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Free Windows 10 upgrade will have 'no financial impact' on Microsoft

Blair Hanley Frank | Aug. 17, 2015
When Microsoft announced that it would be offering consumers a free upgrade to Windows 10, it got a lot of people talking. After all, the company charged $199 per license for consumers to upgrade to Windows 7 Professional just six years ago. So clearly, a free upgrade to a new OS would have to have a big impact on Microsoft's business, right?

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When Microsoft announced that it would be offering consumers a free upgrade to Windows 10, it got a lot of people talking. After all, the company charged $199 per license for consumers to upgrade to Windows 7 Professional just six years ago. So clearly, a free upgrade to a new OS would have to have a big impact on Microsoft's business, right?

Not so much, according to Katherine Egbert, a managing director and senior research analyst at Piper Jaffray. She said in an email that because most people get a new version of Windows when they buy a new computer, the decision to offer free upgrades will have "no financial impact" on Microsoft. The company will still make money from PC manufacturers who have to license Windows 10 for the new hardware that they sell.

In a similar vein, IDC analyst Al Gillen said that Microsoft has consistently told him that retail sales of Windows upgrades are a "non-material" part of its business. That's not to say selling copies of the latest version of its operating system to interested consumers brings in $0 for the Redmond-based tech giant, but that it ultimately isn't a major component of Microsoft's business. Microsoft could be missing out on millions of dollars in sales, but that's ultimately not much compared to the $93.5 billion in revenue it reported for its last fiscal year.

Of course, Microsoft isn't extending the same deal to businesses that need to license the Enterprise version of Windows 10 (or its cheaper Education counterpart) but organizations that pay for Software Assurance will be able to upgrade as part of their subscription.

What's more, Gillen said that offering a free upgrade is a move with "huge upside" that's going to spur consumer adoption and will ultimately benefit Microsoft.

"I think it's a brilliant move," he said. "I think it's the smartest thing they could have done."

In Gillen's view, Microsoft's decision to provide a free upgrade to Windows carries a massive benefit for the company: it encourages third-party software developers to build apps for the new operating system. In the past, consumers have waited to upgrade until developers have released new apps that take advantage of the new operating system, while developers have waited for customers on the new operating system before building apps. It's a vicious cycle that leads people to avoid upgrading.

By allowing developers to create universal apps that run across tablets, PCs, phones and other devices, Microsoft has provided one key incentive to build and update programs for Windows 10. Encouraging consumers to upgrade by giving them a new operating system for free will further push developers to work with Windows 10.

 

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