The OEM Channel: Windows by ProxyNarrow moat
Microsoft (MSFT) — moat facet
Microsoft doesn't sell most copies of Windows; Dell and Lenovo do — a channel now worth more as distribution than as licensing.
One of Microsoft's oldest and least discussed customer relationships is with the companies that build PCs. Windows OEM revenue comes from licences sold to manufacturers who pre-install the operating system on the machines they ship1, which means Microsoft's Windows business depends on a handful of hardware makers' unit volumes rather than on any decision an end user makes.
The arrangement has been extraordinarily durable because it suits both sides: the OEM needs an operating system customers expect, and Microsoft reaches a billion-plus devices without operating a retail channel. It is also the mechanism that made Windows ubiquitous in the first place, and the specific practice that drew the antitrust actions of the 1990s.
What has changed is its importance. Windows is no longer where Microsoft's growth or profit lives — cloud and subscriptions long since overtook it — and PC unit volumes are mature, which makes this a stable but structurally shrinking share of the company. The relationship still matters for a reason that does not appear in the revenue line: every PC shipped with Windows is a device pre-configured for Microsoft's identity, browser defaults and productivity software. Watch PC shipment trends for the revenue, and watch whether Windows remains the default on the devices that follow the PC — because the channel is worth more as distribution than as licensing.
Not deteriorating so much as shrinking in importance: PC volumes are mature, and cloud and subscriptions long ago overtook Windows as the source of growth and profit. The channel's residual value is distribution rather than licensing — every PC shipped arrives pre-configured for Microsoft's identity and defaults — and that matters less as computing moves off the PC.
Microsoft does not sell these copies; PC makers do, and the line moves with their shipments rather than with anything Microsoft decides. The year ended with the quarterly rate at minus seven per cent on elevated channel inventory. Two more quarters like it and the channel, not the product, will have set Windows revenue for a decade.
Source: Microsoft, Q4 FY2026 earnings release ↗- ReportedWindows OEM revenue comes from licences sold to manufacturers who pre-install the operating system on the devices they ship.Microsoft Form 10-K, FY2025 — "No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2025, 2024, or 2023"; Windows OEM revenue derives from licences sold to OEMs who pre-install the operating system; ~40% of total remaining performance obligation expected to be recognised over the next 12 months — FY2025 (ended June 30, 2025) · publ. July 2025 · source ↗