Microsoft's new business model for Windows 10: Pay to play

In the Windows 10 era, as Microsoft's licensing revenue drops, the company's finding creative ways to squeeze extra money out of customers, especially businesses.

windows-10-business-model.jpg

Want full management options for Windows 10? Prepare to pay.

Every article I've read recently about Windows 10 focuses on its features, its user interface, its update mechanisms, or its privacy policy. But no one seems to want to talk about the fundamental changes in Microsoft's business model for Windows.

That silence extends to Microsoft itself, by the way. Even though the company has made wholesale changes to the way it monetizes Windows, it continues to keep most of the details well below the radar.

The bottom line is this: The price of Windows, as paid by OEMs, is down. The exact price that Microsoft charges large OEMs for Windows is a carefully guarded secret, but there's no question that the price tag has dropped precipitously in the past few years. Indeed, on some devices, such as small tablets, the OEM price of Windows is literally zero.

People are still buying PCs, but the rate of new sales is declining year over year. Fewer PCs, with lower revenue per unit, means dramatically lower overall revenues for the Windows licenses attached to those PCs.

But the cost of developing, distributing, and supporting Windows isn't declining. To maintain its margins, Microsoft is aggressively looking for new ways to convince Windows users to pay for additional products and services.

This isn't a sudden change. Rather, it's a continuation of several trends that have been years in the making. Revenue from Windows OEM licensing once dominated Microsoft's balance sheet. Today, that business, while still large, is not even in the top three among Microsoft's many billion-dollar operating divisions.

For enterprise customers, little of this is new. For enthusiasts and consultants who work with small businesses, the changes are surprising, and potentially unwelcome.

Traditionally, Microsoft's revenue from Windows comes from two primary sources: OEM licenses and enterprise licenses. For most non-enterprise customers, the cost of the Windows license is just part of the cost of a new PC. You don't think about its cost, any more than you care what the OEM paid for the CPU or memory chips.

One important new source of revenue is from upsells: sales of apps (through the Windows Store) and services like Office. The other source is from edition upgrades: Home to Pro and Pro to Enterprise. Shifting the mix of Windows sales from the low-cost Home edition to the pricier business editions is a key part of Microsoft's financial master plan.

So let's look at each of those three editions and see how you'll be subtly or not so subtly induced to spend more money.

Home

The basic proposition of Windows 10 Home is "Set it and forget it." A penny-pinching PC user once was able to get by with Home edition. Now, many of the traditional management and configuration options you once took for granted are not available on this edition.

Updates, for example, can't be deferred. Both quality updates (like the monthly Patch Tuesday security fixes) and feature updates (the free major upgrades, such as the Anniversary Update) are managed by Microsoft. In addition, there are fewer customization options than in the past. Features that used to have an on-off switch now can only be managed with manual registry updates, if at all.

The so-called Windows 10 Consumer Experience means upsell opportunities appear on the Start menu automatically, with suggested apps on the left and up to five tiles on the right, for Twitter and games like Candy Crush. The Get Office app is also included in every copy of Windows 10, offering free trials with the goal of getting users to pay for a monthly or annual Office subscription.

Pro

Historically, upgrading to one of the business editions of Windows (Windows 7 Professional and Ultimate, for example), was the way to unlock "pro" features such as BitLocker Drive Encryption and the option to connect to a PC using Remote Desktop Protocol.

That's still true of Windows 10 Pro, which is also required if you want to join a PC to a Windows domain.

But the biggest change is the availability of the Group Policy Editor, another Pro-only feature. In previous Windows editions, Group Policy was mostly an enterprise management tool. In Windows 10, it's the only way to configure Windows Update for Business. If you want to defer the upgrade to a new version of Windows for up to four months, you need to pay for the Pro upgrade.

The most economical way to do that is to order it from the OEM, with a new PC. Most business-class PCs, including Surface Pro and Surface Book models, include Windows 10 Pro in the purchase price. On a build-to-order PC from an OEM like Dell, a Pro upgrade might cost as little as $40. If you wait to upgrade a new PC with Windows 10 Home to Pro, you'll pay $199. Ouch.

One gotcha with Windows 10 Pro that will be particularly disappointing to consultants managing small businesses is the inability to turn off the Consumer Experience. That means after each feature update you'll need to manually remove those suggested apps. And that's just one of several Group Policy options that require Enterprise edition.

Enterprise

Windows Enterprise is the most misunderstood of all editions. It's available as an upgrade only, and for businesses, it requires an underlying Pro license. Enterprise edition includes additional licensing rights, such as the ability to run Windows in up to four virtual machines and to deploy Windows via imaging rights.

Traditionally, Enterprise has been sold through Volume Licensing agreements, which aren't available for small businesses. That's changing as of this month, with the option for small businesses and individuals to purchase Windows 10 Enterprise as a subscription option (Windows 10 E3) for $7 a month.

Enterprise edition has the most management options, including Windows Update for Business and the ability to suppress the annoying Consumer Experience with Group Policy.

The upshot of all these changes is to push and prod people who might previously have been happy with Home edition to move up to Pro, and to encourage a similar upgrade option for Pro users to move to Enterprise.

Just be prepared to pay.

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
See All
See All