Microsoft Can't Sell Windows 8, So It's Giving It Away

Microsoft (NASDAQ: MSFT  ) is pulling a 180. After lambasting Google (NASDAQ: GOOGL  ) for collecting data on its users to sell ads, Microsoft is prepared to do the exact same thing. With weak sales of Windows 8, Microsoft is preparing to offer a free upgrade to Windows 8.1 for Windows 7 users. "Windows 8.1 with Bing," as the name implies, will feed users into Bing search and other Bing services as well as Microsoft's cloud-based services.

Free OS upgrades are something new to Microsoft, but not to the industry. Apple (NASDAQ: AAPL  ) offered free upgrades to its newest Mac OS X last year, and Google offers free upgrades for Chromebooks and Android devices that support the update. The move is questionable for Microsoft, however, which has typically received $50 per device from OEMs to license Windows.

Nobody is upgrading?
Windows 8 is a strong departure from its predecessors, focusing more on touch devices than traditional mouse and keyboard inputs. So far, the new user interface has been a flop. Only 10.7% of PC users have Windows 8 or 8.1 installed, according to Net Applications. More telling is that fewer than half of Windows 8 users have installed the 8.1 update.

Comparatively, Windows 7 commands a 47.3% share of the market, and 12-year-old Windows XP still has 29.5% of the market. Even though Microsoft has scheduled April 8 as the final day of support for XP, about one-third of Windows users are still on the operating system. The anticipated rush to upgrade has yet to materialize, and it might never happen.

Will a sizable chunk of those XP users who are left without virus protection and Windows 7 users, offered a free upgrade, make the jump to Windows 8? If they haven't in a year and a half, there's not much reason to think they ever will.

Windows Vista, an equally poor-performing Windows iteration, currently has just 3.1% market share. At 16 months, the point Windows 8 is in its life cycle, Vista had a similar 10.2% market share. It peaked at just 23.3% market share. It was quickly supplanted by Windows 7. Windows 8 may face a similar fate.

But let's say they do
Let's say Microsoft's strategy proves successful, and people start upgrading to Windows 8. Instead of charging $50 or even $15 per device sold, Microsoft expects to make up revenue in its advertisements and cloud services. But Microsoft is no Google, and its average revenue per user is nowhere near the Internet search giant's.

Last quarter, Microsoft successfully captured 18.2% of the U.S. search market. The company generated approximately $759 million in search advertising and $1.04 billion in total online advertising. Comparatively, Google took 67.3% of the search market, and generated $10.55 billion from Google sites during the quarter. Using some back-of-the-envelope math, Google is monetizing its users about 2.75 times better than Microsoft.

Granted, Microsoft isn't completely reliant on advertising. It hopes to improve sales of Office as users upgrade their operating systems. On the company's second-quarter conference call in January, CFO Amy Hood noted: "As people refresh a PC, and if they're buying Pro, those people often are Office customers, and so if they tend to buy on a transactional basis, we also see some impact through Office."

Windows, Mac, or Chrome?
Microsoft faces another problem: Mac OS is seeing increased adoption, even as PC sales fade. With Windows XP support expiring, most users will need to upgrade their hardware in order to upgrade their software. This leaves them with a choice of what hardware to purchase, and more often, that choice leans toward Apple.

With its latest iteration of iPads and Mac OS X, Apple is including its productivity suite along with new hardware purchases, which eases the cost burden of more expensive Apple hardware. Moreover, Apple's computers have a notably longer lifespan than most Windows PCs, adding value to the purchase price.

Additionally, Chromebooks are gobbling up a small chunk of new laptop purchases, and Microsoft is, of course, not too happy. This is the basis behind a recent decision to decrease the cost to license Windows 8 for manufacturers selling a PC for less than $250.

If you can't beat 'em, join 'em
Microsoft's new CEO, Satya Nadella, is certainly shaking things up at the company. In fact, this strategy is probably better than standing still, but it's only staving off an even bigger decline in revenue as Apple and Google eat into its market share and the PC market continues to decline. The company has a dud on its hands with Windows 8. Windows 9 can't get here soon enough.

