Microsoft accepts the inevitable, takes first steps toward making Windows and Office free

Satya Nadella might be waking up to the new economics of his industry. In a number of recent announcements and hints, Microsoft is finally taking steps toward making Windows and Office free.

In recent months, moves by Apple and Google have changed the playing field for both operating systems and office productivity apps. As I said in What Apple’s zero pricing of iOS, Mac OS X, and iWork means back in October,

The release of OS X Mavericks led to an upgrade of the operating system and a new version of the beta iCloud implementation. I wrote about some of the more technical useage pros and cons earlier in the week (see Apple moves to edge out Microsoft Office and Google Drive), but the biggest change announced by Apple is not about the (relatively immature) coediting and document sharing of this iteration of iCloud. The big news is that Apple is making the iWorks software for iOS and Mac OS free with new hardware purchases. Note that it has also made the upgrade to OS X Mavericks free for everyone, not just for new hardware buys.

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it’s going to be incredibly hard for Microsoft to make money selling Windows or Office when people are getting Google Docs/Drive and Apple iWork/iCloud for free.

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I am betting that the next Microsoft CEO — which should be on point in the next few months — if he or she has any awareness of where the winds are blowing should quickly move to drastically drop the price of Office and Windows, and best would be dropping the price to zero. For everyone, on every platform, including Android, iOS, and Mac OS X.

This battle isn’t about near-term software revenue, it’s a battle about one of the cornerstones of the working world: creating and sharing documents. Microsoft will have to forgo the cash flow from Office and Windows in order to keep in close contact with the information sharing habits of people everywhere.

Nadella has seen the light, I think.

This is why he has agreed to waive licensing fees for Indian phone manufacturers (as reported by Javed Anwer in the Times of India), and the recent rumors about unbundling One Note from Office and making it free. The One Note story has been spun as a response to Evernote’s dominance in the note application space, but I think it’s an experimental foray in making Office apps free, in general.

My bet is that Nadella will realize that he has to trade the hypothetical revenue from these products — and Office — and give away the OS and apps for free in exchange for relevance. That’s the ante he has to make to stay in the game.

‘How will Nadella make money, then?’ you might ask. Charge organizations for the social glue that makes sense of the work graph, that’s how. Products like the recently-announced Oslo, coupled with Office 365, Yammer, and Sharepoint can remain the mainstays of enterprise work tech, and Nadella should look to that technology — a work management backplane that harnesses the social capital latent in cooperative work — to make up for the hypothetical loss of revenue from Office and Windows.

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Let’s see if they make Office for iPad free. That would lead to tens of millions of Office downloads.

How did Gillette make money by giving away the razor? By selling the razor blades. And in this case, the enterprise work technology backplace, rented by the month to enterprises of all sizes, that is the equivalent of Gillette’s razonr blades.

 

Relevant Analyst
Stowe Boyd

Stowe Boyd

Lead analyst, future of work Gigaom Research and stoweboyd.com

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