Windows 10 - here is how Microsoft will earn the money!

Ok, I just have to vent this out.

All you unbelievers - yes, Microsoft will give you free Windows 10 !

And to all those seeking a date of Microsoft crumbling to dust because of this move - you wont find one! No, they won't lose all their income because of it!

Now once that's out, let's explain it bit by bit. Btw, to make clear first - I'm not Microsoft employee. I'm not an economic specialist. I don't own any stocks. I'm just using logic.

First of all, Microsoft said Windows will be free in first year for anyone using Windows 7 and Windows 8 (focusing on PCs here, you've never seen someone charging for phone updates, so there's nothing new there).

But there are some small letters to this deal...

Source: windows.microsoft.com

"Great news! We will offer a free upgrade to Windows 10 for qualified new or existing Windows 7, Windows 8.1 and Windows Phone 8.1 devices that upgrade in the first year!*  And even better: once a qualified Windows device is upgraded to Windows 10, we will continue to keep it up to date for the supported lifetime of the device, keeping it more secure, and introducing new features and functionality over time – for no additional charge. Sign up with your email today, and we will send you more information about Windows 10 and the upgrade offer in the coming months."
Notice the "qualified" part? Yeah, OK, so see the tiny script at the bottom of the page saying:
"*It is our intent that most of these devices will qualify, but some hardware/software requirements apply and feature availability may vary by device. Devices must be connected to the internet and have Windows Update enabled. ISP fees may apply. Windows 7 SP1 and Windows 8.1 Update required. Some editions are excluded: Windows 7 Enterprise, Windows 8/8.1 Enterprise, and Windows RT/RT 8.1. Active Software Assurance customers in volume licensing have the benefit to upgrade to Windows 10 Enterprise outside of this offer. We will be sharing more information and additional offer terms in coming months."
OK, now picture is a bit clearer:
  1. Those that already have Windows 7/8 device can upgrade to Windows 7 SP 1 and Windows 8.1 for free already, so they all qualify for free upgrade, anyone from Windows 7 RTM up to latest 8.1
  2. You have to upgrade in a first 365 days after Windows 10 is released, so let's say roughly by the end of 2016
  3. If you're Enterprise customer using Windows Enterprise through SA (Sofware Assurance) agreements or one of the Open Licence or similar schemes, which is the only way you can get Enterprise version anyway, you can continue using SA and will get Windows 10 upgrade rights as soon as it's out, as with any Windows version in the recent past, and usually you have a set date to get to latest version of newest software, so I'm guessing they'll also have to upgrade "soon" to be eligible for continued support
  4. If your hardware is too weak for Windows 10, like you don't have enough RAM or storage to fit the files on it, and so on - of course you can't upgrade. Or if you can't connect to Windows Update or Windows key/serial checking services, I'm sure you won't be able to upgrade.  But I also imagine that if you upgrade your hardware you'll get upgrade for free as well. Which is still fine since you now have more powerful device AND newer Windows.

There is more than this info available. Microsoft further clearly stated in several places ( like in this official blog ) that corporate / enterprise customers will still be able to schedule and manage their upgrades on their own pace. But MS still advises (and hopes) that they'll still allow Windows Update to do it on it's own. Besides they are already trialing the slow and fast circle in 10 TP and they are allowing enterprises to play it safe(er) by joining the slower 2nd circle. So if their marketing does the job well enough, enterprises will follow consumers to the quicker than average upgrade cycle to Windows 10 (compared to Windows 7 / 8 / 8.1 .. I won't even mention Vista).

Anyway, using above data we see that MS still expects same steady revenue stream from SA subscriptions, as well as from OEM licencing. If you're not familiar with SA, it is already a "Windows as a PAYED subscription service" of sorts, meaning if SA expires you have to roll back to the original OEM Windows that PC came with. But most enterprises enter such agreements as a long-term partnership, and a company-wide one, so they're not likely to skip on it just before Windows 10 hits, not with all the hype and new features. So Microsoft has these pretty much secured already, they just have to provide them enough upgrades and features to make sure they'll renew once agreements expire, and I'm pretty sure that Windows 10 is on a good way to make that happen.

Now, as for after the year #1, as well as XP upgrades - I'd say you'll have to go OEM route and get Windows on PC. And since Windows with Bing went fine across the globe I'd expect majority of devices to come with such free or low-cost Windows pre-installed. And if you're an enthusiast building your PC from components, well, I'm sure you'll still have to pay the "premium" though probably not at a 200$ for Windows Professional as currently. So that's another revenue stream for MS, but I doubt it will be a large one. OEMs will contribute some $$ through licencing and royalty agreements, but probably just enough to cover the handling of partnership relations, support, and so on.

So following all this everyone expected Microsoft to make Windows 10 a payed service or a subscription. But MS can't make an OS a subscription service. It can make upgrades a subscription, again, like SA (Software Assurance) for corporate customers, but not core OS. You need OS to run the device, so you can't effectively expire it or otherwise you're putting a subscription model to the device itself as well, which will not happen anytime soon. But I think MS is being smart here, and I'm pretty sure they are playing the "other subscriptions" card instead.

