The big picture: Windows is no longer what motivates Microsoft's vision for the software-driven world. Instead, it's become a simple vehicle for selling subscriptions to the company's services, including a subscription for running Windows itself in the cloud. As the PC market's continued growth is not guaranteed, the focus is now on extracting the most out of the existing user base.
Over the past several years, Windows has faded into the background at Microsoft, with cash cows like Office 365, Azure, and Xbox rising to the top of the priority list. With the PC becoming a mature market with little room for growth, the Redmond giant gradually turned its focus to making its software and services available on as many platforms as possible to overcome this limitation.
When the pandemic forced many to work and study from home, Microsoft scrapped its plans for a cloud-first, lightweight Windows 10X operating system. Instead, the company baked it into the full-fat Windows and added some sprinkles of Microsoft Teams on it for everyone's videoconferencing needs. Thus Windows 11 was born as a revamped Windows experience adapted to the new realities of hybrid work.
Before Windows 11 launched, the PC market experienced a slight uplift after years of waning sales. With this new operating system, there was potential for a renewed focus on the core Windows experience and making the PC exciting again. However, Microsoft's Windows 11 push was never about bringing those things back into focus but instead weaving Windows and Office 365 more tightly together.
Microsoft CEO Satya Nadella confirmed as much during an investor call when asked about his take on the strength of the PC market and the role Windows plays in it. Nadella noted that "on the commercial side, I think it's well understood that Windows is the socket for Microsoft 365." In other words, the value of Windows is tied directly to its ability to act as a vehicle for selling more subscriptions to Microsoft services.
With Windows 10 and now Windows 11 released as free upgrades, Microsoft only cares about getting users to buy into services like Office 365 or Xbox Game Pass. For business customers, the company is even pushing Windows as a service with Windows 365. For consumers, considerable focus has been placed on making Edge their go-to for all things web-related. That effort has moved the needle in terms of overall usage to some extent, but not enough to challenge Google's Chrome in a meaningful way.
At the same time, Nadella believes the PC is alive and well, with no sign of that changing in the foreseeable future.
"The PC remains a very important category in people's lives, as we've discovered during the pandemic, and if anything, the intensity of usage has increased," the CEO notes. "There will be cyclical demand that we'll go through, but the number of use cases is definitely, I think, structurally increased."
In terms of pure numbers, Microsoft claims more than 100 million PCs have shipped over the past two years and that consumers and enterprises are gradually warming up to Windows 11. There seems to be some disagreement between market analysts, but Microsoft did try to lead by example with an internal rollout of Windows 11 to over 190,000 devices. As for Office 365, the company touts 58.4 million consumer subscribers and 348 million commercial-paid seats.
Otherwise, Microsoft's business saw substantial revenue in the first three months of 2022, with healthy growth across all product categories. Revenue was $49.4 billion, up 18 percent from Q1 2021. Profit was $16.7 billion, up 8 percent from last year. Also worth noting is that Microsoft's cybersecurity business now generates $15 billion, outpacing all other products in terms of growth.
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