Microsoft May Make A Gigantic Shift In How It Makes Money From Windows
My colleague Lisa Eadicicco is testing a $200 Windows 8 laptop from HP called the Stream 11. It's small, plasticky, and has similar low-end specs to what you find in many of Google's Chromebooks.
It's an incredible value. You get a real Windows laptop plus a free subscription to Office 365 and 1 TB of online storage for a year with your $200 computer.
And the Stream isn't the only budget-friendly Windows 8 device coming out in time for the holidays. There are other cheap Windows 8 tablets and laptops Microsoft's partners are selling for as low as $99. And like the Stream, a lot of those have bonuses like free cloud storage and software.
Part of the reason for the recent price drop in Windows machines is to compete with Chromebooks, which have become the laptop of choice for a lot of people as smartphones and tablets have become primary computing devices. Why spend more than a couple hundred bucks when all you're going to be doing is writing some emails and browsing the web when you're not swiping away at your smartphone?
(At the same time, low-powered Windows 8 laptops like the Stream have trouble with some tasks like running too many apps at once. Chromebooks don't need a lot of power under the hood because they're just running a web browser.)
So, as the prices of Windows machines plummet, how is Microsoft going to make money?
The way Microsoft turned Windows into a $20 billion annual business is by selling licenses to Dell, HP, Lenovo, Acer, and all the other PC manufacturers that use the operating system. It also made money when people purchased upgrades to new versions. But in an effort to boost PC sales with cheap devices, Microsoft's license fees aren't as steep as they used to be.
Microsoft's COO Kevin Turner hinted last week that the company is exploring new ways to make money from Windows now that devices are so cheap. As Geekwire points out, Turner teased subscription services for Windows as a way to make money instead of charging a lot for devices when he spoke at the Credit Suisse Technology conference.
Here's the key part of Turner's talk:
...We've got to monetize it differently. And there are services involved. There are additional opportunities for us to bring additional services to the product and do it in a creative way. And through the course of the summer and spring we'll be announcing what that business model looks like.
That sounds like Windows 10, the new version that promises to fix everyone's problems with Windows 8, won't be a pricey upgrade. Instead, you might be able to get a bare-bones version for pretty cheap and pay a subscription to unlock extra services.
In turn, that'll keep pricing down on hardware and minimize the barrier of entry back into the world of Windows. (Remember: PC sales are no longer plunging, but they're still basically flat. Some people blame pricey Windows 8 computers for that.)
As Daring Fireball's John Gruber wrote, it's even conceivable that Microsoft and its partners will eventually start giving away free hardware in return for a subscription to Office 365 and other services.
That's a big shift away from the traditional Windows model.
Microsoft has made some other similar changes recently. For instance, in certain cases businesses will no longer have to pay for each device (PC, phone) that accesses a version of Windows running on a remote server. Instead, they'll just pay once for each user.
The old Microsoft never would have done these things. When Windows ruled computing, Microsoft wrung as much money as it could from that business. But now that Windows faces competition from a bunch of different fronts, Microsoft has realized it has to change.