OS upgrades: Cheap is better than pricey, free is better than cheap

Apple's shown the way with free OS X upgrades, but will Microsoft follow? The numbers say that would be smart if Redmond is after service revenue

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Mountain Lion's share of it and its two precursors -- Lion and Snow Leopard -- was 5 to 9 times that of Windows 8's share of it and its immediate predecessor, Windows 7. Over a six-month period, the lower-priced Mountain Lion's share was 5.5 times that of Windows 8's.

Apple priced Mountain Lion at $19.99, while Microsoft, as already mentioned, charged $39.99 for a Windows 8 Pro upgrade from October 2012 through the end of January 2013, at which point the price jumped as much as five-fold.

(Perhaps coincidentally, the increase in Windows 8's share of it and Windows 7 was lowest in February 2013, the month when the former's upgrade price spiked.)

While the numbers point to a definite uptake advantage for free or cheap OS upgrades over their low- or higher-priced rivals, the question is what Microsoft would do with the information.

Even if Microsoft followed Apple's lead and made Windows always free, including the rumored Windows 9 of 2015, it would seem at first glance that the move would be unlikely to pay off. First and foremost, Microsoft would be leaving an incredible amount of money on the table. Although it might swallow the relatively small losses from giving consumers free upgrades -- one-off upgrades bring little to the bottom line -- it could hardly afford to chuck the billions earned each quarter from the sale of Windows upgrade rights to enterprises via Software Assurance and other volume licensing agreements.

But there have been several hints of late that Microsoft will experiment with a free, consumer-grade version of Windows. According to a report last week by The Verge and others, Microsoft may be building something called "Windows 8.1 with Bing," which, if it becomes reality, would be offered free of charge to Windows 7 customers as an upgrade carrot.

Windows 8.1 with Bing could be seen as another in a series of "go-low" moves that Microsoft has made, or was reported to have made, to compete in the lower-price bands now dominated by Android in smartphones and tablets. That's where Google's Chrome OS, which powers the Chromebooks sold by various vendors, has an edge over Windows because of the latter's licensing fee.

Those moves included a report that Microsoft has slashed the price of Windows 8.1 by 70% to OEMs building devices to be sold for $250 and under, a laptop price range now filled almost exclusively by Chromebooks; and Microsoft's announcements that its Windows Phone mobile OS would support cheaper chips, that the company had partnered with a new set of device makers known for building inexpensive smartphones for emerging markets, and that it would relax some of the OS's requirements so device manufacturers could cut corners.

Many, although not all, analysts believe that Microsoft has taken the go-low approach to get Windows onto more devices so it can try to generate revenue that traditionally came from licensing from services instead, including Bing (advertising), OneDrive and Skype (premium charges) and Office 365 (subscription fees).

Upgrade uptake, if fostered by less-expensive or even free software, would theoretically increase the chances of producing meaningful revenue from those services, which are tied to the newest versions of Microsoft's OS.

If free is good, and by the adoption rates, it is, then Microsoft would be smart to test the waters, if only for consumers.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2014 IDG Communications, Inc.

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