Microsoft's obsession with piracy threatens to create a Windows 10 licensing mess

Microsoft wants Windows 10 to run on every PC worldwide, which is why they're offering it as a free upgrade to everyone running Windows 7 or 8.1. But the company's obsession with "genuine" Windows threatens to scuttle that grand plan.
Written by Ed Bott, Senior Contributing Editor

Microsoft wants everyone to run Windows 10.

They're so determined to make a clean break with the past, in fact, that they've made an unprecedented offer of free Windows 10 upgrades for anyone running Windows 7 or Windows 8.1. That's a huge user base, representing hundreds of millions and perhaps more than 1 billion PCs worldwide.

This is a very big deal. For the first time ever, a major Windows version upgrade will arrive via Windows Update, with no payment required and no hoops to jump through.

They doubled down on that deal last week with news that the upgrade would be available even on PCs running "non-genuine" (pirated) copies of Windows.

Now, though, the company appears to be backing down from that initial, apparently too-good-to-be-true offer.

It's yet another round of disappointment in the continuing saga of Microsoft licensing. Every time it looks like the company is about to do something to make Windows licensing more sensible and less onerous, someone (usually in the legal department) gets cold feet.

To understand what's going on here, we need to start with a quick primer on how Microsoft turns operating systems into cash.

Microsoft's business model for Windows has been unchanged for years: PC makers pay for OEM copies of Windows, which they sell to consumers and businesses. Consumers pay for upgrades (unless they're hobbyists building their own PCs, in which case they are expected to pay for a retail Windows license). Enterprise customers pay dearly for volume license upgrades that include a slew of advanced management features and additional use rights.

The bedrock of that model is the full Windows license , which Microsoft insists on receiving payment for, usually through an OEM. Through the years, Microsoft has come up with stickers and certificates of authenticity, augmented by holograms and other anti-tampering mechanisms, to help prove that a PC has that underlying license and is thus, in its weird marketing-speak, "genuine."

It was big news back in January when Windows boss Terry Myerson announced that "a free upgrade for Windows 10 will be made available to customers running Windows 7, Windows 8.1, and Windows Phone 8.1 who upgrade in the first year after launch.*"

Note the word "customers." Myerson didn't say "consumers," and there's not a word in the accompanying blog post to suggest a distinction between business and consumer use. (That fact will become important shortly.)

Yes, there's an asterisk, which leads to this footnote:

*Hardware and software requirements apply. No additional charge. Feature availability may vary by device. Some editions excluded. More details at http://www.windows.com.

Last week, Microsoft took the "free upgrade for everyone" story to the next level, with Reuters reporting that Myerson told them, in a telephone interview, "We are upgrading all qualified PCs, genuine and non-genuine, to Windows 10."

At Microsoft, "non-genuine" means improperly licensed and pirated copies, and the Reuters story quotes Myerson as discussing Microsoft's desire to "re-engage" with hundreds of millions of Windows users in China, where most are running unlicensed pirated copies of Windows.

I confirmed that quote via email with a Microsoft spokesperson and also asked whether the deal applied worldwide. Here's our complete exchange on the subject:

Me: And on the "free upgrades for pirates" surprise announce, does that apply worldwide?

Spokesperson: The upgrade applies to any market.

The first impression from Myerson's remarks was that Microsoft was essentially offering an amnesty program, as the company "re-engages" with pirates worldwide. Get an upgrade, they appeared to be saying, and come back to the fold. All is forgiven, and by the way can we interest you in Microsoft services like Skype and Office 365?

But a follow-up statement from Microsoft, one that has clearly been vetted by lawyers and top management, arrived less than 24 hours later and is chock-full of qualifiers:

The statement came in two pieces. First:

The consumer free upgrade offer for Windows 10 applies to qualified new and existing devices running Windows 7, Windows 8.1 and Windows Phone 8.1. Some editions are excluded from the consumer free upgrade - including 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 other Windows 10 enterprise offerings.

The good news is that this statement clarifies the meaning of "Some editions excluded" from that earlier footnote. Windows RT is dead, of course; we already knew that. And no, the free upgrade doesn't apply to Enterprise editions of Windows. Those upgrades are available only through volume licensing programs, and only VL customers who pay for the Software Assurance benefit will get the Windows 10 upgrade. Fair enough.

But I noticed something odd in the rest of that paragraph. Not once, but twice, it refers to "the consumer free upgrade offer." That word consumer, which was nowhere to be found in the January announcement, has a very specific meaning when it refers to Microsoft's desktop operating systems. Consumer editions, such as Windows 7 Home Premium, are distinct from business editions, which cost more and have the word Professional, Pro, Business, or Enterprise as part of the name.

