It might come as a surprise, given the explosive pace that consumers initially began downloading Microsoft's much-anticipated Windows 10 operations system, but some pundits would have investors believe its popularity is already waning. Clearly, Microsoft won't be able to reach its objective of installing Windows 10 on a whopping 1 billion devices in the next three years, something CEO Satya Nadella has alluded to on multiple occasions. Right?
The data suggests that, indeed, adoption of Windows 10 is slowing. But before investors hit the panic button, it's important to put the number of Windows 10 downloads since its July 29 release into perspective. The pertinent question is the pace of the slowdown, and how much Microsoft has up its sleeve to remedy the situation? Turns out Windows 10 adoption is doing just fine, and improvements are on the way.
Continue Reading Below
Just the factsAs of the end of September, "more than 110 million active devices" were running Windows 10. Not bad, considering that was a mere two months after the new operating system's widespread release. As noted, the pace of adoption is easing a bit, but the real determining factor of the success, or lack thereof, of Windows 10 is to compare it with Microsoft's earlier OS releases. And in that regard, Windows 10 more than holds its own.
Of the last three major OS releases -- Windows 7, 8, and now 10 -- none started off with the bang Microsoft's latest iteration did. However, after the first few weeks of going gangbusters, Windows 10 downloads fell in line with Microsoft's previously most popular OS, Windows 7, released in late 2009. As it stands today, Windows 10 is running 7.9% of the world's PCs, which compares favorably with Microsoft's Windows 7 PC market share after its first three months of 7.7%.
From herePresumably, reaching the lofty 1 billion device plateau will require at least some Windows 10 penetration in the mobile market, a world dominated by Alphabet's Android OS. Though Microsoft hasn't been able to crack the smartphone marketplace -- it accounted for just 2.6% of all smartphone operations systems in Q2 -- even that small piece of the pie will make an impact given the sheer volume of smartphones.
Of course, with nearly 83% the world's smartphones running Android, making a significant dent in Alphabet's piece of the pie is a tall order. But any incremental improvement is a bonus, and Microsoft's recent forays into pseudo-tablets with its Surface and Surface Pro lineup could provide a boost to its mobile adoption efforts of reaching 1 billion Windows 10 devices.
Also, Microsoft just released its first, fairly comprehensive Windows 10 update, which includes several user interface enhancements, the integration of a scaled-down version of Skype for making easy messaging and video calls, and with several other small-ish tweaks. The update isn't likely to provide a huge boost, but as with Microsoft's mobile efforts, it all helps.
It's already workingMicrosoft's long-suffering search engine Bing finally turned a profit in the recently completed fiscal 2016 Q1, with ad revenue climbing a whopping 29%, after accounting for currency exchange rates. Nadella cited the popularity of Windows 10 as the primary driver of Bing's growth, and it probably had a hand in what was a successful quarter for Microsoft's Dynamics customer relationship management, too.
Not only did revenue from the adoption of Dynamics increase 12% after removing the impact of currency, but its online user base also jumped more than three times compared with fiscal 2015's first quarter. Naturally, Microsoft's suite of services has a leg up on alternatives thanks to Windows 10, and that edge is clearly working to its advantage.
Similar to most of Microsoft's offerings, Windows 10-driven revenue feeds into its fast-growing cloud sales. At an annual run rate over $8.2 billion, Microsoft is well on its way to Nadella's objective of reaching $20 billion a year in cloud revenue, and Windows 10 is already playing its part. As Nadella's goal of reaching 1 billion devices running the new OS inches closer to fruition, today's murmurs of its "slowing" growth will become even more laughable than they are now.
The article Should Microsoft Corporation Investors Be Concerned About This Trend? originally appeared on Fool.com.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.