Microsoft is beginning to cave to pressure on certain fronts,
but (believe it or not) I’m happy to see this. This means that the company is acknowledging market realities. For decades, Windows has been a cash cow for
Microsoft, raking in billions of dollars in revenue for the
Redmond giant. Microsoft’s perch atop
the operating system market gave the company ample opportunity to wring a
significant revenue stream from consumers and enterprises alike. However, in recent years, many of Microsoft’s
markets have undergone tremendous upheaval. In some cases, Microsoft has been slow to respond to significant market
changes, and the company has found itself vulnerable on a number of different
fronts.

This past week, Microsoft took some active steps to fight back against its
rivals. The company announced it was dropping the price of Windows by a whopping 70% — from $50 per OEM
copy to just $15 — but there’s a catch. The $15 price is offered only for devices that cost the
consumer $250 or less. Microsoft is painfully aware that it’s being eaten from the bottom in
some cases, and this price drop is just the first of what I expect will be many
salvos.

It’s important to note that this price drop is for the full
Windows suite, not the half-baked Windows RT that has created user confusion
and generally muddied the waters for those looking to buy tablets. With devices purchased under this plan,
consumers will be able to run the full range of applications, since this is the
full Windows 8.1 experience. At just $15
per copy, I can’t imagine many OEMs clamoring for Windows RT — even if it was
free — unless they want to build ultra cheap tablets that have a version of
Office already installed.

I see Microsoft’s price drop as the first of many bitter pills that the
company will need to swallow. When it
comes to what’s considered a commodity — and many people are beginning to see
the operating system as a commodity — Microsoft will be unable to command the
kinds of margins that it used to enjoy in this space.

Attacks from all sides

It’s no secret that Microsoft is threatened from all sides
these days.  On the desktop, Google
is working hard to unseat Microsoft as the king of productivity with its own
web-based apps and Chrome operating system, all of which work with low-cost
Chromebook laptops. In fact, the school
district where I live is currently deploying hundreds of Chromebooks to
students, and the teachers are really excited about the possibilities.

One such possibility that has become reality is
collaboration between teacher and student. All students are provided Gmail accounts, which they share with their
teacher. Using their account, along with Google
Docs, students can work on their written assignments while the teacher provides
real-time feedback.

Here’s the kicker: Office Online (formerly Office Web Apps)
can do the same thing when combined with OneDrive (formerly SkyDrive). However, the real-time collaboration feature
— where each collaborator can see other typing in real-time — is fairly new to
Office Online. Furthermore, until very recently, Microsoft has done a spectacularly poor
job in bringing together its various tools in a way that worked as seamlessly
as Google’s tools, allowing Google to rein in the masses
while it played catch up and worked out the kinks.

Now, though, it appears as if Microsoft is ready with
OneDrive and Office Online.

Windows Server and cloud services are flying high

Microsoft has also been doing battle on the cloud front,
working to fend off attacks from Amazon and Google, who would both love to
eat up Microsoft’s enterprise business. Microsoft, in many ways, has been cannibalizing some of its own business, as it helps organizations shift from on-premises Exchange systems to services
such as Office 365. At the same time,
these kinds of moves would seem to damage the Windows Server market — but that’s an area of tremendous growth for the company. Cloud services have also been one of Microsoft’s fastest growing areas in the past year.  

Summary

Given the competition from systems that don’t carry a direct
cost for the operating system, it’s no surprise that Microsoft has made the
decision to entice lower-cost device makers to adopt the Windows platform and
remove cost as a barrier. That said, in
the tablet space, Android and iOS are firmly entrenched, and the Microsoft
app-development ecosystem is a far cry from what those two systems enjoy. A price drop is welcome, but it will take
more than just price to make Windows relevant in the tablet space. The fact that the price drop is for a full
edition of Windows is a step in the right direction, though, as it provides the
most full-featured user experience.

Do you think Microsoft will win over the mobile space by lowering the cost of Windows on inexpensive devices? If not, what will it take? Share your opinion in the discussion thread below.

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