Which other subscriptions? Well, you see, if you give person a new PC/tablet/laptop with Windows and included 1 year of Office 365 with OneDrive with new device (that's what's happening through the "Windows with Bing" essentially) than they'll use it, it's free right? Than a year passes by, and you remind them it went by and ask them for a renewal of subscription for another 365 days. And if service was good it will be renewed (for ~99$ per household in case of Office 365 Home). And for household with 5 devices that's 20$ per device, or per user, depending how you look at it. Which is not a lot, you have to admit. It includes always-up-to-date Office, and 1 terabyte of online storage, and it's just 20$ per user/device! And you've already invested time to learn how to live with these services built into OS, you've got hundreds of photos and videos on OneDrive, documents made with Office tools, and so on. So you renew subscription, and therefore give Microsoft money. You got OS for free, but you're still being "hooked" and you're becoming paying customer. One of many. How many? We'll get to that bit in a minute.

Also, don't forget all the other services Microsoft offers, and which are being tied closely to Windows 10 through built-in apps and features. Here's a short sample list:

  • We've already mentioned Office 365 Home for $99,99 a year of using Office on 5 devices, and having 5 accounts with 1 TB of cloud storage per account for OneDrive (actually that's now "unlimited" but you have to be good and ask MS for more ;) )
  • Than we've got very good Xbox Music Pass which is $9,99 a month or $99,90 a year
  • And there is also Xbox Live Gold 1 year membership for $59,99 , not directly a PC service, but since MS is bringing Xbox devices and services closer and closer to PC/Windows crowd, I'd imagine eventually PC users will get some incentive to buy this one as well

Now, not everyone will pay for all of these, and some will ignore them all - that's a fact. But having a huge market for it is essential. And here we come to the final point.

Source: netmarketshare.com 

Currently Microsoft covers about 70% of OS market with versions of Windows that will be eligible for upgrade to Windows 10. But XP is in a sharp decline, losing 11% in 2014. And since it's gonna keep declining, we could say it's certain that +80% of all PC devices will be able to have Windows 10 installed in the "1st year" timeframe that MS had set, and probably more in the whole lifetime of Windows 10, something that no other single version of Windows could boast of. If Microsoft succeeds with this push they stand to have more than 1.5 billion PCs running Windows 10 eventually, plus adding to this number there could be around 200-300 million Windows powered smartphones running in that timeframe, and any number of other devices that may yet surface (pun intended).

So if they can get to 80% market share with Windows 10 in a first year, than they have potentially 1.5 billion people paying for their "other services" - now that's market share... Now remember those 20$ per device/user for Office 365 + OneDrive? Imagine that multiplied by a billion or so - each year! Now that's money. Add existing enterprise/ corporate clients. Add the earnings from apps sold in Windows App Store. And so on, and so on... The whole Microsoft ecosystem will suddenly blossom. And users will be glad because they'll all be up to date with their OS, Office, apps, services, using latest and greatest, etc.

Now let's finish the circle and go back to statements I made in first few lines of this blog post. You still think they are not true? You still think that Microsoft is dumb for "giving away" their prize horse for anyone to use for free? Or you maybe think they'd be better off selling Windows and / or subscriptions to Windows?

I can tell you that everyone will be glad to be able to install newer Windows for free some day. A lot of people will not hurry, but once 11 months pass many will turn to quick upgrades, same thing that happened with XP - it lived happily until support ended, and after that you could really see numbers falling rapidly each month. And remember once more - while you had to pay to upgrade XP (mostly by buying new PC), going to W10 will be - free.

What you later decide to buy as a subscription from Microsoft (storage, Office, music, games, apps, ...) ... well that's your and your decision only. But you'll spend few bucks each year I can bet. And that's more than nothing because there's a billion more customers out there thinking just like us... "hey, a buck isn't much"... but it will add up.

Note I've also largely skipped the obvious part here - apps. I guess it should be clear enough. If Apple has huge success with Apple App Store selling simple phone/tablet apps to 500 million iOS devices, imagine potential of 2 billion Windows devices that could be running Windows 10 (when combining PCs, tablets, phones, Xbox consoles, and even TVs and others). And it's not just a bunch of cheap apps, those can be full fledged games or applications with much larger price tags.

Anyway, this is just my opinion. But everything points that Microsoft is betting on scenario similar to this one. They've already made a huge breakthrough with Azure as huge service in corporate world, and if everything ends well, Microsoft and Windows will once more show it's huge strength in personal computing and consumer IT.

I'm looking forward to reading this blog again in 2 years or so, to see how much I've guessed right :)

P.S. Oh, and than there's Bing and Cortana, and how 2 billion of Cortana users could impact the Bing vs Google wars, but that's enough talk for one blog, if I get time I'll put those predictions in a new one these days :)

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