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When is a Windows update not an update? When it's an upgrade

Gregg Keizer | Aug. 5, 2013
Microsoft labels Windows 8.1 an 'update,' not an 'upgrade,' to avoid deferring revenue.

The new faster tempo, most experts believe, will be composed of one or more interim updates — Windows 8.1 is the first, Windows 8.2 next, and so on — between each upgrade, the next of which could be called Windows 9. But if Windows 8.1 is packed with new features, software and hardware support, how much more will Microsoft have to deliver to, first of all, reasonably call Windows 9 an upgrade, and second, convince customers that the price tag is justified?

More importantly, how much more can Microsoft's engineers do for an every-few-years upgrade while they're also cranking out impressive interim updates?

Others have faced the same it's-an-upgrade-it's-an-update issues, but taken different tacks than Microsoft.

Apple, for instance, once charged iPod Touch owners as much as $20 for annual iOS upgrades rather than defer revenue. It later adopted the deferral tactic to make those upgrades free by setting aside a small portion of the proceeds from each iPod Touch sale. It has done the same with iPhone revenue to account for the free annual iOS upgrades, like this year's impending iOS 7.

The Cupertino, Calif. company also defers some revenue from Mac sales to account for any enhancements it provides to the computers' software and accompanying services, but solves the problem of annual OS X upgrades — which by nature are evolutionary and rarely offer major improvements or enhancements — by putting a low price on each upgrade.

In 2012, for example, Apple charged $20 for OS X Mountain Lion, a price sure to be retained for this year's OS X Mavericks. Prior to that, Apple priced OS X Lion at $30 and OS X Snow Leopard at $29.

Although Microsoft offered Windows 8 Pro upgrades for $40 for several months last year, it eventually raised the price to $200, essentially killing the upgrade market and forcing customers to make a choice: Either buy a new personal computer to get onto Windows 8 or let their existing machine age. According to the data on PC shipments from researchers like IDC and Gartner — both which have tracked five straight quarters of shipment declines — people are picking the second choice and opting for Android and Apple tablets, which come with free OS upgrades, instead.

Microsoft may face a pricing dilemma with Windows 9 (or whatever the next upgrade is called). It will have to choose between a low price, perhaps a permanent one rather than a temporary discount, and building an edition clearly superior to the interim updates. The latter may be difficult without an uptick in Windows development and engineering costs.

The company could solve the problem using the strategy it's pursuing with its Office franchise: Sell subscriptions. Office 365 subscriptions, Microsoft has boasted, provide customers continually-updated software and, as long as the subscription payments are made, no further charges for updates or even major upgrades.

But the chance that the Redmond, Wash. developer will extend the subscription concept to Windows is less than slim and none.

So, for Microsoft, an update is an update is an update. Until it's not. Then it's an upgrade.

 

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