Microsoft's 'go-low' play puts Windows revenue on the line

More services revenue, less from devices? Is that the new strategy?

Analysts were uncertain today whether the recent stretch of "go-low" moves by Microsoft means that the company has tweaked its strategy to emphasize services at the expense of devices.

"Occam's razor suggests that this is a response to Chromebooks more than anything," said Ben Thompson, an independent analyst who covers technology at his Stratechery website, of the report last week that Microsoft has cut Windows 8.1 licensing fees by 70% for devices that will cost less than $250. "There are very few people who will buy both a Chromebook and a Windows PC, whereas most people will buy both a PC and a tablet."

Chromebooks, powered by Google's browser-based Chrome OS, have made inroads into education and business, but their overall impact has been disputed. Still, Microsoft sees them as enough of a threat to attack them in its advertising.

Carolina Milanesi, on the other hand, was bullish on the idea that Microsoft is explicitly aiming for the lower-priced markets in smartphones, tablets and PCs -- even if that means diminished revenue for Windows -- in an effort to try to capitalize on its broad portfolio of services.

"From a Windows 8.1 perspective, it does seem that way, that Microsoft's going after the mass market, that it's no longer necessarily about the software but about the ecosystem," said Milanesi, strategic insight director of Kantar Worldpanel ComTech. "We're starting to see a place for that ecosystem [with lower-priced devices]."

The changes, Milanesi said, were right in line with new CEO Satya Nadella's first-day casting of the company's strategy as "mobile first, cloud-first."

Those moves have come in quick succession over the past few days.

Last Friday, Bloomberg reported that Microsoft had slashed the price of a Windows 8.1 license from $50 to $15 for OEMs (original equipment manufacturers) building tablets and PCs to be priced at under $250.

On Sunday, Windows Phone chief Joe Belfiore announced that Microsoft's mobile operating system would support cheaper chips from Qualcomm, that the company had partnered with a new set of device makers known for building inexpensive smartphones for emerging markets like China and India, and would relax some of the OS's requirements so ODMs (original device manufacturers) could cut corners. All, he said, were part of a "high-volume" focus by the company.

Yesterday, Nokia -- whose handset business is being bought by Microsoft for $7.4 billion -- announced a new line of smartphones powered by an offshoot of Google's Android. The Nokia X family, which will sell for as little as $29, will take on pure-Android rivals with a host of Microsoft services in place of those from Google.

Stephen Elop, still the head of Nokia's devices group but destined to take the same job at Microsoft when the acquisition closes this quarter, argued that cheap Nokia smartphones would provide a "feeder" system -- much like a Major League Baseball's farm team feeds players into the big time -- for pricier Windows Phone-powered handsets.

Sameer Singh, another independent analyst who covers mobile technology at Tech-Thougts, sided with Thompson on the "is this a new strategy or not?" question.

"I think this move is really a way to ensure that at least some Windows devices continue shipping at those price brackets," said Singh in an email reply to questions today. "The competition there, in both smartphones and tablets, is extremely intense [and] I think this is more of a concession to keep certain OEMs within the Windows fold. I don't think it suggests a change in the portfolio or positioning."

The questions Computerworld posed to the trio of analysts were sparked by Hal Berenson's piece of Monday. Berenson's frequent commentary on Microsoft is closely watched, since he was formerly a manager and engineer at the company, and often brings an insider's view of its strategy.

In his blog post, Berenson argued that with Microsoft's recent moves, "You start to get a picture of a strategy focused on winning at the low-end."

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