Microsoft is considering making Windows Phone and Windows RT available free of charge to device makers. Sources familiar with Microsoft’s plans have revealed to The Verge that free future versions are under serious consideration by OS chief Terry Myerson. We understand the plans aren’t fully set in stone, but they’re part of broader changes Myerson is planning for the future of Windows. Microsoft is currently planning and developing future updates, including a "Threshold" update that’s designed to bring back the Start menu and provide more flexibility for desktop users.
We’re told that the free versions of Windows RT and Windows Phone would likely be delivered with the Threshold range of updates. Microsoft currently licenses Windows RT and Windows Phone software to device makers, and the majority of its Windows revenue comes from OEMs who build systems based on Windows 8 and Windows RT. While Microsoft generates revenue from Windows Phone licenses, Nokia dominates shipments of Microsoft-powered handsets with over 80 percent market share. Microsoft’s acquisition of Nokia’s phone business removes the largest source of potential Windows Phone license revenue.
We understand that any decision to axe the license fees for Windows Phone and Windows RT would be backed by a push for revenue from Microsoft’s apps and services. Microsoft has been experimenting with ads in Windows 8 apps, and any associated revenue from those apps and the company’s built-in Bing search results would help offset the lack of license fees. Microsoft would also push consumers to subscribe to services like SkyDrive, Office, and Skype for additional revenue.
Microsoft’s thinking behind free versions of Windows is clear: drive demand and combat Android. At present, Nokia dominates Windows Phone, and PC makers have started to ignore Windows RT in favor of Windows 8 and Android. While device makers are flocking to Android for tablets and smartphones, Microsoft and Nokia are the only companies left shipping Windows RT products. Free versions of Windows RT and Windows Phone would likely push device makers to produce more products and in turn improve developer interest in building applications for the platforms.
Free platforms would target Android, and potentially Google’s ad revenue — something Microsoft is clearly interested in achieving. Microsoft CEO Steve Ballmer has previously admitted that consumer services "are tough," and any prospect for generating revenue is fraught with competition. "Other than phone companies, there really aren't many technology and large subscription consumer services, and outside of Google and maybe Facebook it is hard to find a business that is significant that is ad-funded," said Ballmer recently.
Previous reports have suggested that Myerson has been in discussions with HTC to cut or eliminate Windows Phone license fees if the software is loaded on HTC’s Android devices. It’s not clear if HTC has agreed to such a plan, but we’re told these efforts all align with the main principle of pushing free Windows Phone and Windows RT software to OEMs. Microsoft now has to decide whether free versions of Windows Phone and Windows RT are worth the risk — and the return.