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Comments from our Foolish Readers

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  • Report this Comment On March 05, 2014, at 1:26 PM, hawkhell wrote:

    Micosoft should have upgraded all Windows 7 users for free or keep the initial 15.00 upgrade fee. Windows 8 was worth 15 bucks to me, but a full license fee, not a chance.

  • Report this Comment On March 05, 2014, at 2:13 PM, SanPasqual wrote:

    An OS is no longer seen by the everyday user as a form of magic and delight. Who really care if they are using Windows, OsX, IOS, Android, or browser to layer support for applications ... as long as the application(s) of interest are covered? I finally dropped Windows for business and household uses in 2009 ... it was just too slow, buggy, and non-essential for my needs.

  • Report this Comment On March 05, 2014, at 2:20 PM, themasteroflogic wrote:

    They want to see some installs? Give away what people actually want, *Windows 7* for free.. If anything the price on it has gone UP since windows 8's tile mess started repelling the public.

    At least Windows 8 is now beating Apple in market share.

  • Report this Comment On March 05, 2014, at 2:34 PM, djw663 wrote:

    Such huge organizations as Chevron, Kaiser, Walmart still use XP, nearly 30% of the PC market still uses XP; 2000-didn't last, ME- Blah, Vista-Disaster, Windows 7- very good nearly 50%, 8- disaster, 8.1 don't know too much about it. So basically Microsoft is making horrible decisions so they will now force the 30% still using XP to upgrade their operating system to generate revenue since they haven't done much right in a long time. Operating systems have become so fat programs just don't run as quick it would be nice to have a system as streamlined as 98 but nowadays everything has to be plug and play. It would probably be a good time to buy their stock since 30% of the PC owners will need to upgrade then you might as well buy a new PC since you can get a decent 64bit PC with Windows installed for not much more than the program itself. So buy HP stock as well since HP's are so easy to upgrade you can build a kick*** system for under a grand which is what I will probably do.

  • Report this Comment On March 05, 2014, at 2:43 PM, rioesmarex wrote:

    Wouldn't take Windows 7 or 8 if you gave them away for free. Both force you accept Bing and other garbage and try their damndest to take over you operating system.

    Don't give a rats about " cloud " and access to stupid social media and smart phones

    Just give me a connection to the Internet for free with as little advertizing as possible.

    It's the old story .... if it ain't broke, don't fix it.

    Windows XP was/is just fine and I will stay with it until they force me to quit

  • Report this Comment On March 05, 2014, at 3:22 PM, WakkoWarner wrote:

    @rioesmarex: Windows 7 does not force you to accept Bing, nor does it have other garbage or attempt to take over your operating system. You can change your search engine to whatever you want it to be. Or better yet, just install Firefox and be done with it.

    Windows 7 is fast and stable - I have had no problems at all with multiple machines running it. Perhaps you should actually use an operating system before speaking out against it.

    As for Windows 8, yes, it is a disaster. While it is fast and stable, it contains too many changes (even for the experienced user such as myself). Things were relocated and it is an overall more complicated user experience. Microsoft dropped the ball with Windows 8 and they are paying the price for that now.

  • Report this Comment On March 05, 2014, at 3:33 PM, VegasSmitty wrote:

    I upgraded to Win 8.1 and it made my machine turn itself off and reboot all the time. Never found a fix so I went back to Win 7.

  • Report this Comment On March 05, 2014, at 4:13 PM, wrevansii wrote:

    I have been on Windows since their inception and have finally realized that they will never build a good OS. My next purchase will be the Mac OS. I am a slow learner.

  • Report this Comment On March 05, 2014, at 4:38 PM, dmgincracing wrote:

    What they should do is give everyone that got stuck with Windblows8 an upgrade back to Windows7...

  • Report this Comment On March 05, 2014, at 5:00 PM, Vincent911 wrote:

    Following XP I foolishly had a Vista laptop. Fortunately it was defective and when replaced it had Windows 7 which was amazingly better. About a year ago I purchased another computer with Windows 8. Compared to Win 7 is felt SO LACKING in flexibility.

    This year we needed another desktop and sought out one from Dell that came with Win 7.

