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Microsoft answers Windows device share slump with freemium strategy

Gregg Keizer | March 23, 2015
In 2015, Windows' share of the operating systems on all devices — smartphones, tablets, PCs, ultra-light form factors and PC-tablet hybrids — will slip to 13.3%, down from 13.6% last year and off from a 14% share in 2013, Gartner said.

With such a small portion of the device market — and unlike Apple, whose share will remain even lower through 2017, not a premier-priced hardware maker with the accompanying profit margins — Microsoft would face, at best, a flat market if it stuck to Windows alone for its software and services.

Instead, under CEO Satya Nadella, Microsoft has gone on a spree of app releases for Android and iOS. Some, like the recent mobile Outlook email app, precede similar wares for Windows. Others, such as the rumored move to build a Cortana app for Android and iOS, follow Windows.

The company has made similar moves on its services side, aggressively courting OS X and iOS users for OneDrive, for example, and broadening the appeal of Office 365 with native Android and iOS apps on smartphones and tablets, and a refreshed Office on OS X.

The goal is to dramatically expand the potential customer pool, giving it the reach to fuel a "freemium" strategy where, for consumers at least, software and services are handed out free of charge with the expectation that money can be made on premium levels of functionality.

"This whole model is predicated, not on the notion that someone will pay you before they get to use your products, but on the complete opposite, that almost every one of your products ... will have a free tier," said Chris Capossela, Microsoft's head of marketing, in an hour-long presentation Monday at the company's Convergence conference in Atlanta.

"And you can focus on acquiring people, for free, and get them to use your product," Capossela continued. "Your marketing can fill that top of the funnel and get them to start using it. And then we're going to come up with some level of service that some people will be willing to pay for. It's an incredible change to the classic Microsoft business model."

That strategy would not be possible if Microsoft stayed with its Windows-only policy of the past, not with Windows devices stalled at between 13% and 14% of the total share for the foreseeable future.

By adding iOS and OS X to the pool, Microsoft almost doubles its addressable share to 24.8% in 2015, 25.6% in 2016 and 26.7% in 2017, making good on Turner's model. Even more important, adding Android pushes the numbers to between 84% in 2015 and 93% in 2017.

The question, of course, is whether Microsoft can pull it off, whether it can both replace the revenue lost by its freemium strategy — which includes giving away Windows licenses to some OEMs (original equipment manufacturers) and its free Windows 10 upgrade deal — and convince a significant segment of that enormous share to pay for the top-tiered software and services.

But at least it's recognized that Windows is a no-growth market. That's a start.

 

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