Windows 8 As A Service: Pay As You Go, Why Not?

Madana Prathap 15 Nov 2010

So Windows 8 is known to be in the works, and release sometime in the second-half of 2012. Steven Sinofsky is likely to manage this project in the quiet, efficient manner he did with Office 2007 and Windows 7. There are very few details so far about the changes Windows 8 will bring. As such, Microsoft CEO Steve Ballmer saying that Windows 8 will be one of Microsoft's risky bets, is very interesting. Among the possible interpretations, is the one that the upcoming Operating System might finally adopt the service-style pricing mechanism that MS has been talking about since... oh well, forever.

Instead of a one-time pricing strategy, the company could start offering Windows as a service. It could be renewed once in a specified period of time. Clearly, if competitors can target a scenario where the OS is the browser and all applications work right off the web, the implication is that sufficient numbers of people have a good enough Internet connection already.

Combine a large market segment that does have an acceptable Internet connection, and another large market segment that says Windows is priced simply too high. Voila! You can actually use the intersection of these segments as the starting point of offering even the Windows OS as a service.

Whom do I think this could appeal to?
1. Netbook (mini-laptop) users
2. Vendors who rent out laptops to companies
3. Home users purchasing budget desktop PCs
4. Enthusiasts who frequently upgrade their hardware and OS
5. OEM brands who can reduce costs this way

How might this work?

1. Buyers (and OEMs) pay an initial fee upfront for a DVD and product key. Maybe Rs. 500 (~US$ 10).

2. The first month of usage for that key is free, thereafter Windows will only boot in "Safe Mode".

3. Next month, on the first day (or whenever it is booted up that month), user's PC checks with MS servers to see if the "lease" to operate in "Normal Mode" has been extended upto the end of that month.

4. User makes a payment before end of lease, or through Safe Mode, to extend usage to the next month.

5. Since the expected audience is so large, monthly OS charges can be kept so low that users don't feel a pinch. For example, Rs. 100 (~US$ 2) is almost on par with what prepaid mobile phone users pay. Those who want to, can pay for as many months in advance as they like. Once a Windows OS version goes out of support, lease renewal could be offered for free in perpetuity. Why pay 50% of the price of my Netbook for an OS I may not use beyond a year?

How does Microsoft benefit from this?

1. As a service, a fairly predictable revenue stream (which has been the holy grail) can be achieved.

2. Goodbye (almost) to software piracy! This system will not be too different from activation, but now the motivation to crack it is almost wiped out. When scarcity (license cost) is replaced by plenty (commoditized service), the "black market" has usually experienced a slow death.

3. Everybody is familiar with the monthly bill they pay for the services they consume, so a fee as low as Rs. 100 for using a good OS won't be grudged. The consumer has proved that he favours long term payment over upfront ones, especially those upfront ones that he believes to be dis-proportionately expensive.

4. No need to maintain multiple editions and license channels, thus simplifying SKU (Stock Keeping Unit) offerings. Everybody would want the best edition, considering such a low initial price is paid by the user or by OEM brands on behalf of the computers they sell. The SKU nightmare can then well and truly be laid to rest. With good reason too, since the desktop server/PC/laptop segment targeted by Windows, is not the hottest one anymore. Linux-based OSes, Android, Chrome OS, and the consumer gadgets they spawn are exploding in number and competing against them with "Edition Confusion" is not the best strategy to attract users. Yes, despite what the "market segmentation" wizards would have you believe! Even if you accepted their philosophy that an OS life-span is 5 years, look at how the money adds up:
Rs. 500 (initial) + Rs. 100 (for 59 months) = Rs. 6,400
If that is the average amortization, MS still has more to be gained by the service model. In comparison, they currently have an extremely complex tangle of different price points for editions, for countries, for favoured PC manufacturers, for discounted/promotional packages; cross-subsidy of packages priced low by artificially higher priced packages... you get the idea.

5. Upgrades, updates, and support can be simplified hugely. As long as you keep renewing (EMI-style), the OS can be used however you see fit on any one machine at a time. An OS at launch would get 5 years of updates/support which if you kept renewing will then be yours in perpetuity. However if new hardware and features beckon you towards a newer OS, you can pay its initial price (the same Rs. 500) and renew that instead - monthly.