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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

October 7, 2014 at 12:00 PM

Will Microsoft’s Windows 10 bring subscriptions, business innovation?

After last week’s unveiling of Windows 10, it might seem that Microsoft is playing it safe.

Microsoft's Joe Belfiore demonstrates Windows 10 at the unveiling in San Francisco.

Microsoft’s Joe Belfiore demonstrates Windows 10.

The highlight so far is a start menu to win back traditionalists who were turned off by the newfangled interface of Windows 8.

But Microsoft is just getting started. Chief Executive Satya Nadella is transforming the whole company and reorienting around “mobile-first, cloud-first” computing.

With Windows 10 — the flagship product sailing into this era — we should expect bigger changes. Perhaps they’ll happen on the business side, where they’re less obvious than on the desktop.

A few reports in trade publications have suggested Microsoft might try selling Windows as a service, similar to the way it’s now selling Office through subscriptions.

The term “Windows as a service” even appeared in a Microsoft job listing that an enthusiast site found recently.

Going in this direction would be a more radical change than the design of Windows 8.

It also might happen in subtle ways, without people even noticing. At least, not until they go through the checkbook and realize they’ve paid Microsoft $500 to use their computer for the past five years.

I asked Terry Myerson, head of Microsoft’s operating-systems group, whether Windows 10 could be sold as a service, but he declined to say anything at all about business plans for the product.

There are all sorts of precedents nevertheless.

Big companies have long bought software as a service, paying a fixed rate per user per year. Increasingly, they’re buying software and computing as services delivered via the Internet. Some even buy desktops as a service, paying monthly fees to access platforms that run Windows apps on virtual desktops.

It’s also common now­adays for business-software companies to give away their core product and make money by charging monthly or yearly fees for support and extra capabilities.

These approaches are starting to trickle down to consumer PCs. The old model — paying for an operating system as part of a new machine’s price or as a stand-alone product — will continue for a while, but it’s under pressure.

The PC industry also needs to think outside the box, so to speak, if it wants to see a big rebound in consumer PC sales when Windows 10 ships next year. Sales have picked up a bit but mostly because people need to replace their old machines.

“Business models are an issue when people aren’t willing to pay for something. Then you’ve got to be creative,’’ said industry analyst Bob O’Donnell at TECHanalysis Research.

On the PC and tablet front, Microsoft’s biggest threat is Google and its Linux-derived Android and Chrome operating systems. They’re now powering the majority of the world’s devices.

Google gives its basic software away free and then makes money — lots of money — from search and other apps on the platform.

To catch up, Microsoft in April told PC and device makers they could use Windows free on devices with screen sizes 9 inches or smaller.

Asked by investors about this in July, Nadella said the company is pursuing a “combination” of business models. With “free” versions, the company would make money from Bing and other services attached to the software, he said.

Meanwhile, Microsoft has been steadily pushing consumers and small businesses toward subscription services that provide steadier income than what’s derived from periodic upgrades.

A big step came in 2011 when it began selling Office 365, the online, subscription version of its best-selling productivity suite. To sweeten the deal, Microsoft threw in Skype minutes and gobs of OneDrive online storage.

Really, these services — and the files they handle — are what people care about more than the operating system du jour.

Perhaps Microsoft will give business users the option of buying a virtualized version of Windows 10 as a service. That would add to the menu of Azure cloud services and appeal of Microsoft servers used to manage corporate computers.

On the consumer side, it seems suicidal to charge an annual fee for an operating system when Windows 10 is on the brink of winning back customers and Google and Apple provide their operating-systems free or at minimal cost.

But over time, PC buyers may end up paying fees to get the sort of experience they’ve come to expect on their Windows system.

That experience generally includes Office. Increasingly it will include cloud storage.

To make everything work “right,” we’ll end up paying $100 per year. Microsoft could end up giving away Windows or even subsidizing the cost of PC hardware that hooks people into these services.

That would move the model closer to that of wireless phones, where the software and hardware costs have traditionally been wrapped into the annual contracts and monthly charges. It’s easier to manage, but the costs add up over time.

HP image

HP image

A preview of this came last week when Hewlett-Packard unveiled new Windows tablets and PCs that it will start selling in November.

HP’s “Stream” hardware looks great and the prices are remarkable for Windows systems. Tablets start at $99, while the thin and light laptops start at $200.

These are a direct response to Google’s Chromebook PCs, which funnel users to Google services, where the company makes enough money off users to sell the laptops at $200. does the same thing with its Fire tablets. They’re priced low in expectation that users will buy more stuff and pay $100 per year for the company’s Prime services.

Not coincidentally, the HP executive who announced the Stream hardware, Mike Nash, previously worked on the Kindle team. Before that, he was vice president of Windows Platform Strategy at Microsoft.

Like Chromebooks, the HP machines have minimal onboard storage — just 32 gigabytes on the laptops — so you’ll end up storing a lot of stuff online.

Fortunately, they come with 1 terabyte of OneDrive storage and Office 365 — for the first year. After that, the bundle of Microsoft services will cost $10 per month or $100 per year.

We’ll know in 2015 how far Microsoft will take this with Windows 10. But don’t be surprised if you end up sending a monthly check to Redmond, one way or another.

Comments | Topics: Enterprise, gadgets and products, HP


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