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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?

"If I were a developer, I would have a really hard time making an argument for why I shouldn't move to Windows 10 and the universal application platform," Gillen said.

Microsoft hasn't publicly addressed how much of an impact it thinks the switch to free upgrades will have on its business. But company CFO Amy Hood noted during a briefing with financial analysts that the company has a wide variety of new ways to make money off Windows 10 users after they upgrade that weren't necessarily available to the company before. First and foremost, the Windows Store is a key component of the Windows 10 experience for consumers, and Microsoft gets a cut of all sales made through that venue. Hood also highlighted the operating system's improved support for gaming and the fact that Bing search is built in.

All of that adds up to a version of Windows that Microsoft can make money from for years to come, even without charging users for an upgrade. That's good news, assuming the company stays the course with its "Windows as a service" plans and offers continual improvements to the operating system.

Because Microsoft will be providing what will at times be major feature updates over the lifetime of a device, the company plans to defer its revenue from new Windows licenses. While manufacturers will pay for a copy of Windows in one lump sum, Microsoft will report those sales in smaller chunks over time.

Gillen said that while Microsoft's finances won't take much of a hit from the free upgrade deal, PC manufacturers won't be thrilled. Because Microsoft has at least partially broken the cycle of people buying new computers to get a new version of Windows, manufacturers won't see the same bump in sales they might otherwise have received from a new release.

However, he predicts that manufacturers will see longer-term benefits. While it's what Gillen calls "a little bit of a Hail Mary," Windows 10's features that benefit touch devices could encourage users to go out and buy touch-enabled computers when they need to upgrade their PCs.

Overall, Gillen said the change shows that it's clear Microsoft is willing to throw out its usual playbook and try something new.

"They're thinking outside the box, I'll give them credit for that," he said.


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