Windows 9, price and Microsoft's Innovator's Dilemma

Windows 9, price and Microsoft's Innovator's Dilemma

Summary: Microsoft will soon be talking Windows 9--partially to put Windows 8 in the rear view mirror--but the real action may be revolve around pricing. Should Windows be free?

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——The details around Windows 9---code named "Threshold"---are beginning to emerge, but the real action will go well beyond features and whether Microsoft can put Windows 8 in the rear view mirror. Microsoft's real challenge with Windows will be navigating a classic innovator's dilemma and how it can thread a needle between preserving a cash cow and ultimately give Windows away to hardware makers.

Give Windows away for free?!? What?!? How?!?

That place is where Microsoft is going to have to go if it wants to preserve its Windows ecosystem and market share. And how Microsoft navigate that business model change is going to be telling. The folks in Redmond may laugh off the idea of giving Windows away for free to original equipment manufacturers, but the writing is on the wall. Consider:

  • Apple doesn't charge for its Mac OS anymore. 
  • Google Chromebooks have become more popular. 
  • PC makers are now adding Android desktop systems because they can customize and probably get better margins. 
  • Price will be king in the PC market and Android and Chromebooks could be counterweight to Microsoft
  • Mobile operating systems are driving computing. 
  • Windows 8 was a black eye for Microsoft and it's going to be a challenge to come back from a Vista-ish flop twice. 
  • The PC market is being splintered into multiple operating systems.

When I consider those moving parts, it's not that surprising that Microsoft is having trouble naming a new CEO. It's going to suck to be the new CEO. For starters, Microsoft isn't that screwed up so a new leader can't be a hero. Think John Chen at BlackBerry. Chen has little downside. If he turns around BlackBerry he's a legend. If BlackBerry fails Chen carries none of the blame.

Microsoft's new CEO will have to preserve two cash cows---Windows and Office---be saddled with low-margin Nokia and most likely keep the company together when a breakup may make more sense. With Microsoft more can go wrong on the new CEO's watch than go right.

Windows 9 comes into view: Microsoft to share Windows Threshold plans at Build 2014 show: Report | Should Windows consumer and enterprise flavors remain in sync? | Microsoft codename 'Threshold': The next major Windows wave takes shape 

In Clay Christensen's books on innovation there's a theme that plays out repeatedly. A leader in an industry is threatened from below by rivals. Those rivals use price as a weapon and gain share. The leaders move upstream to preserve margins. The upstarts move upmarket and the leader has no space to maneuver. An example of this scenario was the U.S. auto industry as Toyota and Honda entered the market. The PC and server markets are also examples as contract equipment players ultimately become brands.

Speaking at the Gartner Symposium and ITXpo in 2011, Christensen noted:

"If you're worried about what may kill you, look down."

Down to Microsoft's Windows is Android and Google's Chromebook franchise. Chromebooks have become more popular and functional. Android is emerging as a PC option. Both of Google's computing operating systems are free to hardware makers. Microsoft can pitch Windows as a premium OS, but the margins will be increasingly difficult to defend.

The move for Microsoft will be to off Windows free to hardware makers and profit from the ecosystem---subscriptions, apps and other revenue streams. Here's the problem: Windows is a huge business. Microsoft will have to preserve and navigate a move to free with precision timing.

In a research note a week ago, Stifel Nicolaus analyst Brad Reback made the case the Windows will eventually be free.

Today, when looking at the aggregate OS market (phone/tablet/PC), Microsoft is the only vendor that explicitly charges for the OS software. We believe this could prove untenable in coming years, forcing Microsoft to give away the OS and attempt to monetize Windows usage/support via various methods depending on the end-customer. We believe this is the single biggest challenge Microsoft's new CEO will face in coming years.

At the very least, Windows average selling prices will tank. There's no other outcome. To fend off Chromebooks and now Android, Microsoft will have to give concessions to hardware makers so they can offer sub $300 devices. Reback argued that Microsoft's OS license fees will fall to $10 to $30 for each device down from $40 today. Those concessions, however, are just the beginning.

Reback continued:

Over the medium to longer term, we believe Microsoft will be forced to follow Apple and Google and give away the OS, especially in the consumer market, and use services like Bing, Skype, Office 365, etc. as its primary monetization engine. That said, we expect Enterprises to continue to pay for support via various enterprise agreements.

The good news for Microsoft is that it'll be able to milk Windows on the enterprise side for the foreseeable future.

Frankly, I don't see many holes in Reback's case. The only debatable point about Windows going free for the consumer market is timing. This chart tells the tale:

windows free

 

Topics: Enterprise Software, Microsoft, Operating Systems, Windows

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280 comments
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  • Microsoft

    The only reason why I use Windows is for Windows based games. I don't see why software developers continue to put all of their eggs in one basket (Microsoft), especially with business systems. The small company I work for just spent $12,000 to upgrade Microsoft Office. I almost dropped from a heart attack right on the spot considering the awesome selection of MS Office alternatives out there. Also, everyone in the office hates the new MS Office. Why the loyalty from IT and software developers?
    Bolzenmuffin
    • It keeps the IT department employed

      My IT department is similar. We went for an in-house solution for our Exchange instead of out sourcing. This would have been both, cheaper and more reliable. However, the newer software/technology requires less and less IT support, which means switching is essentially like them saying, "Fire us."
      NuTechnology
      • Fire us

        I've asked to be fired from IT support..............not yet.
        Foreseen
        • New study: "Ubuntu 12.04 Is More Secure Than Windows 8 and Mac OS X"

          The UK government now says that Ubuntu 12.04 is the safest operating system available, way ahead of Windows 8 and Mac OS X.

