And the device-makers are really struggling to differentiate across those devices and make their brands mean more than just a piece of hardware. Samsung is trying to sell content as well. Sony has a big media business as well. Those companies are hedging their bets between multiple bets across these platforms, but also trying to establish a unique meaning, a unique value proposition to consumers.

They’re really in a very, very tough space, very challenging dynamics ahead of them.

RAY SUAREZ: Charles Golvin, thanks a lot.

CHARLES GOLVIN: My pleasure.