    For a *short* time I had a Windows phone. It sucked... badly. After 2 months I still couldn't figure out the basics. It offered little in the way of flexibility, ease of use, available apps. I feel the same way about Win 8 for the computer, albeit rather simple in design... but too simple. It's geared for touchpads, not PC's.

    So, Microsoft had better pull something out of the hat as their current offerings offer little. Their upgrades seem to be downgrades, which explains the poor sales.

  • Report this Comment On March 05, 2014, at 5:06 PM, Advisor321 wrote:

    Windows 8 vs Chrome OS for free?

    Winner: Chrome OS

    Reason: Windows 8 is a confusing mess.

    Chrome OS has to be the easiest OS out there. It's very fast, hack-proof, virus and malware-free. You don't have to pay for anything.

  • Report this Comment On March 05, 2014, at 5:43 PM, patsaxon wrote:

    I think Microsoft will make every one happy if they would just go back to XP and keep on supporting and allow every one with Windows 7, and 8 to upgrade to XP, being the world's most popular O/S. Industries are still using XP, that should be a sign that XP is better than any O/S in the world.

  • Report this Comment On March 05, 2014, at 5:58 PM, JMCodd1 wrote:

    I'm one of the 3.1% on Vista. It works for me, as I have set its security settings to an acceptable level. I don't currently have a lot of uses that the system security complains about.

    My daughter's laptop has Windows 8, and despite what Microsoft claims how "intuitive" its function is, after decades of using the Start Menu, Windows is anything but intuitive.

    I don't use a computer because of it's operating system. I use a computer for the programs that allow me to do what I wish to do. Change how you access and use the software, and you are going to get complaints.

  • Report this Comment On March 05, 2014, at 6:01 PM, Burstedbladder wrote:

    They can give me 5 copies of it, but they have to pay me to install and use that krapware they call an OS.

  • Report this Comment On March 05, 2014, at 6:07 PM, Burstedbladder wrote:

    Go with Apple, skrew Windows 8 and Microsuck.

  • Report this Comment On March 05, 2014, at 6:21 PM, BigApple wrote:

    MS would have to pay me to upgrade to Win8

  • Report this Comment On March 05, 2014, at 6:21 PM, kcoach wrote:

    The wi-fi capabilites of my Windows8 laptop is quirky, at best.

  • Report this Comment On March 05, 2014, at 9:07 PM, NoWindows8LockIn wrote:

    Ballmer had dreams of locking us all into Metro and milking us with services, then getting 20-30% haircut from third-party developers who would be forced to sell Metro apps on the Microsoft Store, "because that is what all the users will be using."

    Wrong! LOL.

    So stupid. Microsoft. You are embarrassing all of us. Put the friggin' start menu back, make Metro optional, and get your paws out of our personal data, and we MIGHT give you another chance.

  • Report this Comment On March 05, 2014, at 9:47 PM, AleBrewer wrote:

    My GF has Win8 on her Lenovo S210 Touçh which is inter-operable with the Win Phone 8 on her Nokia 928. It is a nice setup and she likes it very much. Even I, a dyed in the wool Win7 guy, am impressed.

  • Report this Comment On March 05, 2014, at 10:03 PM, luckyagain wrote:

    I tried to buy an upgrade from XP to 7 BUT it would cost almost as much as a new machine with 8. It seems to me that MS could make 8 give you the option to run in 7 mode and that would satisfy most users. I made some changes to 8 and it runs similar to XP but does not have a Start button.

    All of these "changes" in 8 should be optional. It seems that MS has a stupidity problem that is huge. Most people would upgrade to 8 if it would just work like 7 does. Instead they insist on this new interface which is ok but it should not be forced down your throat.

    Or MS could just sell an upgrade from XP to 7 at a reasonable price. It simply amazes me that such a big company can be so damn dumb.

  • Report this Comment On March 05, 2014, at 11:22 PM, gmn wrote:

    I bought a windows phone 8 and i felt i'm cheated... i cannot even set my wifi settings manually, cannot connect my portable Bluetooth keyboard ... next time i will definitely buy android phones or apple... this experience with windows definitely sucks...

