Reacting to declining Windows sales
Microsoft surprised a lot of folks when it announced that Windows 10 would be a free upgrade for Windows 7 and Windows 8.1 users, especially after explaining that the new operating system was such a departure over previous versions that it warranted skipping a version number. As many speculated, the free upgrade is part of Microsoft's strategy of shifting to Windows as a service. Microsoft CFO Amy Hood talked a little about the shift and where the company is headed.
Transitioning to a Windows as a service business model essentially means that Microsoft will be more focused on generating revenue from search, apps, and cloud-based subscription services that tie into the operation system. But why now? As Hood explained during a meeting with Wall Street analysts last week, as consumer PC shipments weakened, so did Microsoft's Windows sales.
"We adjusted our approach in terms of SKU strategy, making sub 9-in. devices free," said Hood, according to ComputerWorld. "We added new pricing strategy for opening price point devices. And we had programs to drive genuine Windows attach in high-piracy markets."
Microsoft hopes that by reducing and in some cases eliminating the cost of Windows of licenses, it will drive up device sales, creating a larger customer base for its services and ads. With the introduction of Windows 10, Microsoft will be taking a big step in that direction.
Surprisingly enough, Bing is one reason why Microsoft can afford to gamble on this strategy. The revenue from Bing advertising, which has increased, has mostly made up for declining revenue of Windows licenses. PC gaming revenue also helped in that regard, just to a lesser degree.
There's still the question of whether Microsoft's Windows as a service strategy means it will transition to a subscription cost of Windows. That could still be in the cards, though it's worth noting Hood didn't talk about or hint at such a model, and instead focused on revenue from tie-in services.
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