Free Windows Not a chance
"We've not had any conversations [about] Windows 10 being a loss leader for us," Kevin Turner, Microsoft's chief operating officer, said at a technology conference sponsored by Credit Suisse on Thursday. "[But] we've got to monetize it differently. There are additional opportunities for us to bring additional services to the product and do it in a creative way."
Turner was short on specifics, but spelled out in general terms those opportunities, saying that new business models will allow the company "to monetize the lifetime of that customer" by selling them services and what he called "add-ons."
Most analysts have assumed that Microsoft will continue to expand its Windows-for-free practices to keep customers within its ecosystem, then sell them other products, including services and subscriptions, to make up the Windows revenue decline. Microsoft already gives away its Windows Phone OS and Windows 8.1 for devices with screens 9-in. and smaller, even subsidizes Windows 8.1 for OEMs' ultra-low-priced laptops.
In fact, Turner boasted of that strategy's effectiveness Thursday, calling out both inexpensive tablets and cheap notebooks, like Hewlett-Packard's HP Stream line. The latter relies on the subsidized Windows 8.1 for its $199 starting price. "You're seeing $200 laptops, you're seeing $99 Windows tablets, embracing and extending the ecosystem by lighting up some of these new business-model scenarios, allowing us to monetize the lifetime of that customer through services and different add-ons." Turner said.
Turner's dismissal of Windows as a "loss leader," however, won't preclude specific moves, especially on the consumer side that could include free upgrades to Windows 10 from Windows 8.1, or as a longer shot, from Windows 7, as well. But he implied that Microsoft will continue to charge OEMs for Windows licenses in most cases, its effort to crush Chromebooks with a underwritten-by-search OS notwithstanding.
More information on how Microsoft plans to reap revenue from Windows will be forthcoming soon. "The business model stuff will be out in probably the early part of 2015," Turner said.
As for the next Windows, which Microsoft has pegged with the version number of 10, skipping past 9 in an attempt to make customers forget the bad taste of Windows 8, Turner added that it would go public in the late summer or early fall of 2015.
"By next late summer and early fall we'll be able to bring out this particular OS," said Turner, referring to Windows 10. "That's the current plan of record."
Turner's timeline was in the same ballpark, although perhaps a tad later, than earlier public commentary from Microsoft, which had said mid-2015. The difference may have simply been semantics, or related to milestones.
Microsoft typically reaches the "release to manufacturing," or RTM milestone approximately two months before an OS is released to the public. RTM is a term Microsoft uses to define code that's completed and ready to ship to OEMs (original equipment manufacturers) for installation on new devices. In other words, the previous schedule may have alluded to an RTM timeline, while Turner's was to a public launch.
Turner also reiterated what other Microsoft executives have said, that the firm would next unveil a consumer-oriented preview, although he used the phrase "early spring" to describe the timing. Previously, "early 2015" had been Microsoft's timetable.
The COO's timeline is important if Microsoft hopes to make next year's back-to-school selling season, which the company's OSes have regularly missed.
At one point, when the talk -- unconfirmed by Microsoft -- was that Windows 10 would release before mid-year, analysts applauded because it would put the new operating system on devices in time to make back-to-school, the second largest U.S. sales season for consumer PCs.
Turner's schedule now makes that unlikely, although Windows 10 could make the tail end of back-to-school, which traditionally ends in early September. Instead, it firmly plants Windows 10 in sync with Microsoft's traditional three-year launch cycle -- like 2012's Windows 8 and 2009's Windows 7 -- for making the fourth quarter and its high-water mark of consumer device sales.
Some analysts had predicted that a while ago. "We'll probably see Windows 10 pre-loaded on devices for the holidays next year, said Michael Silver of Gartner in October.
Among the other subjects Turner touched on was the Surface Pro 3, Microsoft's tablet-that-wants-to-be-a-notebook. "Surface Pro 3 is just a home run for us from a device perspective," said Turner at one point. A little later, when asked what marks Microsoft wanted to hit in the next 12 months, Turner added, "We want to continue to see Surface Pro 3 do well."
Turner's use of "home run" to describe the Surface Pro 3 may have been his way of comparing that model to its predecessors -- by all accounts it has sold better than the earlier tablets in the line -- but sounded hyperbolic nonetheless. Microsoft did record a profit on the Surface line for the first time in the third quarter, but likely sold fewer than one million devices in that three-month stretch, far from a sales homer in either the personal computer or tablet markets.
A transcript of Turner's commentary has been published on Microsoft's website in Word document format, and can be read from within a browser using the Word app of Office Online.