          The Communications-Electronics Security Group (CESG) is the UK National Technical Authority for information assurance and they've done a series of tests to find out what is the most secure operating system available for the governmental apparatus.

          The security assessment made by CESG included the following categories: VPN, Disk Encryption, Authentication, Secure Boot, Platform Integrity and Application Sandboxing, Application Whitelisting, Malicious Code Detection and Prevention, Security Policy Enforcement, External Interface Protection, Device Update Policy, Event Collection for Enterprise Analysis, and Incident Response.

          Ubuntu 12.04 (Precise Pangolin) is the operating system that passed most of the tests, way ahead of Windows 8 or Mac OS X.

          “All in all Ubuntu 12.04 LTS stacks up as the most secure of the current desktop and mobile operating systems. Supported by Canonical with free security updates for 5 years, and without malware problems, it’s hard to beat in official public sector applications. “
          MacBroderick
          • Quit it

            Quit giving people crap about how great Linux is. THIS is why Linux will not overtake the desktop. Until the learn there are people out there who are NOT developers or It people, they will never win in desktop mode.

            http://www.linuxforums.org/forum/linux-tutorials-howtos-reference-material/64958-how-install-software-linux.html
            bin00010111
          • User Experience in Linux is Horrible

            Before you Pooh Pooh me, I have 30 yrs. experience in IT, 2 ESXi servers and have worked with DOS 1.1 to Windows 7 (hate vista and 8). I have worked with many Unix, Linux, mainframe and Windows boxes. I provide IT to many friends and family. I don't use Linux because it is hard. Which Shell, which GUI is always a problem. Except for a few people who customize the Windows desktop beyond recognition, I can sit in front of any Windows computer and start working (even when the screen was in Spanish I could work because I knew F-keys and locations of screen elements, File then Edit on left, help on right and so on. Linux does not have a standard or even a default interface. I often customize my interface, but always have a default starting point. As a consultant, I travel from shop to shop across the country and can sit down in front of ANY Windows workstation (except 8) and immediately start working. With so many Linux interfaces it is very difficult. That has been Windows winning feature for me. It has been losing points with Vista due to bloat. Windows 8 is a mess. Touch is terrible on a desktop. I have a hard enough time keeping my little phone screen readable from all the fingerprints and oil smears. A desktop screen just becomes an unreadable mess. Gesture control might be nice, but it will probably lack precision enough for a long time.
            TasMot
          • not sure what Linux distros you are talking about

            but most modern Linux distros offer an easy and pleasing UI.

            Ubuntu is a bit different from others but still easy to use: http://www.ubuntu.com/tour/en/

            Mint gives you a more familiar UI if you are an XP user: http://www.linuxmint.com/screenshots.php

            Maybe this will, because you seem a bit un-informed about Linux.
            WhoRUKiddin
          • not sure what Linux distros you are talking about

            I use Robolinux which is extremely easy to operate and it runs Windows Apps natively inside it which is a must for 90% of the world.
            Luke-IT
          • Try to compare an OS from this century

            I have heard of many distributions of Linux, your fail to come up, so I expect yours to be an old one. You can emulate Windows in Ubuntu (and Mint - all Debian) with Wine.

            Most of us do not rely on unsafe Windows applications any more - like me, I have moved to Mac, but also use Linux Mint - very similar to Ubuntu. I use the Cairo Dock, to make it similar to Mac. Windows is not installed on any server or any laptop, and we avoid most malware this way.
            knuthf
          • Oh, please. WINE

            For when you need to run Windows 95 apps today.
            baggins_z
          • Correct; WINE Isn't What It's Billed To Be

            I tried both WINE and Crossover for Corel WordPerfect Office, SmartDraw, and other apps. I had half the functionality in WINE that I did in a native Windows environment and even less in Crossover. Since I often have had to write complex documents, for example, I need the full functionality of WordPerfect and not the moderately good functionality of LibreOffice. (Forget MS Word; I need control of the document much more than the program does).

            There are a lot of relatively cheap, good programs out there that unfortunately are only written for Windows. If these were on Mac or Linux I'd abandon WIndows. The emulators just do not work well.
            wnematollahi
          • General comments...

            I currently use Ubuntu as my primary operating system. For those Windows application that I still use, I have XP, Win 7, and Win 8 available in virtual machines. Even with a virtual machine, you do not have full functionality (some hardware won't be recognized, like IEE 1394 ports, I believe) and generally won't support games.

            The big advantage of virtual machines is you can create a true snapshot of the state of your virtual machine. If you get hit with a virus or somehow trash the OS with a piece of bad software or delete the wrong files, you can restore the VM to a previous snapshot in a few seconds. I put my data in my Linux partition and use the sharing feature so that when the VM is restored to a previous state, no user data is lost.

