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Free Windows Is Not the Silver Bullet for Microsoft

By Joseph Gacinga – Feb 19, 2014 at 4:00PM

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It's not very likely that Microsoft will take Apple's lead and offer future upgrades for its Windows OS for free in a bid to lure more customers to upgrade. Cost is not the main hindrance for most customers stuck with older Windows versions, and Microsoft might not see any significant increase in adoption of newer Windows versions to justify foregoing the revenue it gets from these upgrades.

The worldwide mobile revolution has forever changed the way businesses and individual users view their operating systems and the necessity to upgrade to newer versions once they become available. For many, free is the expected norm. How will this impact Microsoft (MSFT 0.13%) and its Windows platform?

Microsoft is already hard at work with the next Windows OS version -- Windows 9. But the software giant is having a hard time convincing users of the archaic Windows XP to upgrade to a newer version, such as Windows 8 or even Windows 7. Maybe the company can take the lead from rival firms such as Apple (AAPL -0.34%) and make its Windows platform free in a bid to improve the adoption rate of newer Windows versions in the future.

Will ending support ensure upgrades?
Microsoft intends to officially end its support for Windows XP in April 2014. Incredibly, the outdated OS still commands close to a third of the desktop OS market share, according to a recent NetMarketShare study. Even more worrying for Microsoft, a recent Tech Pro study revealed that a whole 37% of Windows XP users have no intention of upgrading to a newer Windows OS even after Microsoft withdraws its support. Some 20% of these recalcitrant users cited cost as the main reason why they plan to stay put. Windows 7 has the biggest market share among operating systems, with 47.49%.

Source: Tech Pro Research

Cost as a limiting factor
Most businesses and individual Windows users usually switch to a newer OS primarily through purchasing a new PC. Microsoft routinely develops several updates and patches for each of its Windows versions, but requires users to pay for an entirely new version once it's released.

Apple and its Mac OS X have muddied the waters for Microsoft and ruined the simple pay-to-upgrade dynamics for the firm. Apple started producing major Mac OS X updates on an annual cycle, and it requires users to pay just $30 to move to a higher tier. Microsoft, on the other hand, requires users to pay $100 or more for essentially the same thing, offering a wide array of bewildering options and hard-to-understand licensing models. Apple has recorded resounding success in getting its users to upgrade to the most current OS.

The mobile revolution has not helped Microsoft's case. Most people upgrade to a newer mobile OS by purchasing a new mobile device. Whenever a newer version of the mobile OS becomes available, people do not need to pay for it, since it's simply pushed out as an update for all mobile devices. Interference by wireless providers and device manufacturers can sometimes lead to a considerable time lag -- running months or even years -- before some Android devices receive the latest OS. But in the end, they don't pay for it.

Apple has little trouble getting its users to upgrade. As of January 2014, 80% of eligible devices had made the switch to iOS 7, just four months after it was officially released. Apple recently dropped the bomb when it announced that its latest Mac OS, Mac OS X 10.9, aka Mavericks, would also be made available to users for free.

Microsoft offered a limited-time bargain of $40 for Windows 8. It even offered Windows 8.1 for free, although this OS is just an incremental update that's similar to Windows 8 Service Pack 1. The real test for Microsoft will be Windows 9.

Dishing out free Windows might not work
According to the Tech Pro report, cost is the limiting factor for only 20% of Windows XP users who do not intend to upgrade to a newer OS. For the other 80%, the main reason why they are in no hurry to upgrade is because Windows XP still works reliably for them. These users have an ''if it ain't broke, don't fix it'' mentality, and they cannot see a justifiable reason to fork out $100 or more for an upgrade that will do pretty much the same job as their beloved Windows XP does.

Members of this group also mentioned that they have crucial software that relies on Windows XP. Upgrading to Windows 7 or Windows 8 might require these users to upgrade their hardware, too, which will inevitably add to the cost of moving up the ladder.

Source: Tech Pro Research

Large corporations are one of Microsoft's biggest Windows customers. These companies usually lease on a three-year cycle or longer, and they are not likely to consider an upgrade unless they have a very compelling reason to do so. Large corporations are looking at the cost of several hundred licenses, and costly home-grown application upgrades whenever they think of a major upgrade. Most will wait for five or six years before a hardware lease cycle forces them to upgrade.

Upgrading to a newer OS such as Windows 8 will not be easy. Windows 8 has had a lukewarm reception -- it has the third-largest market share with 6.63%. That's not because it's a bad OS, but simply because it does not offer new features that are compelling enough for users to abandon the Windows XP or Windows 7 camps. The OS is essentially a one-size-fits-all kind of platform, with features that are not particularly suited for desktop users, such as the touch-enabled single-tasking available as the default setting for its user interface. Smartphone users might like the OS, but desktop users have mixed reactions about it.

Foolish takeaway
The proliferation of mobile devices that receive free OS upgrades as the norm, rather than the exception, as well as Apple's precedent of free OS upgrades, has undoubtedly changed user expectations concerning the need to pay for OS upgrades. Microsoft makes a fair amount of money from these upgrades, and the fact that giving them away for free won't necessarily increase adoption rates of its newer operating systems might discourage it from going the Apple route. Moreover, it's hard to see diehard Windows users switching to Macs just to avoid paying for future upgrades.

Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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