Could Microsoft Steal Mobile OS Market Share From Apple And Google Via Cloud?

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 |  About: Microsoft Corporation (MSFT), Includes: AAPL, GOOG, GOOGL
by: BB Research

Summary

Microsoft's initiative to become a strong player in cloud will allow the company to steal Apple and Google's mobile OS market share.

Although Windows is the most dominant ecosystem in the enterprise space, its adoption in the consumer space hasn't been impressive.

Investors should accumulate Microsoft on dips in order to profit from the growing adoption of the Windows ecosystem among consumers.

Microsoft (NASDAQ:MSFT) is evolving as a tough competitor for both Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL)(NASDAQ:GOOG) in the cloud storage market. The company is trying to get more users for its OneDrive service by offering 15GB cloud storage for free, instead of 7GB in the past.

Competition is intensifying in the cloud storage space. Just after Microsoft's announcement of free storage space increase, Google announced that it will provide its customers unlimited storage in the "Google Apps for Business" space for an additional $5 per month per user. Earlier, Apple announced new pricing for its iCloud service. We believe that by emphasizing on cloud, Microsoft will be able to steal a significant part of Apple and Google's OS market share.

Boosting Cloud Storage Will Help Grow Windows Adoption

Currently close to 1 exabyte amount of data, which translates into more than 1 million GB, is being stored in the cloud. According to a new market research report, the total cloud storage market is expected to reach $46.8 billion by 2018 with a CAGR of 40.2%. With big data and the Internet of Things continuing to evolve, the adoption of cloud storage among enterprises is bound to increase. However, what's really interesting is that growing adoption of cloud among enterprises coupled with the growth of BYOD could boost Microsoft's OS market share among consumers.

Despite the launch of Windows 8, the adoption of Windows hasn't been impressive in the past few years among consumers. Moreover, limited growth of Windows phones is also responsible for a stagnant Windows ecosystem. In contrast, Apple and Google have a loyal user base comfortable with their ecosystem.

Although Windows is the most dominant ecosystem in the enterprise space, it's not the most preferred ecosystem in the non-enterprise (read consumer) space. Microsoft is desperately trying to close the gap its ecosystem currently has with iOS and Android in this space. The company recently launched its new Windows Phone 8.1 in order to establish the ecosystem as a top-tier mobile platform.

How Cloud Storage Could Boost Windows Adoption?

To both businesses and consumers, cloud is a popular service because it can provide the flexibility to work from anywhere. Using Microsoft's cloud services, such as OneDrive, originally known as SkyDrive, today's mobile workforce can take advantage of an 'always-on' mentality. OneDrive cloud storage is seeing rapid adoption in the enterprise space.

OneDrive's primary advantage is that it supports the most widely used mobile platform in the world, viz., Google's Android. Apple's iCloud doesn't support Android. OneDrive offers one full TB of storage to its Office 365 customers at just $11.49 a month. Apple hasn't yet announced a price for its 1TB option and Google offers 1TB for $9.99 a month. In the lower tier, Apple announced that it will offer a 20GB option of cloud storage for $0.99 per month, the amount Microsoft offers for free with an Office 365 subscription. In the next upper tier of 50GB, Microsoft's service is much cheaper at $25.

While Microsoft is trying to bolster Windows 8.1's presence by offering discounted price for OneDrive to Office 365 customers, Google is also offering competitive pricing for "Google Apps for Business" customers. However, since OneDrive is closely tied with Microsoft Office and works better on Windows devices, enterprises that currently use Windows-based systems aren't expected to migrate from Microsoft to Google.

The growth of cloud and BYOD is resulting in the consumerisation of IT. Consumers, who are today's mobile workforce to a certain extent, are choosing operating systems and applications for becoming more productive. Enterprises are also encouraging their workforce to embrace the trend by migrating from Windows XP to Windows 8.1. If the trend continues, we believe that consumers will become increasingly dependent on the Windows ecosystem in their personal lives also, which will lead to rapid uptake of Windows in the consumer space.

Conclusion

In terms of forward EV/revenue and EV/EBITDA, Microsoft is trading almost at par with Apple, but at a significant discount to Google.

MSFT EV to Revenues (Forward) Chart

MSFT EV to Revenues (Forward) data by YCharts

With the PC growth starting to pick up, Microsoft is looking to capitalize on the opportunity by emphasizing on cloud. However, Microsoft's initiative isn't expected to bear fruit overnight. We believe that long-term investors should accumulate MSFT on dips in order to profit from the growing adoption of the Windows ecosystem.

Business relationship disclosure: The article has been written by a BB Research stock analyst. BB Research is not receiving compensation for it (other than from Seeking Alpha). BB Research has no business relationship with any company whose stock is mentioned in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.