You can find many examples of these distinctions in official Microsoft support documents. The Microsoft Support Lifecycle page is typical.


Back in January, Windows 10 was going to be a free upgrade for everyone, with only Volume License customers excluded. Why is the word consumer now creeping into official statements? Will people using Windows PCs for business purposes get a free upgrade, or will they be forced to pay up?

Based on previous experience, I'm afraid there's going to be an unwelcome surprise for business users later this year.

And then there's the second part of the statement, which is dense with legalese. I've snipped some throat-clearing from the beginning, along with a gratuitous discussion of the hazards of pirated software. This is the relevant part:

With Windows 10, although non-Genuine PCs may be able to upgrade to Windows 10, the upgrade will not change the genuine state of the license. Non-Genuine Windows is not published by Microsoft. It is not properly licensed, or supported by Microsoft or a trusted partner. If a device was considered non-genuine or mislicensed prior to the upgrade, that device will continue to be considered non-genuine or mislicensed after the upgrade.

Here we go again.

Microsoft wants the press and the public to think of Windows 10 as a free upgrade for everyone. And they want to offer a friction-free upgrade experience via Windows Update, which will benefit them by getting their entire customer base (or a very large chunk of it) on the most recent release.

But now the lawyers are busy adding exceptions, including the right to drag you into court if they think you've violated their licensing terms. (And make no mistake about it, Microsoft regularly drags people into court for installing Windows without paying for it.)

All of which means that we are in for another round of confusing licensing questions. Here's a list I came up with right off the top of my head.

  • What happens to members of the Windows Insider program running the Windows 10 Technical Preview? Do they have to prove that they have a legitimate Windows 7 or 8.1 license before they get the final edition? If so, how will that work? And why, for heaven's sake?
  • Will consumers running Windows Vista and XP on hardware that's compatible with Windows 10 have to pay for an upgrade? If so, how much? And again, why? It can't represent enough revenue to be material, and it can only add complexity to a process that should be as simple as possible.
  • How are build-your-own-PC customers supposed to get Windows 10? How about someone who wants to run Windows in a virtual machine on her MacBook?
  • What happens a year after Windows 10 ships and the "consumer free upgrade offer" ostensibly ends? Does Microsoft really plan to start charging for upgrades then? Seriously?
  • And a question I've been asked repeatedly: If someone takes advantage of the free Windows 10 upgrade offer and then suffers a system disk crash, how do they reinstall Windows 10 on the replacement device?

What's sad about this whole mess is that Microsoft had a chance to make a bold move and do something genuinely innovative with software licensing. Instead, we're back to nitpicking and using Orwellian language like "genuine" to describe impossibly complicated situations.

Look, Microsoft is trying to get out of the paid upgrade business, at least as far as consumers are concerned. Back in January, Myerson described the brave new world of Windows 10 and beyond as a simple service: "And just like any Internet service, the idea of asking 'What version are you on?' will cease to make sense," he said.

If that's the goal, then why not just say, "If you own a PC today, you can install Windows 10 for free." Call it a one-time amnesty, if necessary, but get past it. Why insist on this weird and outmoded "genuine Windows" concept?

In practical terms, Microsoft's latest announcements say, quite simply, that consumers do not have to pay directly for Windows any longer.

Windows prices have been plummeting for years. This chart shows the upgrade prices that were offered on launch day for the last four major versions of Windows.

Introductory prices for Windows upgrades, 2006-2015

Windows Vista Home Premium and Business upgrades were $159 and $259 on launch day. Ouch.

The introductory upgrade prices for Vista's successor, Windows 7, were described as a "screaming deal" at $50 and $100 for the Home Premium and Pro editions, respectively.

For Windows 8 Pro, the introductory upgrade price was $40.

And now Windows 10 will be free for a very large number of people, although we don't know quite how many.

OEMs still have to pay Microsoft for licenses, a cost that is passed along to PC buyers, but those costs have dropped precipitously as well.

The new Windows 8 with Bing SKU is free for some small Windows tablets and costs as little as $15 on others. We don't know how much Microsoft is charging for the standard edition of Windows 8.1 on more conventional PC form factors, but it's a very good bet that that price tag is a fraction of what it was just a few years ago.

If Microsoft is serious about moving to a business model where Windows versions don't matter and the bulk of its revenue comes from services like Skype and Office 365 and Azure, why this last desperate bit of clinging to an outmoded business model?

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