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Microsoft Takes Aim at Google With Windows 8 Price Cut

By Daniel B. Kline - Feb 25, 2014 at 10:09AM

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Getting more people to use Windows 8 and keeping Microsoft's OEM partners happy is a major challenge facing the company's new CEO and he seems to be tackling it head on.

Microsoft (MSFT -0.26%) CEO Satya Nadella has wasted little time in attempting to jump-start sales for its struggling Windows 8 platform.

The company has slashed the price for Windows 8 for manufacturers who want to install it on cheap laptops, tablets, and netbooks. "Manufacturers will be charged $15 to license Windows 8.1 and preinstall it on devices that retail for less than $250, instead of the usual fee of $50," Bloomberg reported. The price cut will not have limitations based on size or type of device.

The move is a clear strategic choice designed to make Windows a viable competitor to Google's (GOOGL -1.77%) Chrome and Android operating systems, which power everything from laptops and tablets to phones.

More changes to Windows

Microsoft gave a long presentation at Mobile World Congress 2014 that outlined changes coming in its spring update to Windows. Many of these updates are aimed at improving the user experience with Windows 8 on non-touch screen devices, according to Microsoft's Joe Belifiore writing on a Microsoft blog.

"We are making improvements to the user interface that will naturally bridge touch and desktop, especially for our mouse and keyboard users," Belifiore wrote. "We have a number of targeted UI improvements that keep our highly satisfying touch experience intact, but that make the UI more familiar and more convenient for users with mouse/keyboard."

The update is also expected to make Windows 8.1 boot directly to the traditional desktop, bypassing the new Start screen by default on non-touch screen machines, Geekwire reported.

New devices possible

In addition to the price cut and design changes, technology website Aandtech has a slide from Microsoft's presentation at Mobile World Congress 2014 that shows the company plans to lower its requirements for machines running Windows to as little as 1GB of RAM and 16GB of storage. This cut in requirements, along with the price cut, theoretically will allow Microsoft's partners to build lower-cost Windows 8 devices that can challenge Google Chromebook laptops and Android tablets.

The price cut and lower requirements are also a bit of an olive branch to Microsoft's OEM partners, who were angered by the company moving into hardware with the Surface and phones when it acquired Nokia. Tami Reller, who leads Microsoft's companywide marketing, outlined the changes at a recent Goldman Sachs technology conference.

"One of the consistent themes we've heard from our partners loud and clear, our OEM partners in particular, is take friction out of the system for us, take friction out of the system, whether it's certification requirements, whether it's various other programs. And we've done that," she said during the conference. "We have listened and we have moved as fast as humanly possible to remove some of that."

Reller believes that these moves will make it possible for Microsoft's partners to build a variety of devices at a number of different price points.

"You'll even see one of our more recent ads in the marketplace highlighting a $279 Windows laptop, and that's something where especially if customers are looking to replace XP machines, or just older generation machines, they don't know that there are very affordable Windows devices," she said.

Can Microsoft take on the low end?

One of the reasons Android and the Chrome operating system have gained a foothold in the market is price. In tablets, Android is competing with high-end Windows devices that cost more than $400 and Apple's (AAPL 0.88%) iPad, which has a mini version starting at $299. Until very recently, the original Microsoft Surface at $299 (which runs Windows RT, not Windows 8) was the cheapest way for a customer to buy a Windows(ish) tablet.

The new pricing and spec requirements should lead to sub-$200, maybe even sub-$150 devices running Windows 8. That is a deal changer as people who already use Windows at work will have access to cheap tablets and laptops that work with the software they are already using at the office. That would have been an Android/Chrome-killer had it happened two to three years ago, but it should still be a game changer now.

If Microsoft's partners come through and build cool devices at lower price points running Windows 8, it should grow market share for the operating system. Android has a following on phones and tablets, but Microsoft has an inherent advantage of having Windows being the default operating system of most companies. These moves bode well for Microsoft's new CEO and his ability to fix the problem that may have led to his predecessor's ousting.

Daniel Kline is long Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. 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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