Does Microsoft need to change its policy on Windows upgrade pricing to drive tablet momentum?

Microsoft is unveiling a whole new generation of Windows on October 26th 2012, and significant changes are afoot. The biggest, and most noticeable, change will be the ushering in of a brand new application environment, called WinRT, together with an interface that has been optimized for touch and gesture control while still supporting both mouse and keyboard.

Microsoft had previously called the new interface Metro, and WinRT apps were Metro apps. But due to a possible trademark issue Microsoft has changed the names to ‘Windows 8’ and ‘Windows 8 apps’ respectively. To add some confusion, Microsoft also tends to refer to the new interface as ‘Modern’. New ‘Windows 8’ apps will not run on the desktop, but only in the new ‘Windows 8’ interface.

In a significant move, Microsoft will be selling ‘Windows 8’ apps through an online marketplace, and taking a percentage of the sale price in exchange. By doing so, Microsoft is opening up a potentially lucrative new revenue stream, for both itself as well as developers, many of whom might otherwise struggle to achieve broad distribution and reach.

Windows 8 will be the desktop OS release running on x86/64 processors and will run both ‘Windows 8’ as well as desktop applications. It will be available both pre-installed by the PC vendor on new hardware, or else as a standalone purchase to upgrade an existing PC running Windows 7, Vista or XP.

In a change of direction, Microsoft will also be releasing a new client version called, somewhat confusingly, Windows RT. This will run on devices based on ARM processors, and will only be available pre-installed on new hardware. Critically, outside of a few apps provided by Microsoft, Windows RT devices will only be able to run ‘Windows 8’ apps.

From the announced hardware designs and specifications, Windows RT devices appear positioned to be direct competitors to the new wave of tablets such as the iPad or Android devices like the Amazon Kindle Fire, which have grown up from the associated smartphone market and the app ecosystems.

The success of Windows RT devices will depend upon a good range of ‘Windows 8’ apps being available, as they cannot run apps developed for Windows Phone, nor can they run the massive base of existing desktop software.

Ultimately, this will require a healthy and vibrant set of developers to create ‘Windows 8’ apps which will run across both the new Windows RT tablets as well as the Windows 8 PC operating systems. One of the best ways to get developers to create ‘Windows 8’ apps is to provide them with a large market of end devices to target.

To achieve developer momentum and give the new Windows RT tablets the best chance of acceptance, it makes sense for Microsoft to get the new ’Windows 8’ environment as widely deployed as possible, as quickly as possible.

New hardware sales, while generally brisk, still take a long time to build significant share compared to the installed base – and there are hundreds of millions of Windows PCs already in use that could be upgraded to run Windows 8.

In the past, however, consumers, and many businesses, have not really taken to upgrading their PC’s operating system. Instead most have moved to a new OS when purchasing a new PC. Because new desktop applications have generally worked across both old and new versions of the OS, this has not been much of a problem for users or developers.

However, ‘Windows 8’ apps will only run on the new versions of Windows, which limits the potential market severely – unless a large percentage of the installed base upgrade their existing PCs. Microsoft, though, is taking a similar approach to licensing upgrades as they have with previous versions of Windows.

Pre-order upgrade pricing for Windows 8 from older versions of Windows has been set at £49.99 in the UK for a single machine. At this price, enthusiasts may be tempted to upgrade, but mainstream users will likely pass by on the upgrade given the comparatively high cost, especially when considering that Apple sells upgrades for Mac OS X for £13 for all the Macs in a household, and updates to iOS for the iPad are distributed for free.

This raises the question of whether Microsoft, and its broad community of hardware partners, might not be better served by changing tack and drastically reducing the cost of upgrades to encourage a much higher percentage of users of existing Windows PCs to upgrade quickly. The opportunity lost may end up costing much more than any revenue lost due to cheaper upgrades.

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