Why Making Windows Phone Free Could Make Sense for Microsoft

Rumor has it that Microsoft  (NASDAQ: MSFT  ) is considering making Windows Phone and Windows RT free. Plans are reportedly still up in the air and nothing has been finalized, but the possibility has some interesting implications for investors. While selling software licenses is at the heart of Microsoft's business, investors should remember that its upcoming acquisition of Nokia's devices business means that it's already preparing to buy its largest source of Windows Phone licensing revenue. With the remaining Windows Phone OEMs possibly considering an exit from the platform, removing licensing fees could incentivize them to stick around.

When it comes to Windows RT, Microsoft and Nokia are the only two remaining companies making RT devices. If Microsoft closes the deal without a hitch, then making Windows RT free is kind of like making it free for itself. Again, the real upside here would be the possibility of third-party OEMs willing to try Windows RT again after they all quickly abandoned the controversial platform. Instead, Microsoft hopes to generate revenue through apps and services if it can coax users to pay for SkyDrive, Office 365, or Skype.

In this segment of Tech Teardown, Erin Kennedy discusses Microsoft's software business with Evan Niu, CFA, our tech and telecom bureau chief.

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