Windows 8: Microsoft's 'New Coke'

September 21, 2012: 11:59 AM ET

The tech giant's new operating system is a bold step into a future where tablets and traditional PCs blend together. But is it too bold?

By Cyrus Sanati, contributor

FORTUNE -- Will the launch of Windows 8 next month be Microsoft's "New Coke" moment? Like when Coca-Cola introduced a new version of its celebrated drink in 1985, Microsoft's latest iteration of its ubiquitous PC operating system may be too radical a departure from past versions, potentially setting off a revolt among consumers, as New Coke it did for Coca-Cola. And if confusion and bad publicity cloud the launch of Windows 8, the company's plan to take on Apple and Google in the battle to control mobile and tablet markets could be jeopardized.

Microsoft (MSFT) has been criticized for years for its lack of innovation compared to rivals down in Silicon Valley. Besides the launch of its Xbox gaming system, Microsoft has largely failed to come to market with a truly game-changing product since the launch of its Windows 95 operating system seventeen years ago. The company's current Windows phones have struggled competing with Google (GOOG) Android and Apple's (AAPL) iOS. The company has also shredded billions of dollars to catch up with Google's lead in search. Its attempts to make inroads in the internet advertising market with the $6.3 billion acquisition of aQuantive in 2007 was a rout that ultimately forced the firm to write the value of the company down to a mere $100 million.

The aQuantive write down earlier this year forced Microsoft to report its first quarterly loss ever, a public relations stain. One could argue that Microsoft's greatest feat in the past few years was walking away from its totally misguided $45 billion bid to take over the broken internet giant Yahoo! (YHOO) in 2008. If that deal would have gone through, Microsoft would be facing a much bigger write down than just $6.2 billion.

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Despite all of its troubles, Microsoft still makes money. This is due to the continued domination of its Windows operating system and its Microsoft Office suite of products, which includes the word processing program Microsoft Word and the spreadsheet program Microsoft Excel. Windows and MS Office make up 25% and 35%, respectively, of Microsoft's total sales and a much larger chunk of its profits. Windows has a desktop market share hovering around a whopping 92%, according to NetMarketshare data. So even with its fumbles and failed ventures, the company remains relevant in the technology world as well as in the investment world, paying out a fat 3% dividend yield to shareholders.

One of the reasons why Microsoft has been able to maintain its massive market share among PC users is the widespread familiarity with Windows and MS Office in both the workplace and at home. Literacy in its major products form part of the bedrock of computing, in other words. No one likes to relearn something -- like how to open a document or shut down a computer. So while Wall Street complains about the firm's lack of innovation, users benefit from the consistency in Microsoft products.

Microsoft knows very well how sensitive users are to change. That's why on its latest operating system, Windows 7, users have the ability to customize certain menus to look like they did in previous generations of Windows. But with Windows 8, Microsoft is taking away a multitude of classic features without the ability for users to roll them back. It also adds a slew of new features that don't work very well on a traditional desktop that uses a mouse and keyboard.

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It turns out Windows 8 is designed primarily for use on a touchscreen PC, an area of the market that is in its infancy. For example, in the pre-launch version of the operating system, developers and users have had a hard time figuring out how to get off the Windows 8 welcome screen to access their files. The way to do that is to flick up, a motion that is somewhat intuitive on a touchscreen, but is totally foreign using a mouse and keyboard.

Getting started is just the beginning of the nightmare. Once inside, instead of the normal Microsoft desktop, which has been around for decades, users are greeted to a bunch of colored squares floating in a black background, called "live tiles." The squares run off the screen horizontally, forcing users to flick to the right or left, or side scroll using a mouse, which is again a foreign motion for most users on a non-touchscreen device. There is one way to get to a screen that looks like a desktop, but it is missing the "start" button in the taskbar, which normally serves as the gateway to all of the computer's functions. By removing the start button, the fake desktop basically loses its primary purpose.

There has been loads of criticism about the usability of the operating system. For example, it takes three or four steps to simply shut down the computer. Important menus like "control panel" and others simply don't exist, with their functions spread out all over the floating tiles. So besides being different, the new operating system also looks inefficient. Naturally, Microsoft feels differently. "Throughout the history of computing, people have again and again adapted to new paradigms and interaction methods—even just when switching between different websites and apps and phones," Steven Sinofsky, president of the Windows and Windows Live Division at Microsoft, wrote in an extensive blog post on the history of Windows. "We will help people get off on the right foot, and we have confidence that people will quickly find the new paradigms to be second-nature."

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To be fair, Microsoft was smart to develop a tablet-based operating system, but it just seems to have jumped the gun a bit. While the PC market is expected to move eventually to being touch based, the transition has barely begun and is expected to take several years to make its way through the market. The company will be launching Windows 8 on a number of touchscreen mobile phones as well as on their own tablet PC, the Microsoft Surface, which will be the first Windows-based computer to be designed by Microsoft.

Touchscreen phones and tablets are ideal launching pads for Windows 8, but forcing the operating system down the throats of PC users now, when 99% are not using touchscreen PCs, seems like a mistake. That's because the frustration users are likely to experience using Windows 8 on their PC could cause them to shun Windows 8 phones and the Surface. The fear here is that those "Live tiles" could give users the digital equivalent of PTSD, making them run in horror every time they see them.

That would be a shame because Windows 8 isn't bad running on touchscreen devices. Starting in a distant third position behind Apple and Google on the mobile platform, Microsoft needs Windows 8 to launch flawlessly if it intends on grabbing market share from either company in that critical growth market. It's hard to see how that can happen given all the negative comments that have floated up from IT professionals who have been using the pre-launch version of Windows 8 for nearly a year. The general consensus seems to be that Windows 8 would be best restricted to touchscreen devices, but that seems impossible now with the product launch only a month away.

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Windows and MS Office may not be the best software in their respective fields, but they are comfortable and familiar to users, like an old glove or a sip of Coke. The Coca-Cola Company took a drumming when it took away that comfort and familiarity from consumers back in 1985 with the launch of "New Coke." But the company eventually relented, reintroducing its old formula alongside the new one three months later, calling it "Coca-Cola Classic."

Microsoft would be wise to learn from Coca-Cola's experience and should have a contingency plan ready allowing early adopters of Windows 8 to downgrade back to Windows 7 in case mass hysteria breaks out. A Microsoft spokeswoman told Fortune that companies that buy the Enterprise edition of Windows 8 will be able to downgrade to Windows 7 and that everyday consumers can get a refund on Windows 8 within the first 30 days of purchase if the software was bought from the Microsoft store.

If Microsoft can address user concerns before they panic, then Windows 8 may survive and grow strong among touchscreen devices. In the Coca-Cola case, the damage was irreparable, forcing the company to kill New Coke. The stakes in this case are much higher for Microsoft. Killing Windows 8 just because it's a bit ahead of its time would not only be a massive waste of resources, but could also set Microsoft back so far in the race to control the mobile market that it might never catch up to its competitors, leaving it trapped in the PC forever.

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