Microsoft tries to jumpstart cheap Windows devices with license price cut

Report cites 70% price reduction on Windows 8.1 to OEMs building sub-$250 tablets and notebooks; another signal that Microsoft faces unprecedented competition

Microsoft has cut the price of Windows 8.1 by nearly three-fourths to device makers who produce lower-cost laptops and tablets, according to a report from Bloomberg Friday.

Citing sources who asked not to be named, Bloomberg said that licenses for Windows 8.1, normally $50, would instead cost OEMs (original equipment manufacturers) just $15. The discounted licenses would only be available for hardware that sold for less than $250.

The steep discount -- 70% less than the usual price, half that of the lowest price when Microsoft co-marketing money was included in the equation -- was a reaction to cheap rivals to Windows hardware, particularly Chromebooks powered by Google's free-to-OEMs browser-based Chrome OS, Bloomberg said.

While the news agency did not spell it out, Microsoft is also threatened on the low end by cut-rate tablets running Google's Android, which is given to OEMs free of charge, or nearly so.

"Competing with Chromebooks may be a motivator, but likely the bigger motivator is in tablets," said Ross Rubin, an independent analyst with Reticle Research. "Microsoft still has a dominant share of the clamshell market, but it is far behind in tablets. That's a form factor where Windows 8.1's touch capabilities represent market expansion. That's where it really needs to gain share. The pricing competition in smaller form factors is even more brutal than it has been with Chromebooks."

How much Chromebooks are pressing Microsoft's business has been in dispute. While the cheap laptops, made by everyone from Samsung and Dell to HP and Asus, sold well last year in commercial distribution channels -- the outlets schools and some businesses use to purchase hardware -- their overall impact as measured by online users has been small.

But Microsoft has been alarmed enough about the Chromebook threat to take the offensive in ads that diss the machines as useless for real work.

The Verge weighed in on the Windows discount, as well, claiming that the price cuts are linked to the upcoming Windows 8.1 Update 1 and a change in that revision that will automatically send users of non-touch hardware to the traditional mouse-and-keyboard desktop.

By letting users bypass the touch- and tile-centric "Metro" user interface (UI) of Windows 8 and 8.1, Microsoft has recanted its "make-them-eat-Metro" strategy, one of the key tenets of the company's plan to gain ground in mobile, analysts have said.

The devices eligible for the cheap Windows 8.1 licenses will not be required to complete Microsoft's complicated logo certification -- a process that guarantees hardware works with the operating system -- said The Verge, and do not need to be touch-enabled. The latter exemption was aimed at traditional clamshell-style notebooks, as tablets demand touch.

"It wouldn't be too surprising," said Rubin when asked about the likelihood Microsoft has selectively slashed Windows pricing. "Microsoft has defended the licensing price of Windows, arguing that it does more and provides more value. However, it has made other concessions, particularly in the low price/small display tablet market, throwing in a version of Office."

Rubin was talking about reports a year ago that Microsoft discounted a combination Windows-Office license to $30 from the usual $120; later, Microsoft reportedly offered small tablet makers an Office 2013 license for free.

Other precedents exist for Microsoft's price cuts, such as during the heyday of "netbooks," the cheap, lightweight and underpowered notebooks that stormed into the market in 2007. Netbooks peaked in 2009 as they captured about 20% of the portable PC market, then fell by the wayside in 2010 and 2011 as tablets assumed their roles and full-fledged notebooks closed in on netbook prices.

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