Windows 10 Likely To Go Freemium, Analysts Say - InformationWeek

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Windows 10 Likely To Go Freemium, Analysts Say

Microsoft needs new ways to generate revenue, and a subscription-based Windows 10 version is a likely approach. But consumers may get a basic version for free.

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Remember those rumors a few months back about "Windows as a Service," an alleged cloud-oriented, subscription-based version of Windows? They're starting to make more sense.

No, Windows isn't likely to shift to a full subscription model, at least not for most customers. But based on Microsoft COO Kevin Turner's recent comments, analysts agree Microsoft will make most versions of Windows 10 free but charge users subscription fees if they want to activate certain features and services.

Microsoft will likely simplify Windows 10 to base, cost-free versions that offer mainstream functionality, said Gartner VP Steve Kleynhans in an email interview. He predicted more expensive Windows editions that enterprises purchase will likely "shift toward a subscription mode, on top of the base product."

Windows licensing costs often hinder businesses and institutions from adopting the newest versions, Forrester analyst David Johnson told InformationWeek. "Walk around almost any hospital, school or any other cash-strapped organization and count the number of Windows XP machines still in use," he stated. "[Microsoft] has to remove every possible barrier to adopting new Windows releases, and the licensing model is one of the very few things entirely within Microsoft's control."

Gartner VP Michael Silver similarly said Microsoft needs PC users on its newest, most up-to-date technologies. Only around one-fifth of the Windows user base has adopted Windows 8 or 8.1, so if Microsoft wants to charge into a cloud-focused world, it needs more customers to move along.

"The only way to do that is to give away upgrades for free. There's definitely room for a freemium strategy, though," said Silver, who, with Kleynhans, authored a July report that argued Windows is destined for a subscription-oriented future. "

Turner sparked the new round of speculation last week when he said at the Credit Suisse Technology Conference that Microsoft plans to make money from Windows 10 but will need to shift to a model that focuses on services instead of upfront licensing revenue. Analysts polled by InformationWeek agree that this new strategy is a necessary but difficult response to changing user expectations and market conditions.

"Microsoft is the only company who still builds a significant business selling an operating system," Kleynhans noted, adding that though this model can work with enterprises, it's fallen out of step with consumers. "Today, consumers see the OS as part of the device and don't really distinguish it as a component to be paid for separately."

Kleynhans believes Windows 10 will be a free upgrade for most consumer versions of Windows Phone, Windows 8 and Windows 7, and that businesses will upgrade through paid support agreements. But it remains to be seen, he said, how aggressively Microsoft will pursue new tactics. "It will undoubtedly be more nuanced than just saying, 'Windows will be free' or 'Windows will be cheaper,'" he said.

Indeed, some analysts have argued enterprise Windows packages will actually grow more expensive. Microsoft makes most of its money from business customers but still needs consumers; in a BYOD world, after all, Office can't stay dominant at work if consumers start using Google Docs or Apple iWork at home. The company's recent decision to add more free functionality to Office for iPad, which previously required an Office 365 subscription for more than document review features, speaks to dynamic. But if Microsoft continues to sacrifice upfront revenue to snare more consumers, it has to compensate with enterprise revenue. Wes Miller, an analyst with Directions on Microsoft, told Computerworld that Microsoft will likely add new features and services to justify higher-priced enterprise subscription packages.

Microsoft has already been experimenting with new Windows revenue models. Turner pointed out that after Microsoft eliminated license costs for Windows smartphones and devices with screens smaller than nine inches, OEMs produced three dozen new devices designs. Many of these new Windows devices undercut Chrome and

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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Thomas Claburn
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Thomas Claburn,
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12/10/2014 | 6:16:53 PM
in other words...
...Windows 10 will seem free, but will have hidden costs, just like everything else on the Internet.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
12/12/2014 | 6:41:48 PM
Re: As long as it is done right...but will it?
So if Microsoft charges for small units of capability it's nickel and diming consumers, but if Apple creates a model where people pay .$99 for small pieces of software capability on my phone, it's ... business model innovation? This direction just makes sense -- give away the core operating platform (and the upgrades that will make it easier for Microsoft to sunset old versions sooner), and charge for the latest-and-better functions that people see value in. 
Joe Stanganelli
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Joe Stanganelli,
User Rank: Author
12/13/2014 | 4:50:10 AM
Re: As long as it is done right...but will it?
Mark my words: There will never be a mass consumer rush to Linux.

Randall Munroe's XKCD #456 is a good example why.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Author
12/13/2014 | 4:54:36 AM
Re: The Greed never ends!
I understand the objections and why many would balk, but I'm not convinced a subscription OS is inherently a bad idea.  After all, HP seems to be doing well with its subscription printing program, Instant Ink.
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