Microsoft's Windows business faces a real threat from Apple's iPad and the impending crop of similar touch-screen devices running Android, Web OS, and other lightweight mobile operating systems. Windows will remain relevant for years to come, but if even 10 percent of potential laptop or Netbook buyers choose an iPad or other competitor instead, that cuts more than a billion dollars out of Microsoft's largest and most profitable business.
That's right: Microsoft now earns more than $10 billion in profit--not revenue, profit--from the Windows desktop operating system every year.
On one hand, this is exactly what you'd expect from Microsoft; the company that sells hammers turns every problem into a nail. And it's easy to criticize the problems of Windows versus a locked-down system like the iPad running a lightweight mobile OS: boot time, battery life, the need to run antimalware software and install patches, and so on.
In its defense, however, Windows PCs can run sophisticated applications that would choke on a simpler system originally built for mobile apps. The Zune PC software is the perfect example. Music playback on the iPad is adequate, but you don't get many special features. The album art is static, there's no queuing, and Apple only added on-the-fly playlist creation in June.
By contrast, the Zune PC software looks beautiful, with things like scrolling images of the currently playing artist and a "Mixview" that builds a slowly changing graphic display of related albums and artists as you listen. And because it's running on a full PC, it's far more functional, as well--you can rip songs, change song data, create playlists, and so forth. If you've never used it, imagine the Windows-based version of iTunes, only more interesting and fun.
In other words, the Zune client would be a perfect consumer application for Windows-based slates. I don't know if the Zune client is touch-enabled, so that might require Microsoft to do some extra work. More problematically, Windows 7 doesn't come with the Zune client; it comes with the far uglier Windows Media Player 12, which is like iTunes, but not as good.
So if Microsoft is clever about positioning Windows slates as iPad competitors, it will compensate manufacturers such as Toshiba to bundle the Zune client and make it the default player for audio and video--just like it does with Windows Live Essentials (Mail, Photo Gallery, and so on).