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Why Microsoft Is Giving Windows Away on Small Devices

No, Microsoft hasn't followed Bill Gates into the philanthropy business.


For all its talk of being a devices and services company, Microsoft still gets a large chunk of sales and the bulk of its profits from Windows and Office. So why on earth would it give away the crown jewels?

It can’t afford not to in the mobile arena. By limiting the giveaway to phones and small-screen tablets, Microsoft hopes it can finally gain share in those fast-growing areas while protecting its lucrative franchise in Windows for full-scale PCs.

On the phone side, Microsoft has very little to lose. The company has been getting some revenue from Windows Phone, but Nokia makes up the lion’s share of the current Windows Phone market — and it will soon be a part of Microsoft. HTC and Samsung make some Windows Phones, but aren’t paying Microsoft enough to really amount to serious money.

Microsoft’s real opportunity is if it can establish itself as more than a distant third in what has become a two-horse race between Apple’s iOS and Google’s Android.

“The good news for them is they weren’t selling that many,” said Gartner analyst David Smith. “I think they are trying to do whatever they can to jump-start it, to get it … to a critical mass which it has not achieved yet.”

Giving away the Windows Phone operating system also lets Microsoft offer an OS that, in some cases, is cheaper than Android.

Sure, Google also gives away Android free of charge. However, Microsoft has demanded — and managed to get — most major Android device makers to pay it patent licensing royalties for each phone they sell. Companies such as Samsung, HTC and Acer have signed this kind of deal.

That also means that, paradoxically, Microsoft will make more direct revenue from a phone maker’s sale of an Android device than it takes in from that same company selling a Windows Phone. The company already may earn more in total from Android than it does from Windows Phone.

Microsoft has managed to sign up some new partners even after announcing the Nokia deal. The list includes a lot of little-known regional players, but also some bigger names such as Lenovo.

Although Microsoft didn’t offer additional specifics about its free Windows plans, we learned a few other details. The price change is effective immediately for device makers, and applies to Windows Phone, Windows RT and Windows 8. In the future, it will also apply to Windows for other types of “Internet of Things” products.

Microsoft won’t say if it will require device makers to bundle certain Microsoft services as Google does, but did say that it is talking about the full versions of its software, not a dumbed-down product as the company tried a few years back with Windows XP (and Vista) Starter Edition.

Giving away the operating system isn’t Microsoft’s only effort to make itself more attractive to cost-conscious device manufacturers. On both the phone and tablet front, the company has been making efforts to allow its software to run on lower-cost devices.

Microsoft announced in Barcelona that it was working to allow its phone software to run on a cheaper level of Qualcomm processor. It is also doing away with some specific hardware requirements, such as physical buttons, that prevented device makers from creating a single phone that can run both Android and Windows Phone.

With these moves, Microsoft is attempting to make it more attractive for device makers to build Windows phones and tablets. Whether consumers will trade in their iPhones and Android devices is another matter.

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