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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 is making a volume play, a tactic it's not shy to admit. "We want to be able to make sure that we compete on all price points and overall grow the volume [of Windows devices]," CEO Satya Nadella said during an October call with Wall Street.

Miller, then, expects Microsoft to pull more money from its enterprise side to subsidize its efforts in the consumer market, essentially a continuation of its current strategy. Because that's conservative by nature, one must wonder if it would be worthy of Turner's use of "creative."

There is some recent evidence of Microsoft's creativity: It's begun to dabble in pre-user licensing, the bedrock of Office 365's model in the enterprise, for Windows as well. Licensing experts have examined the new licensing model and concluded that its appeal will be limited, but that could change.

Like Miller, Jan Dawson of Jackdaw Research said Microsoft could continue to subsidize its growing give-away habit by squeezing more revenue from enterprises. But he also saw other opportunities.

Dawson started out by noting that Microsoft's "old-world" model, which relied on expensive operating systems and software designed for expensive hardware made by others, is increasingly obsolete.

"In both Windows and Office, the mainstays of Microsoft's revenue, it's trying to sell something in an environment where others offer those things for free," Dawson said. As examples, he cited Apple and its iOS and OS X, Google and its Android and Chrome OS; their productivity suites, iWork and Google Docs; and with the exception of Macs that run on OS X, all of that inside a universe of historically cheap smartphones, tablets and Chromebooks.

"One of the challenges for Microsoft is that it keeps charging for what others give away," Dawson continued.

Microsoft has approached that hurdle with Office already, and has changed the consumer business model to, if not make the suite free, to make more of it free. A month ago, the company changed the rules for Office for iPad, giving customers editing tools that could be used free of charge in non-commercial settings.

Dawson wondered if that was a taste of what Microsoft plans for Windows, at least on the consumer side. "Much of their innovation lately has been giving away stuff for free."

Microsoft could replicate the Office for iPad model -- which presumably will be how it handles the upcoming Office on Android tablets, perhaps even some of the future desktop editions -- by giving away an entry-level, non-commercial version of Windows to OEMs, then trying to entice users into paying, most likely through a subscription, for a more capable, feature-rich edition.

While Dawson didn't go into the specifics, his concept has precedents: Microsoft has used mechanisms in the past, including in-place upgrades to premium editions from within Windows 7 (called "Anytime Upgrade" at the time), and withholding enterprise-necessary features, particularly domain joining, from consumer-grade Windows, to differentiate versions and segregate first-class customers (commercial) from those in coach (consumers).

 

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