Microsoft (NASDAQ:MSFT) announced some time ago that users of Windows 7, Windows 8, and Windows 8.1 would be able to upgrade to the software giant's brand new Windows 10 for free during the operating system's first year of availability. While some have expressed concern that this might not be a great idea, I believe it's actually brilliant. Here's why.

What does Microsoft lose by offering "free" Windows 10 for the first year?
Many have argued that Microsoft with this offer stands to lose revenue it would have otherwise generated from users upgrading their systems. The case has also been made that WIndows users who might have purchased new PCs for access to the latest operating system might now be content to stick with their old machines.

The latter would rob Microsoft of the Windows license revenue associated with either the upgrade or the new PC purchase, and it would sting the players in the PC supply chain as well.

While those are good points, I'd like to make the following counterpoints:

  • In the consumer market (which this upgrade scheme targets), users tend to buy new devices because they want or need new devices, rather than because they want a newer version of Windows.
  • I also can't imagine most consumers would buy copies of Microsoft's latest operating system to upgrade current computers. Migration from Windows 8/8.1 to Windows 10 is likely to be fairly easy via Microsoft's Windows Store, but moving from Windows 7 (which does not use the Windows Store) to Windows 10 is likely to be a fairly involved process for consumers.

So, while there are certainly potential short-term negatives as a result of this scheme, I don't think the impact will be as large as some might think. Furthermore, I believe the benefits of making Windows 10 free for the first year are quite large to both Microsoft and the PC industry as a whole.

Fighting the Osborne effect
Microsoft has already (quite vocally) announced Windows 10. However, the new OS isn't expected to become commercially available until sometime in the second half of 2015. If customers couldn't upgrade to Windows 10 for free in the first year, then many savvy customers -- and all of their not-so-savvy friends -- might hold off on buying a new computer until Windows 10-based systems were on the shelves.

This is known as the "Osborne Effect," and it would wreak havoc to Microsoft's short-term consumer-related Windows license revenue. it would also cause serious financial damage to pretty much any company with meaningful exposure to the PC market. That being the case, if Microsoft wants to publicize how great Windows 10 is this early in the game, then it should at the very least provide an upgrade path for those folks who bought Windows 8.1 systems after the Windows 10 unveil.

Enticing users to move back to Windows
Apple (NASDAQ:AAPL) is gaining ground in the PC market with its Mac line of computers. I'd imagine a not-so-small part of Apple's success against the Windows PC ecosystem is the fact that Windows 8 and Windows 8.1 have a pretty bad reputation among consumers while Mac OS has been widely praised.

By showing off all of Windows 10's neat features in advance of its commercial debut, Microsoft might hope the new OS is compelling enough to persuade consumers to purchase devices using Windows 8.1 now with the expectation that Windows 10 will make their systems that much better. I'm not sure how effective this will ultimately be, but Microsoft is smart to try. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.