  • Report this Comment On March 06, 2014, at 12:18 AM, paperplaneflyer wrote:

    I just want to let everyone know that Chrome OS is, in fact, Linux-based. Originally, it was based off of Ubuntu, later on they switched to Gentoo Linux. ( source: http://en.wikipedia.org/wiki/Chrome_OS#History )

    Here is the first sentence in the Chrome OS article on Wikipedia:

    Google Chrome OS is a Linux-based operating system designed by Google to work primarily with web applications.

    I think if you're thinking about switching from Windows, you should at least consider a Linux distribution along with Chrome OS and Mac OS X.

    A Linux distro (short for distribution) will give you more power to customize and install programs on your own computer (thus giving you more control over your data).

    Chrome OS is more cloud-focused, so you're more encouraged to use web apps that you have less control over and might sell your data.

  • Report this Comment On March 06, 2014, at 12:57 AM, brfootmech1 wrote:

    While working with a Microsoft Tech on a computer he asked if I had any questions at the end of the call so I asked him" Why doesn't Microsoft go back to XP and build on it instead of the mess ow days." He didn't have an answer and said have a nice day!

  • Report this Comment On March 06, 2014, at 1:36 AM, btc909 wrote:

    You can KEEP Windows 8.Whatever for FREE, i'll PAY for Windows 7.

  • Report this Comment On March 06, 2014, at 3:16 AM, free1212 wrote:

    WHY don't they just produce a new operating system instead thats like XP and 7 and ditch 8. Bring the start button back etc. Simple

  • Report this Comment On March 06, 2014, at 4:42 AM, joebvtzplk wrote:

    My employer provides XP for my work. Vista and Win7 are on the computers at home, and both are set up to work as much like XP as possible. The home computers also run Linux Mint Mate. It has taken a while, but I got Mate running more like XP than Win7. Everything I care to compute is now running with Mate. So, if I need to buy a new computer I can completely ignore Win8.

    Microsoft is nutz to quit XP. They could make some serious money by selling XP support as a paid subscription. I know my employer would pay for the security patches. Maybe there will be 3rd party providers for this service.

  • Report this Comment On March 06, 2014, at 6:48 AM, AZreb wrote:

    My computer came with Windows 8 and the problems are many. What I resent most is when calling for tech help and the tech treats me like I am one of the most ignorant people on the face of the earth! Plus, I cannot understand the tech!!!

    I am not a computer geek but have knowledge of computers, having used them for many. many years - probably longer than some of these techs have been on this earth. I have had to ask for a supervisor many times when calling for help. It is not the tech's fault that English is not his first language, but it is not my fault, either.

  • Report this Comment On March 06, 2014, at 8:01 AM, foolfafa wrote:

    They would have to pay me to use Windows 8. Even with that, I would still probably refuse to.

  • Report this Comment On March 06, 2014, at 10:52 AM, shoobydoo wrote:

    Office, their core profit engine, has not had any innovation for the longest time. They are screwing up by not having proper readers on iOS, Android and Chrome.. For collaborative docs, I am forced to go to Google docs.. dreading they will snoop into my doc.

    Need a good innovation in this space.. and they are gone (remember Blackberry)

  • Report this Comment On March 06, 2014, at 1:25 PM, 69camaross wrote:

    Worst mistake ever. Microsoft's goal should be to keep as many people off Windows 8 as possible. That way at least they don't piss off the Win7 and XP users that still think Microsoft can make a decent product. To fix a mistake, you have to admit it first.

  • Report this Comment On March 06, 2014, at 2:37 PM, Denjiro wrote:

    Amazing... Microsoft somehow managed to make the free version even less appealing.

  • Report this Comment On March 06, 2014, at 3:13 PM, Yodatu wrote:

    Windows XP was fantastic. I never and would not upgrade to Vista. I waited 1 full year to finally buy a new computer once Windows 7 arrived. I won't upgrade a Windows Operating System until at least 1 year has passed. Hopefully by then, they will have worked out most of the bugs.

    I will not upgrade to Windows 8 or 8.1. I don't have a touchscreen and have an android tablet for that. I use my desktop (Windows 7) computer for tasks that my android can not handle and programs I can't install.

    Until Microsoft comes out with a better Windows 7 (and it isn't 8), I will stay with what I have. It does cost more to buy a laptop with 7 on it but I would rather do that then be stuck with 8 or 8.1. Microsoft hasn't put out a great OS in a long while. They make changes to the Office programs and those seem to be good and, that is it.

