Microsoft’s Price Cut for Windows 8.1 Was the Wrong Movehttp://www.fool.com/investing/general/2014/02/26/microsofts-price-cut-for-windows-81-was-the-wrong.aspx Leo Sun
February 26, 2014
Microsoft (NASDAQ: MSFT) will soon drop its license fee for Windows 8.1 by 70% for lower-end PCs that cost less than $250, according to a recent Bloomberg report. That price reduction -- which reduces its $50 license fee to $15 per machine -- is squarely aimed at keeping Google's (NASDAQ: GOOG) lower-end Chromebook and Android devices at bay.
A lower price point might be a baby step in the right direction for Microsoft, but the company will still find it tough to compete against Google's free operating systems.
The rise of Chromebooks has spooked Microsoft
However, those huge numbers should be taken with a grain of salt, considering that OS tracking site Net Market Share didn't record a subsequent spike in Chrome OS/Linux users in January. In addition, market research firm IDC's numbers indicate that Chromebooks finished 2013 with a 1% share of the global PC market, primarily due to its lack of a footprint in the enterprise market.
Although the numbers from NPD, IDC, and Net Market Share contradict each other regarding the Chromebook's actual market share, the numbers were alarming enough to force Microsoft to reconsider its growth strategy for Windows 8 and 8.1, which together account for 10.6% of all operating systems. Microsoft's own Windows 7 and XP remain far more popular, with respective market shares of 47.5% and 29.2%. Despite the growth of Chrome OS, Linux still only has a 1.6% sliver of the market.
Is Microsoft attacking the wrong target?
In my opinion, that would have made much more sense than reducing the license fee of Windows 8.1 from $50 to $15, since it would have represented a direct assault on Android. Instead, reducing the cost of Windows 8.1 is an attack on Chrome OS, which has far fewer users than Android despite its rapid year-over-year growth.
To understand why Microsoft should have made Windows Phone and Windows RT free instead of reducing the cost of Windows 8.1, take a look at the global market share that Microsoft holds in smartphones, tablets, and PCs, and compare the figures to the size of those three markets:
Rather than aggressively pursue two markets that will each grow by more than 70% by 2017, Microsoft is taking a baby step toward defending its dominant market, which is forecast to grow by an anemic 1.4%.
Microsoft's weakness isn't its price point -- it's its ecosystem
Once users log in to a Chromebook, their email, Google Docs, Chrome bookmarks, YouTube channels, and calendars are all synchronized and ready to go. It can also synchronize data to a mobile device using the same apps. The same symbiotic relationship between the mobile device and the desktop exists on Apple (NASDAQ: AAPL) devices, where iPhones, iPads, and Macs can share data over the iCloud.
Microsoft has the right idea with its single sign-in system, but its cloud-based apps always feel second rate compared to Google's -- Outlook, SkyDrive, and Office Web Apps are adequate, but they aren't as light or user-friendly as Google's equival