First of all, as someone who has studied the Microsoft Windows division for the past 5 years, I can tell you that even the new name is a big deal.
It's a big deal because this is the first Microsoft Operating System that has needed a "refresh," to put it generously.
If you think about Windows Vista, it didn't get a refresh; it got shelved and replaced entirely by Windows 7. This is a very different and much more alarming development.
Second, it's a big deal because we have had enough time to be able to look at Windows 8 and objectively state, the experiment hasn't worked.
The sales numbers have been relatively underwhelming and public opinion seems to be pretty much settled at this point. The name "Windows 8" is now associated with difficulty, drama and complications.
On the eve of this Microsoft OS refresh, I thought it might be interesting to look back and reflect on how we all got to this point.
For your viewing pleasure, here are the 8 billion-dollar mistakes Microsoft made that killed Windows 8 and led to Windows 8.1:
1. Removing the Start Button
2. Removing the Boot to Desktop option
These two are very public mistakes and they have been discussed ad nauseam, so I won't pile on here. Both are major mistakes and hopefully, they will be fixed in Windows 8.1.
They do, however, lead straight to mistake number 3.
3. Ignoring User Testing
This is the one that really baffles me.
The Windows 8 Operating System will probably go down in history as one of the most beta tested Operating Systems in history. It had Pre-Beta (leaks), A Developer Preview, A Release Preview and an Enterprise Preview.
According to Microsoft, it had over 1.2 BILLION hours of testing. After 1.2 BILLION hours of testing, how do you miss all these major UI issues? Still a mystery to me.
Well, not so much of a mystery. Here's probably what happened:
4. Lack of Executive oversight
So after this OS has been tested for 1.2 billion hours, a bunch of senior executives in Redmond must have sat across the table from each other to discuss Windows 8.
Did nobody at that level express concerns? Did nobody say to Steve Ballmer, "Hey Steve, I know this is meant to be the future and everything but I personally find it hard to use..."?
Maybe everyone was scared of Steven Sinofsky, but issues 1 and 2 should definitely have been caught at this point.
Well on to the next issue, attracting developers.
5. Windows Store Developer Fees
This is the one that makes my blood boil. This was something an undergrad economics class could have discussed.
In March of 2012, I wrote the following:
Suspend Microsoft's share of App Developer Revenue for one year
I've said this before and it seems really clear to me. Apple can afford to charge a percentage for app development. They have a superstar platform.
Microsoft have billions of dollars in the bank so would it kill them to take ZERO from developers for the first 365 days?
This would be an awesome message - If you develop a Windows Metro application, you get to keep 100% of the revenue the app generates in 2013.
It was easy to see this was needed a year ago.
I can tell you there would probably have been 2 to 3 times the amount of applications in the Windows Store if developers got to keep all the cash for a year.
Seemed obvious then and it's even more obvious now. If I get taxed here and I get taxed there, what is the financial incentive to develop for the Windows platform?
Makes more sense to write for the more mature platform (not Windows).
Seems like it was a penny wise pound foolish decision from Microsoft here.
Then we go from developers to civilians...
6. Windows 8 Training
Today, where do you get training on how to use Windows 8?
Even today, apart from websites like mine, where does a consumer go to get training?
Seems like if you plan to make big changes to an OS, you might want to put serious thought into making sure people know where to go for guidance.
That didn't happen here.
Next, a crowd favorite:
7. What is Windows RT?
How many people reading this know what Windows RT is, why it exists and what its advantages are?
It just showed up on tablets at Best Buy one day and people had to ask those poor Best Buy employees whether the Surface was running Windows 8.
Having interviewed Best Buy employees and seen them twist themselves into knots trying to answer those inquiries, it begs the question -- why didn't Microsoft roll out a Windows RT information campaign?
It seems that Windows RT is still not the most well thought out decision the company has ever made.
Now, last but not least on the billion-dollar mistake list:
8. Those Horrible Ads
Microsoft's ads are the WORST.
Seriously, does anyone really think that an ad with young people break dancing on tables is the best way to sell a $1200 primarily business tablet?
While Microsoft has made a great effort to harmonize its logos and brand identity across its product lines, no such thought has gone into its commercial campaigns.
There was no cohesion or coherence to most of the ad campaigns for Windows 8 and Surface, and that is genuinely baffling for a company of this size.
The main problem with Microsoft ads is that they hardly ever set up a scenario, problem and Microsoft solution. They usually dance (literally) around the edge of a problem or attempt to be (unsuccessfully) quirky.
The Takeaway for Investors
Microsoft is a fundamentally strong company, but the Windows division has some really serious problems.
A lot of the aforementioned problems should never have been allowed to get this far along, and have (no question) cost the company (and by extension investors) BILLIONS of dollars.
For the first time in my life, it can be argued that Windows is dominant ONLY because it's really the only serious player in the game at this point.
I respectfully argue that, like it or not, Windows is the key to a successful Microsoft ecosystem.
I believe that investors need to look deeply at some of these issues and understand what, if anything, the company is doing to make sure this never happens again.
If Windows 8.1 doesn't fix the negative perception of Windows 8 and the same people continue to run the show, investors have to take that into consideration when looking at investing in MSFT for the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: While I have no business relationship with Microsoft of any sort, I am the owner and editor of several Windows websites (Windows8update.com, Windowsblue.com etc).