Windows free, it's war
"We are a service and device company." I have heard that mantra from every Microsoft spokesperson I've spoken to in the past few months. They have internalized it so much that when they announce that Windows will be free on mobile phones and tablets less than nine inches they count it with ease, as if it were the next natural step in their trajectory.
And it is possible that it is, as it is also true that it implies an evolution of the colossal business model for the company that had the hegemony of the sector with unattainable numbers for the rest thanks to the sale of Windows and Office software licenses, its two "Milky cows". The story of how they have ended up giving up Windows license fees in many cases and the Office model change is the story of how the sector and competition have forced them to do so.
The platform war, all against Windows
If we have to put the magnifying glass on a first competitor that has waved the "free" flag in the last decade, that is Google. It is not that manufacturers are worthless to bet on it - they pay different tolls - but it scales much better than paying a price for each unit that they bring to the market with Android.
The first competitor to have waved the "free" flag in the last decade is Google
What's more, Microsoft got Microsoft to start having something similar to a license fee by way of the lawsuit for infringing patents.
The bet on Android has not been only a matter of the mobile manufacturers - Samsung, HTC, LG, Motorola - but also of historical partners of Microsoft that have it as their first bet on mobile, tablet and even flirt with it in other product typologies. : We are talking about Sony, HP, Lenovo, Dell or Acer.
To that we would have to add Chromebooks, about which we can certainly share skepticism, but which exemplify how laptop manufacturers are searching and capturing alternatives to Windows. There we see HP or Samsung move among many activities.
The photo is completed by the situation of Windows in the growth areas of the industry. Exemplified with two graphs, the first one showing the sales trends of computers (separate laptop and desktop) versus that of mobiles and tablets, via Benedict Evans:
The other is internal data of the traffic of Weblogs SL as a whole, collecting the system with which users of our pages navigate:
With this scenario, Microsoft's urgency to grow on mobile phones and tablets is evident, on a personal computer it is not so much given that Apple, Linux and Chrome OS are not scratching their share in an ostentatious way. The result is that they make Windows Phone and Windows RT free for the manufacturer for mobile phones and tablets, while Windows 8 continue to charge it to anyone who wants to build a team beyond that specialized in mobility.
Apple is the clearest example of creating value with software and doing business with hardware
That does not mean that Windows 8 is not being developed without changes. The pace of one major update a year is not given just because Microsoft has taken on some of the criticism of its system and has proposed to react quickly - more criticism had Windows Vista and there it remained undaunted for much more - but it has to do with the movements made by Apple.
Apple is the clearest example of creating value with software and doing business with hardware. The upgrade to Mavericks was free - as opposed to the Lion upgrade that was paid - something Apple rounded off by making iLife and iWork free for new users of iOs and OS X.
The feeling with that move is that the time to charge for the operating system could be drawing to a close. First, because if Microsoft enlisted in a position to "update much less Windows and also charge for it while Apple does not" it would break the situation created that betting on Mac meant paying more; second because on mobile the scenario that updates are not charged is consolidated, again thanks to the strategy of Apple and Google.
Office for iPad is the total commitment to services
Another photo that helps to understand the evolution of Mircosoft towards "devices and services" is the appearance of Office for iPad. The movement that has seen the light under Nadella's mandate - although it has been brewing for a much longer time - supposes the mobility resignation of Office being a claim to use Windows, giving priority to another business strategy: that of a service company.
Office 365 is the greatest example of this service strategy - charging an annual fee with constant product updates - compared to selling software licenses - paying once a higher entry price, I do not have the most important updates - with Added value for cloud sync and storage. In this way Microsoft is not alone, there we have Adobe CC.
To sell that service, they could not leave out the leading tablet of a large part of their target audience of advanced professionals. Office was not enough of a claim to forcefully launch Windows RT and now we find ourselves in a paradoxical situation: the best Office touch experience is found on iPad.
Again, it is a movement forced by the market - how much better it would have been for Microsoft to maintain the buoyant business of licensing with Windows and Office - not because of Open Office's competition from years ago - that never really hurt Redmond - but for which they brought Google first with its free and basic solution but with an excellent operation in synchronization and web access, and Apple second making iWork free.
Create software value, do business with hardware and services
Although it can be understood that in office automation they are not comparable products by quality - here as a user of the three I see Microsoft better by far in spreadsheet, something better in word processor and I have my doubts in presentation software - it is created the doubt in the consumer that considers to pass to Mac, "his office is free, his updates of operating system also, whereas in Microsoft not".
The response to the entire scenario by Microsoft has been overwhelming and much faster than they had in the face of the gap that opened up for them on mobile: free Windows 8 updates, free Windows for mobile phones and tablets, Office with less barrier to entry with paid by subscription usable on many devices.
In fact the problem for Microsoft is that this change is happening too fast. Because if the PC market continues to drop - and with it their license fees, although the end of Windows XP will help them - and they do not compensate for this with the sale of licenses on mobile and tablet, along with the uncertainty of the change in Office model, the shadow of the doubt grows around the company led by Nadella.
This type of movement has a difficult time going back, once you get your client used to the fact that something like updating the operating system is free, trying to charge again is very difficult. And this scenario seems much more comfortable for Apple than for Microsoft, for the simple reason that Apple is committed to "vertical" integration from hardware to software and services, while Microsoft has always been a platform for others to build their computers.
So in this whole equation the last component is missing: Microsoft is now a device manufacturer. We already saw that although it was not a huge sales success, Surface was helping to improve the accounts, both that category and that of mobile phones with Nokia will be key for Microsoft to balance the accounts in the coming years.
With the numbers in hand, for Microsoft, Windows licenses account for 25% of revenue (Windows licenses accounted for up to 47% of its business, see Seatle Times). That is not going to disappear suddenly - it must be insisted that the computers with Windows 8 and 7 will continue to pay for it - but if the future is that the operating system will be free then the Redmond financiers have a problem: finding alternative sources of income that cover a hole of colossal dimensions. Devices and services they say; If Windows is free, it is war.