Subscribe / Unsubscribe Enewsletters | Login | Register

Pencil Banner

When Microsoft says it will get 'creative' on Windows revenue, it may mean 'subscriptions'

Gregg Keizer | Dec. 10, 2014
Company ponders how to make money on its OS when 'old-world' business models no longer function

Microsoft Windows

After Microsoft's chief operating officer last week said the company was going to change the Windows business model, analysts tried to figure out exactly what he meant.

Those business model modifications, said Microsoft's Kevin Turner, would be revealed early next year when the company will outline how it plans to make money on Windows as it gives away an increasing number of licenses that once generated revenue.

"We've got to monetize [Windows] differently," Turner told an audience at a technology conference sponsored by Credit Suisse (transcript in Microsoft Word format). "There are additional opportunities for us to bring additional services to the product and do it in a creative way" [emphasis added].

Although Turner did not share details of what Microsoft might do, he reminisced about the good old days. "The first 39 years of our company, we had one of the greatest business models of all time built around ... the Windows client operating system," Turner said. "The beautiful thing about the old-world business model was that, hey, as a customer bought our software, we got paid 100% of it up front and we got paid regardless of whether they used it or not."

Cynical as that sounds, it made billions for Microsoft. But it's not how things work today, Turner acknowledged. "The ability to transition from that business model, candidly, is where we are today," he said.

So what monetization moves might Microsoft make that it hasn't already unveiled or at least tipped? Turner rejected the idea of giving away Windows across the board, a move that would destroy Microsoft's third-biggest business overnight. Instead, he ticked off some of the usual suspects -- services and what he cryptically called "add-ons" -- when he talked about changing the business model.

What else could Microsoft have up its sleeve? Analysts interpreted Turner's hints several ways.

"I think we'll continue to see increased prices in the enterprises," said Wes Miller, an analyst at Directions on Microsoft who was, coincidentally, calling from one of the boot camps his research firm runs to help businesses untangle Microsoft's Byzantine licensing. "Prices have risen in the enterprise to counter the decline [in consumer revenue for Windows]. They'll continue to add value to those enterprise agreements to justify the higher costs."

Historically, most of Microsoft's Windows revenue has come from corporations, either indirectly via the licenses purchased by computer makers whose PCs businesses buy, or directly through annuity-style agreements that give enterprises a variety of rights, including free upgrades to the newest OS. That gap between consumer and corporate revenue widened this year as Microsoft began handing out free licenses to Windows Phone vendors, to OEMs (original equipment manufacturers) of tablets with 9-in. screens and smaller, and to those building inexpensive notebooks.

 

1  2  3  Next Page 

Sign up for CIO Asia eNewsletters.