Microsoft's new Phone Companion app. Source: Microsoft
With Windows 10, Microsoft (MSFT +1.40%) is taking a much different approach to selling software than in previous versions of its operating system. In fact, the company is willing to give away upgrades to Windows 10 to most consumers. But just because the price is attractive, doesn't guarantee users will upgrade to the newest OS.
That's why Microsoft is rolling out a Phone Companion app with Windows 10 that works with Windows Phone as well as Google (GOOG 0.84%) (GOOGL 0.74%) Android phones, and Apple (AAPL 0.83%) iPhones. The Phone Companion app will enable Windows 10 users to install Cortana -- Microsoft's digital assistant -- on iOS or Android, driving cross-device compatibility regardless of the different operating systems.
Microsoft: the services company
The extension of Cortana to iOS and Android comes bundled with several other Microsoft apps and services in the Phone Companion app for Windows 10. Users will be encouraged to install One Drive, Office, a new version of the Xbox Music app, OneNote, and Skype, among other Microsoft apps. The company has already partnered with 20 hardware manufacturers to preinstall its services on their Android tablets.
Installing all of these apps will certainly make for a better cross-device user experience for Windows 10 users regardless of what smartphone they own, but it also causes them to become beholden to Microsoft's services. For example, sharing music across devices is facilitated by One Drive coupled with the new Music app coming out this summer. Apple, likewise, offers a seamless experience for music listeners with iTunes, but users are then locked into iTunes for making music purchases.
The heart of the Phone Companion, however, is Cortana, which will enable users to do things on their PC, and pick them up on their smartphone. Microsoft gives the example of setting a reminder for when you're in the grocery store, or tracking a flight across the smartphone and PC.
Microsoft is touting Cortana as a key feature built into Windows 10 instead of built on top of it. Featured in the taskbar, Microsoft is setting up Cortana to become the main way people search for content on their PC and on the web.
Google should be scared
Microsoft competes much more closely with Google than it does Apple. Both Microsoft and Google are software companies, and Microsoft's move toward a services business over a premium software business encroaches directly on Google's territory. And Microsoft is one of the few companies that can actually challenge Google with Web services.
The deep integration of Cortana into Windows 10 could lead a lot of PC users to switch to Bing (through Cortana) from Google. Enabling users to use Cortana across devices would encourage them to use it on the PC as well as mobile devices, cutting into Google's dominance of web search -- particularly on desktops, where Bing already has nearly 31% market share.
Introducing Cortana to Android and iOS users will also allow Microsoft to collect more data on its users. While Apple's Siri uses Bing to power its search results, Microsoft is unable to display ads next to those results. Nonetheless, it provides valuable data it can use to improve search results and compete better with Google. With Cortana, Microsoft can connect those data with a personal account, to make search results more personalized across devices, making it even more competitive.
Encouraging Windows 10 adoption
Microsoft's strategy with Windows 10 relies on wide adoption of the operating system, which it will use to boost usage and sales of its services. Previously, Microsoft touted the cross-device capabilities for devices running Windows 10. With the introduction of the Phone Companion app, Microsoft is giving Android and iPhone owners a reason to upgrade to Windows 10 as well with the ability to use at least some of the cross-device capabilities down the road.
If Microsoft's services prove popular on iOS and Android, it could encourage some users to switch to Windows 10 devices down the road. At the very least, it could encourage more premium subscriptions to its services like Office 365, One Drive, and Xbox Music, all of which will subsidize the opportunity cost of providing Windows 10 free for the first year after its release.
Since Satya Nadella's takeover as CEO, Microsoft's devices and consumer revenue has relied significantly less on licensing revenue from Windows and Office and more on cloud-based services like Office 365 and Xbox Live. The release of Windows 10 will cement that transition.
