The long-range path to Microsoft's success: Kill the Windows brand

Windows may be the software that helped gain Microsoft gain worldwide dominance, but if the company  wants to thrive in the future, the Windows brand may need to die. Microsoft would still build Windows operating systems, but would emphasize the Microsoft brand instead, and cut prices drastically for Windows licenses. So conclude several analysts, and they may well be right.

That thinking was spurred by the recent Microsoft reorganization, which in part consolidated operating systems including Windows 8, Windows RT, Windows Phone 8, Windows Embedded and Xbox, into a single engineering group. That group is headed by Terry Myerson, who had been head of Windows Phone. The reorganization was designed to turn Microsoft into a devices-and-services company.

According to Computerworld, IDC's Al Gillen wrote in a note after the reorganization that in order to transition to focus on devices and services,

"[It] may mean taking actions that cannibalize some dimensions of its business through the sale of lower-cost, lower-profit products. Historically, Microsoft has resisted internal cannibalization, and while such a move may still seem like a grim option, it remains infinitely more attractive than allowing competitors to do the cannibalization on Microsoft's behalf."

The cannibalization he's referring to is having people buy lower-cost tablets and even smartphones instead of traditional computers. That's already underway, with iOS and Android smartphones and tablets doing the cannibalization. As a devices company rather than a software company, Microsoft will have to make money more and more from hardware sales. And in order to do that, it's going to have to cut prices. Computerworld's Gregg Keizer says about Gillen's note:

"IDC, then, was suggesting that Microsoft must, at least in the main, sell devices based on lower prices. And the only significant component of a Windows-powered device that can be cut further -- hardware margins are at or very near the bone, and have been for years -- is the Windows license."

In that scenario, Microsoft would make less money with each Windows license sold, but hope to make up for it in volume.

What does this have to do with killing or de-emphasizing the Windows brand? Everything. Microsoft has been charging a premium to hardware companies to license Windows. It can do that because of Microsoft's building up the Windows brand. If Microsoft starts charging very little for Windows, that implies there's little value in the brand.

Gillen says that it's particularly important for Microsoft to de-emphasize Windows with phones, pointing out that people refer to smartphones not by their operating systems, but instead by the device names -- iPhone and Galaxy, to name the best-selling two.

He suggests that Microsoft needs to do the same, and have people refer to Microsoft phones instead Windows Phones. He concedes, "That'll be tough. It's built so much brand equity around Windows." But he concludes:

"Microsoft will be a lot healthier and prepared to create and compete in new markets, rather than just defend its legacy markets, when the brand 'Microsoft' becomes more important [and] prominent at Redmond than the brand 'Windows.'

I think he's right on target. It's been years since Windows has been Microsoft's biggest money-maker. And on phones, it may well be that the Windows brand has hurt sales rather than helped them, because some consumers see Windows as something old and stodgy, the last thing they want in a smartphone.

And clearly, Microsoft needs to compete on price. It seems to recognize that. Recently, it cut the price of its Windows RT-based Surface tablet by $150, down to $350.

As for smartphones, budget-minded buyers may be Microsoft's sweet spot. In a recent report Kantar Worldpanel ComTech analyst Mary-Ann Parlato said of Windows Phone:

"Windows strength appears to be the ability to attract first time smartphone buyers, upgrading from a featurephone. Of those who changed their phone over the last year to a Windows smartphone, 52% had previously owned a featurephone...with over half of the US market still owning a featurephone, it's likely that many will upgrade over the coming year, which will ultimately contribute to more growth for the Windows brand."

So don't be surprised if you begin to see less advertising for Windows, and more for the Microsoft brand. And expect more price cuts on Microsoft devices. That may well pave the way for a Microsoft resurgence.

Copyright © 2013 IDG Communications, Inc.

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