OS upgrades: Cheap is better than pricey, free is better than cheap

Apple's shown the way with free OS X upgrades, but will Microsoft follow? The numbers say that would be smart if Redmond is after service revenue

The cheaper, the better.

Lowering the price of an operating system upgrade accelerates its uptake five-fold, but setting an upgrade free stomps on that pedal, boosting uptake as much as 12 times, data from an analytics company shows.

Microsoft has likely run those numbers too, and internally may be making the case that it's better to expand Windows-for-free to all upgrades, not just the more minor updates like Windows 8.1. (Don't let Microsoft catch you calling Windows 8.1 an "upgrade;" to them, it's an "update," and for financial reasons, even though it is free.)

The numbers game is admittedly a bit iffy, since it's comparing, well, apples and oranges, necessitated by comparing upgrades within Apple OS X world to those of Microsoft's Windows. But the results seem clear: cheap is better than pricey, free is better than cheap.

Free trumps all, in other words. Or as Apple's Craig Federighi, who leads software development at the Cupertino, Calif. company, put it last October: "Free is good."

Last month, OS X 10.9, aka Mavericks, accounted for 59% of all Macs running it and its two precursors, Mountain Lion and Lion, an increase of 4 percentage points from January, said California-based Net Applications.

(Unlike others, Computerworld stopped the in-Mac comparison at OS X 10.7, aka Lion, because Snow Leopard, or 10.6, has been nearly unaffected by the draw of the free Mavericks.)

Apple dropped the price of Mavericks to zero, giving it away to most, although not all, of its customers running Mountain Lion, Lion and even 2009's Snow Leopard. On the other hand, Mountain Lion, which came out in mid-2012, carried a price tag of $19.99, a third less than 2011's Lion.

That $20 price cut drove Mavericks adoption at a much faster pace, according to Net Applications' statistics, with Mavericks' user share -- a rough measurement of the percentage of the world's personal computers running a specific operating system -- 1.8 to 3.2 times higher in any given month than its predecessor, Mountain Lion, at the same point in its post-release life.

On average, over six months, Mavericks' share of it and its two precursors was 2.1 times higher than Mountain Lion's share of it and its two ancestors.

That's the power of free since, frankly, there's not a tremendous difference between Mavericks and Mountain Lion, which is Apple's doing and by design, as it creates evolutionary -- many say "minor" -- iterations.

Free has also accelerated Windows adoption, with Microsoft for the first time offering something more than a collection of fixes -- in its terminology, a "service pack" -- for a zero price.

When Windows 8.1 (free) was compared to Windows 8 (not free), the former clearly had a faster uptake pace. Last month, 40% of PCs running Windows 8.1 and its predecessor, Windows 8, ran the former, an increase of about 3 percentage points from the month prior.

Over the last six months, the no-cost Windows 8.1's share of the combined user share of it and Windows 8 was 7 to 20 times higher than that of Windows 8's share of it and Windows 7 at the same point in Windows 8's post-launch timeline.

On average over those six months, Windows 8.1's share of it and its precursor was 11.7 times higher than Windows 8's share of it and its ancestor.

( Microsoft charged $39.99 for a from-Windows-7-to-Windows 8 upgrade for several months; Windows 8.1 was free to anyone running Windows 8.)

Again, the power of free.

The same advantage held for lower-priced upgrades over those that cost more, although the edge to the former was not as dramatic.

Free operating system upgrades outperformed paid on both Windows and OS X in adoption rates, and less-expensive upgrades, like the $20 Mountain Lion, got a larger percentage of customers to move up than did pricier offerings like Windows 8. (Data: Net Applications.)

Mountain Lion's share of it and its two precursors -- Lion and Snow Leopard -- was 5 to 9 times that of Windows 8's share of it and its immediate predecessor, Windows 7. Over a six-month period, the lower-priced Mountain Lion's share was 5.5 times that of Windows 8's.

Apple priced Mountain Lion at $19.99, while Microsoft, as already mentioned, charged $39.99 for a Windows 8 Pro upgrade from October 2012 through the end of January 2013, at which point the price jumped as much as five-fold.

(Perhaps coincidentally, the increase in Windows 8's share of it and Windows 7 was lowest in February 2013, the month when the former's upgrade price spiked.)

While the numbers point to a definite uptake advantage for free or cheap OS upgrades over their low- or higher-priced rivals, the question is what Microsoft would do with the information.

Even if Microsoft followed Apple's lead and made Windows always free, including the rumored Windows 9 of 2015, it would seem at first glance that the move would be unlikely to pay off. First and foremost, Microsoft would be leaving an incredible amount of money on the table. Although it might swallow the relatively small losses from giving consumers free upgrades -- one-off upgrades bring little to the bottom line -- it could hardly afford to chuck the billions earned each quarter from the sale of Windows upgrade rights to enterprises via Software Assurance and other volume licensing agreements.

But there have been several hints of late that Microsoft will experiment with a free, consumer-grade version of Windows. According to a report last week by The Verge and others, Microsoft may be building something called "Windows 8.1 with Bing," which, if it becomes reality, would be offered free of charge to Windows 7 customers as an upgrade carrot.

Windows 8.1 with Bing could be seen as another in a series of "go-low" moves that Microsoft has made, or was reported to have made, to compete in the lower-price bands now dominated by Android in smartphones and tablets. That's where Google's Chrome OS, which powers the Chromebooks sold by various vendors, has an edge over Windows because of the latter's licensing fee.

Those moves included a report that Microsoft has slashed the price of Windows 8.1 by 70% to OEMs building devices to be sold for $250 and under, a laptop price range now filled almost exclusively by Chromebooks; and Microsoft's announcements that its Windows Phone mobile OS would support cheaper chips, that the company had partnered with a new set of device makers known for building inexpensive smartphones for emerging markets, and that it would relax some of the OS's requirements so device manufacturers could cut corners.

Many, although not all, analysts believe that Microsoft has taken the go-low approach to get Windows onto more devices so it can try to generate revenue that traditionally came from licensing from services instead, including Bing (advertising), OneDrive and Skype (premium charges) and Office 365 (subscription fees).

Upgrade uptake, if fostered by less-expensive or even free software, would theoretically increase the chances of producing meaningful revenue from those services, which are tied to the newest versions of Microsoft's OS.

If free is good, and by the adoption rates, it is, then Microsoft would be smart to test the waters, if only for consumers.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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1 Comment

D.F.Stephens

1

all the million's Gates has earned out of windows he now deserts the people that made him so rich by closing down Windows XP the rest of his windows are rubbish and window 7 is next to XP but not as good.
Through this is it the end for him as other companies are creeping in on his mistakes he will never learn that if you have a good seller never though it away that is the secret of my success keep in front and watch the others fade behind it a pity Microsoft will wind up passed history if he does not rethink on this

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