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Free Windows 10 is not an upgrade ... it's marketing

Gregg Keizer | April 27, 2015
Windows 10 is not a free upgrade, Microsoft said last week. It's a "marketing and promotional activity."

In 2013, Microsoft said Windows 8.1 -- the major refresh to the original Windows 8 of the year before -- was not an upgrade but was instead an update, again for accounting purposes. Like Windows 10 will be, Windows 8.1 was given to customers free of charge.

"We evaluated Windows 8.1 and determined that it did not meet the definition of an upgrade and thus have not deferred revenue related to this planned release," Microsoft said at the time in another SEC filing.

To get a rough idea of how much Microsoft might have had to defer if it had not labeled Windows 10's upgrade a promotional deal, one has only to look to the past.

The last time Microsoft offered a discounted upgrade to customers was prior to the launch of Windows 8. During an eight-month stretch from early June 2012 to the end of January 2013, people who purchased a new PC pre-loaded with Windows 7 were eligible for a $15 upgrade to Windows 8 Pro.

Microsoft deferred just under $1.1 billion in revenue for that upgrade program over a three-quarter stretch, then recorded that money as income during the first quarter of 2013.

Without access to Microsoft's own calculations, it's impossible to know how much it would have had to defer had the company not dubbed the free Windows 10 a promotion. Although fewer Windows PCs are sold these days than in 2012, the free-versus-$15 part of the equation may have made the deferred amount similar to the one for Windows 7.

Also unknown is whether Microsoft will defer revenue earned from Windows 10 licenses sold to OEMs to account for the plan to provide free updates and upgrades for, as the company has cryptically said, the "supported lifetime of the device." Microsoft has yet to define what it means by that phrase.

For the moment, all that's clear is that the Windows 10 free upgrade is not an upgrade: It's a marketing and promotional activity.

Keep that in mind when Windows 10 boots for the first time.

 

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