Welcome to the zero-cost operating system era

Microsoft has reversed earlier policies regarding the cost of upgrading to Windows 10, and will make it free to upgrade. Back in March I wrote Microsoft accepts the inevitable, takes first steps toward making Windows and Office free, and in October 2014,  What Apple’s zero pricing of iOS, Mac OS X, and iWork means. Before Nadella became CEO, I wrote

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.

Nick Wingfield of the NY Times asked Jan Dawson of Jackdaw Research about the implications of Microsoft’s caving in on charging for Windows 10:

It will confirm people’s expectations that you don’t pay for operating systems. They’re basically killing off their ability to monetize anything on the consumer side, aside from Xbox, Lumia phones and Surface.

Nadella’s accepted that we’re in a new zero-bound era: zero-cost operating systems. As I have pointed out before, you don’t have to pay GE or Samsung for the software that runs our washing machines, do we? Why would we pay extra for software that runs these particular appliances?

The historical argument was that they required a unique level of investment, and in pragmatic terms Microsoft once held a monopoly on the must-have OS for business. But now that has fractures, with the movement to a mobile era of computing, where Apple and Google are tied up in a duopoly, and with Microsoft on the outside looking in.

In order to slow the encroachment of those two deadly competitors into its productivity heartland — particularly Office, Office 365, Sharepoint, OneDrive, Wunderlist, and so on — Microsoft has accepted the inevitable, and the upgrade to Windows 10 will now be free.

And maybe that is part of a rethinking of consumer products at Microsoft. I’ve argued that Microsoft is basically giving up on smartphones, and Xbox doesn’t really fit the enterprise/productivity direction that Nadella has espoused (see What is Satya Nadella up to?). Surface hybrids (they’re actually competing with low-end laptops and chromebooks) and other Surface devices may make sense, despite problems with the product line introduction. And someday, Hololens might be a work tool, but in the near term it looks like gaming first. We’ll have to see.

But one thing is clear: operating systems will be free, from now on.