Author(s): Peter Bryer
In May 2014, Microsoft introduced "Windows 8.1 with Bing" in an effort to encourage development of lower-cost Windows-based laptops and tablets. This edition of Windows is available to device manufacturers at very low cost or no cost, depending on the hardware configuration. It's a full version of the operating system with no real functional differences, but manufacturers can't change some settings: Internet Explorer is the default browser, Bing the default search engine and MSN the default home page (though the end user can alter these).
This subsidized version of Windows has allowed Microsoft and its hardware partners to address the low-end of the laptop and tablet market. Many current sub-$250 Windows devices run Windows 8.1 with Bing. But it's a trade-off for device manufacturers, unable to explore deals with Google or other Internet companies to embed their services.
Microsoft has chosen this strategy to dampen the growing threat from Chromebooks, with the free trend clearly infiltrating the market for PC operating systems and office suites. Microsoft is enabling competitive hardware to connect to its software and services as a growing number of consumers, schools and universities choose Chromebooks over Windows laptops.
We expect that Microsoft will successfully expand this strategy of subsidization with "Windows 10 with Bing". This will allow Microsoft to remain competitive at the low end of the market for laptops and tablets as well as in newer forms like stick PCs and other low-profile computers. Microsoft is reinventing itself in its own market, a trick few disrupted companies have been able to manage in time.
Windows with Bing is more than just a knee-jerk response to the effects of Chromebooks. Versions of Windows 10 — which will be offered as a free upgrade to most current Windows users around to globe — will become a seamless extension of Bing and other Microsoft services, including voice-activated Cortana. It highlights the growing importance of personal assistants across all digital devices. They're designed to learn as they go, and constant contextual exposure to the user across forms drives ongoing improvement.
Microsoft's current Windows with Bing licensing programme sees device makers paying between zero and $15 for a full build of Windows, which can include a version of Microsoft Office. This discount to manufacturers follows Microsoft's strategy of providing a free version of Windows Phone for some smartphone and tablet models — a market in which Microsoft is the challenger rather than the challenged. In a unified Windows environment, distinctions are blurred.
It's clear that Google's business models have left a permanent mark on the market for hardware and operating systems, and Microsoft has recognised this while it's still in a leadership position. The competitive landscape is nothing like it was only a decade ago when Microsoft, under pressure from regulators on several continents, was more likely to strip away tight integration of the operating system, browser and Internet services. Now such amalgamation has become a requirement.
Google's moves with Android and now Chrome OS have demonstrated how quickly markets can be disrupted. But it's a two-way street: Microsoft has an opportunity establish Bing as a perpetual connection between the user and cloud-based services (though the challenge could be in persuading users to change their search habits). Windows PCs still dominate despite the growth of Chromebooks and Macs, and the continuum of services could create a halo effect for Microsoft-based phones and other hardware.
We expect to see many highly sufficient, Intel-based, sub-$200 Windows 10 computers appear in the second half of 2015. In addition to Intel inside, Bing will be there as well. The segment is experiencing a "Chrometisation" effect, and Microsoft is adjusting to ensure it's a challenger. One search is all you need, says Microsoft.