            I prefer Libre Office over Microsoft Office for my spreadsheets. The look and feel in Libre Office don't change as drastically as in Microsoft Office. Libre Office is more limiting in the word processing department if you are working with graphics and need to rotate -- Microsoft shines here.

            Bottom line -- use the tools (OS and programs) that are best suited for what you need and like to do.
            rich3page
          • Office 2013...

            ...runs on WINE. It doesn't, on the other hand, run on Windows 95.
            jasonp@...
          • Office 2013

            It no longer runs on any Windows version lower than Windows 7. I know. I've tried installing it on an XP pro machine. It chokes and tells you to upgrade to windows 7.
            RobertMoore12@...
          • You should not...

            ...be running XP. If you have an legacy app that just has to have XP, run the MACT on it and build a shim for the app.

            XP needs to die yesterday.
            Rann Xeroxx
          • Linux user experience

            The main issue raised by TasMot is consistency, not ease of use.

            Not addressed by WhoRUKiddin or Luke-IT.
            DAS01
          • Consistency?

            From any Windows version to Win-8 requires a pretty good learning curve. Two years ago our son's mother-in-law, who is a retired ICU nurse and who had no idea how to even make restore disks for her Win-7 laptop lost her lovely Win-7 to the BSOD. Rather than pay a shop to try to re-install and fix whatever instability she had, I put Mint 13 of the Mate flavor on her Toshiba, took a bit less than 20 minutes with her Comcast connection. I set up her email in Thunderbird (to which she said "Wow! That was so easy I could do it!"), installed some equivalents of her favorite desktop games and turned her loose. She had it just from watching me in those last two to three minutes. She opened her emails, hit a couple of her favorite sites with Firefox and then sat back to enjoy the desktop games. There was not one bit of a learning curve for a basically unskilled user. Go ahead, say Linux is inconsistent, the entire desktop and programs were close enough to Win-7 for a noob to grasp.
            blaineclrk
          • Linux STILL not ready for mainstream in a Windows world

            You -MUST- get developers on board or get them to make things HTML5 (not ActiveX) compatible and do it as a web server if you ever want to be able to switch from Windows to linux. I am all about linux these days after many years of Microsoft Kool Aid drinking. Mainly the license schemes have become too complicated. In your example, you haven't provided any other things other than your initial installation for your son's mother-in-law. I wanted to do something similar for my retired dad but I know for sure he would miss:

            1. his camera application which helps him get his photos off of his camera to upload to ebay for his buying/selling of trinkets he has as a hobby. It would be up to me to manage that for him and I couldn't get it to work easily in my lab to be comfortable enough to do it myself. I would get the job done with many steps.

            2. His scanning software: Windows only. His multi function device would immediately stop working

            3. His banking software: (ActiveX) I need not say anything additional. I doubt Wine would help here, and if he has to run a VM to do it then why bother with linux in the first place? Legally you still have to buy a license

            4. iTunes- Again, no linux version. He downloads audiobooks from audible.com and they go into itunes where he syncs with his ipod.

            Linux may have been an option for your son's Mother-in-law several years ago but I would surprised if she didn't go back to Windows after struggling and blowing up your phone
            zsudas
          • taking it from the top here...

            1. use dolphin... probably one of the most awesome file managers on the planet. btw you can store stuff TO a memory stick (its just a USB stick with a different pinout). not just pics. camera doesn't have a clue.
            2. install xsane after installing linux scan driver. almost all vendors have one for their all-in-ones (especially brother)
            3. run it under a VM with linux as host (if wine doesn't work)
            4. use trans manager under a VM. may run under wine as well but I've not tested it. btw with trans manager no need to purchase from apple. download off of youtube then upload via transmanager to your iWhatever.

            look. linux is worth a little brain investment. with these latest distro's (I run kubuntu 12.04 LTS on our biggy machine), limemint on a notebook (Granddaughter likes gnome) & 12.04 on the remaining. they talk with one another via the LAN so you get to share whatever you want. I'd stay with a deb packaging choice though for the client side. the point is that there is ALWAYS a workaround via wine or the VM (I use Oracle's VirtualBox.. free) once set up Pappy oughta be able to run it and in fact he won't even know the diff except for a slightly different look & feel. he'll also appreciate the snappy responses to user ticks compared with winblows background bloat (due to many technical aspects beyond the scope here).

            quite frankly though I'm concerned about the downslide of winblows. most professionals (creators) are already using linux due to many factors. we enjoy not having to bother with virus checkers, malware checker, adware checkers & what not. for one those things slow one's system to a crawl and then every so often... well you know the drill. yeah its a lot more secure as its difficult to hack the security hash... where in windows you really don't have a stopper because everything is always in the same place so use linux to simply grab it (for this reason alone I'd encrpypt at least my data partition if I were running that thing). but alas its slow enough already without that! thus there really is no decent workaround for the many long term winblows issues.
            lewac
          • not sure what Linux distros you are talking about

            Luke-IT, thanks. Never heard of Robolinux, but will give it a try.
            GKSeifert