  • Report this Comment On March 06, 2014, at 3:17 PM, pksloope wrote:

    I can not imagine anyone "upgrading" from windows 7 to 8 or 81. Or from XP for that matter. Microsoft should continue with the cutoff of free support for XP and start charging for it after April 8. Corporations/businesses would probably pay a reasonable fee for it since it would save them time and money over an upgrade they don't want or need.

  • Report this Comment On March 06, 2014, at 4:17 PM, adamlevy wrote:

    @pksloope Now that's a good idea

  • Report this Comment On March 06, 2014, at 4:51 PM, TheMoogly wrote:

    All Microsoft has to do is add the option of Windows 8 to act like Windows 7. XP has the option of using the classic interface.

  • Report this Comment On March 06, 2014, at 4:53 PM, lawsonraider wrote:

    They couldn't pay me to upgrade to Windows 8 - Microsoft was surely smoking some serious form of dope/crack when they designed this monstrocity of an operating system.

    Word of advice to Microsoft: If the GUI (Win XP, Win 7) works, don't flipping fix it. They do this with all of their products and it is very frustrating...you finally get the hang of where things are and they release a new version and you can't find crap from a hole in the ground.

    Their statement of how it makes things easier is a crock of crap, they want you to buy their books and training to make more money out of you after you plunk hundreds of dollars into the new product.

    No one likes to have to relearn an operating system every 2 - 3 years.

  • Report this Comment On March 06, 2014, at 10:00 PM, HamishMac123 wrote:

    It is getting increasingly harder (and more expensive) to buy a second hand (used) computer or laptop with Windows 7. I have just been able to buy a 2nd hand lappie with W7 64bit after a prolonged search on Ebay. Of course I could have bought a new machine with Win8 for the same money........but no thanks. If M$ doesn't shape up in the the very near future it will be a Chromebook for me next time.

  • Report this Comment On March 07, 2014, at 4:16 AM, mudpiesarefun wrote:

    I never recommend Windows 8 to any of my customers. The os is a nightmare. It is not worth paying for. The only thing left with windows os in my house is a net book with Windows 7. I have moved to OS X for all my other two desktops and iOS for hand held. I could not be more content.

    No viruses, no buggs, no issues!

  • Report this Comment On March 07, 2014, at 11:35 AM, Blackstar1401 wrote:

    For the Bing you can use a different search engine.

    Hit the alt key. then select tools and then manage add ons.

    Select Search Providers. At the bottom select "Find more search providers..." Then take your pick and install the search provider you want.

    Then exit out of IE and then open the manage add ons again and go back to the search providers. Make your preference as default and then delete Bing.

  • Report this Comment On March 07, 2014, at 1:07 PM, gymnast46 wrote:

    I own four Windows 8 machines. I made the mistake of upgrading one of them to 8.1

    If MS really wanted to take care of it's customers, it would offer a free "downgrade" to Windows 7. I'd convert all four of those machines in a heartbeat.

    The one remaining Win 7 machine I own is the only one I use these days.

  • Report this Comment On March 08, 2014, at 6:39 AM, bdubbs wrote:

    I would NOT take a free version of Windows 8, this is the worst thing that has ever happened to personal computing. I have been using it for a year, as I bought a new laptop that came with it, and it is TERRIBLE! Please, do not commit to Windows 8 without thoroughly trying it out first. It is such a frustrating operating system and makes everything you do unproductive and ineffective. You'll regret it. Trust me! I can't give away my almost new laptop as people don't want Windows 8 anymore, and you can't buy Windows 7 as they have stopped selling it.

  • Report this Comment On April 09, 2014, at 2:32 PM, ahhhhhhhhh wrote:

    went to bestbuy got me a brand new HP touch screen All In One with windows 8 brought it home set it up and could not access any of my email accounts. repacked machine returned to bestbuy ask for $$$ back, MOD talked me into letting 'geek squad' teach me how to use....after 45 minutes of geek squadettes failing to be able to access my yahoo and gmail accounts finally got my $$$ back. went to officemax bought a desktop with windows 7 for 1/3 the price

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