image courtesy of OnLive

I couldn’t agree more with M.G. Siegler’s post “The Slow Decay of the Microsoft Consumer” over on TechCrunch. He makes a few good points, but this point really got me thinking: “Windows 8 could be better for the company, or it could be worse. The world is drastically different than it was even just three years ago…While Microsoft is going all-in…on their tablet strategy with Windows 8, there’s no indication it will actually work. If it doesn’t that could significantly hurt the Windows Divisions’ numbers.”

Windows 8 will successfully create a “Post-PC” platform for Microsoft by merging their desktop and tablet strategies into a very functional and usable operating system. However, by doing this, Microsoft may have not considered the financial consequences and the impact this strategy will have on a $20 billion dollar per year business.

The current Windows business model is based on consumers paying for Windows on new machines as well as paying for major Windows upgrades. Microsoft also encourages customers to upgrade flavors of Windows, like moving from Windows Home to Windows Home Premium to gain access to new features and functionality. This business model will not work in a Post-PC world because the platforms of the two largest players, namely iOS and Android, are essentially free!

That’s because the platform itself is no longer the revenue generator. The platform is simply the delivery method for revenue generating services like movies, TV shows, music, books, apps and, most of all, advertising. Apple has iTunes/iCloud/iAd and Google has Google Play/Ads/AdMob which are integrated into iOS and Android and that generate billions in revenue. More importantly, if Apple or Google were to add another revenue generating service, they simply provide consumers with a free upgrade of the platform so they can consume that new service.

Microsoft is in a much different position:

  • Microsoft may be able to sway consumers initially to buy into the Windows 8 platform, but Microsoft will not be able to force consumers to pay $199 for future upgrades. Microsoft will need to give more for less to gain on Apple’s 100 million iPad head start!
  • Microsoft is seeing the impact from iOS and Android free upgrades on the Windows Phone platform. Microsoft initially provided Windows Phone 6 customers free upgrades to Windows Phone 7. Now, consumers are demanding those same phones be upgraded to Windows Phone 8 for free. Microsoft is stuck between a rock and a hard place: either upgrade for free and lose millions in revenue or charge for the upgrade and risk losing revenue because customers find Apple and Android a better value.
  • Microsoft must build revenue generating services that Apple and Google already have today. Microsoft has struggled to provide media related services in the past and Google is finding out it’s not as easy as simply releasing a BETA service and hoping people sign up.
  • The numbers below paint a pretty stark picture. Microsoft will need to continually update Windows so that it can compete against Apple and Android and have the flexibility to provide additional revenue generating services to the largest possible audience. However, forcing paid upgrades on consumers will not accomplish this as consumers will simply stay on previous versions, just as desktop consumers are sticking with Windows XP versus moving to Windows 7.
    • Windows
      • Windows 7 – 57%
      • Vista – 8%
      • Windows 2003 – 1%
      • Windows XP – 34%
    • iOS
      • iOS 5 – 74%
      • iOS 4 – 25%
      • iOS 3 – 1%

As M.G Siegler pointed out, Microsoft is “all-in”. I believe Microsoft will succeed in building a very usable and functional post-PC platform that will make for an enjoyable experience, both on the desktop and on tablets. What has me most concerned, is Microsoft’s ability produce revenue generating services to replace the inevitable loss of Windows licensing revenues once customers demand what Apple and Android already provide– free upgrades.

That is my take, what do you think? Will Microsoft be able to charge for upgrades when others don’t? Will Microsoft be able to catch up to the leads they’ve already given to Apple and Google?

9 thoughts

  1. Excellent point on the consumer side. Enterprise already married to MSFT will likely pay. My guess is the upgrade pricing will be reduced moving forward.

  2. I don’t think Microsoft are all that bothered about upgrade revenue theses days. The average consumer will buy a new PC every 4 years or so, by which time they will get their revenue through OEM licensing.

    But I do think one area they would loose out on is VDI cloud providers and Microsoft have already re-structured their licensing model to accommodate VDI licensing of Windows 7 and Windows 8.

    From what I’ve seen on Windows8, I don’t see the point in making Metro the default starting interface if you don’t have any touch screen devices. If anything, it should come on my default if you have a tablet or multi-touch monitor – but otherwise it should be disabled because I think most people will disable it anyway as soon as they can – particularly in enterprise environments to like to standardise everything.

    I also wasn’t aware Apple gave free upgrade paths to Major OS releases (ie, OSX3 to OSX5) I know they allowed minor releases which is the same as Microsoft doing updates and service packs. I haven’t had a Mac since they went Intel, so i’m a bit out of the loop on that one.

    1. Metro can’t be disabled, it’s impossible. SInce there’s no Start menu you have to constantly flip back to the stupid square screen just to launch a program. I used it for a little while and quickly deleted it…. to never use again!

  3. Windows will never go away. Good luck running your entire business on an Apple server and workstation or storing all your files on Google’s cloud on off shore servers while doing all your work on a Tablet.

    1. Ah, right. Good luck running your business on a fast, reliable server and workstation built on a rock-solid UNIX foundation, with a fluid and intuitive user interface. Why would anyone want to do that if they could suffer the annoyance and frustration of working in whichever rubbish version of Windows Microsoft has cobbled together.

      1. You failed to see my point. Point was Apple and Google store all of your information very very far away from you on servers that are not on our soil. Because of that, they can legally do whatever they would like to do with it. If you own a business that is SCARY.

        People break their Windows machines because Microsoft lets you do whatever you please to you pc. People install junk by click next next next during an installation of something like Java or Adobe and end up with 6 toolbars on IE and then they want to blame IE for being the worst browser in existance. If you pay attention to detail and explore the details of what goes on behind the scenes of ANY OS, it’s all VERY COOL. I just like Windows best because they don’t hold your hand. If you broke your PC it was most likely you’re own fault. or the computer you bought from Best Buy because you’re not savy enough to piece together a “fast, reliable and rock-solid” system…

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