It also marked Microsoft's flat-out admission that it could not make money in using its decades-old business model of selling licenses to OEMs (original equipment manufacturers) and ODMs (original device manufacturers), but had to hunt for a new revenue generator, which it has described as "devices and services."
However, there's little immediate financial risk, said Milanesi, who noted that Microsoft was actually putting small amounts on the bottom line from Windows licensing to smartphone and tablet ODMs and OEMs.
"On the phone side, Microsoft wasn't really [generating] revenue," Milanesi said. "The money was very minimal, and most of that was coming from Nokia. With Nokia becoming part of the [Microsoft] business, that was going to go away. And on the tablet side, with how they were incentivizing, there wasn't much money there either."
Revenue has also been puny because Windows has struggled to climb out of the single-digit shipment share cellar. In the December quarter, researcher IDC pegged Windows' share of smartphone shipments at just 3%.
Rather than rely on licensing revenue, Microsoft will need to leverage customers by showing them ads or selling them services, with Office its single best shot there for the moment.
"In the context of Microsoft's 'devices and services' strategy, free operating systems facilitate increased sales of services and hardware," noted Moorhead. "With increased hardware volume comes a larger market which attracts developers to the Windows platform."
Milanesi described Microsoft's revenue strategy differently. "It lets them get users, especially emerging market users, on a Windows phone," she said. "It may get those users away from the other ecosystems, it may not lose them to start with."
And as it entices more people into the Windows ecosystem, Microsoft will have a better shot at keeping them, hoping to make money off those customers in the future through sales of PCs — which, though in decline, aren't going to vanish, Milanesi argued — as well as current and future services.
"They're going after a Google model," said Milanesi. "They're saying, 'We just want to be in people's hands.'"
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