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Microsoft may be desperate enough to offer Windows Phone and Windows RT for free

Nixing licensing fees for Windows Phone and Windows RT could encourage greater adoption of those platforms among hardware vendors

By Jared Newman, PC World
December 13, 2013 09:58 AM ET

PC World - With Microsoft feeling the squeeze between low-end Android devices and Apple's high-end dominance, the company may be pondering desperate measures.

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According to The Verge, Microsoft is considering whether to nix licensing fees for Windows Phone and Windows RT, allowing phone, tablet, and PC makers to use the operating systems for free. The report is unconfirmed but, if true, would be a big shift in approach for Microsoft, which makes much of its money from OS licensing.

The company would sacrifice some of those profits to encourage more products at lower prices, and therefore more potential market share around which to build an ecosystem of apps and services.

Getting rid of licensing fees looks like a risky move. Whether it would work, and what it means for users, depends on a few major factors that haven't yet been determined.

Nothing to lose

Consider what we already know: Microsoft plans to acquire Nokia's devices business, which by one estimate already accounts for 90 percent of all Windows Phone 8 handsets worldwide. Assuming the acquisition goes through, Microsoft would effectively be paying itself for nearly all Windows Phone licensing fees, and making money on hardware instead.

Windows RT is in a similar situation. Most hardware makers have abandoned the platform, preferring instead to create tablets that run Windows 8.1 or Android. The lone holdouts are Microsoft, with its Surface RT and Surface 2, and Nokia, with its Lumia 2520. Again, the profits shift to hardware.

Other phone and tablet makers are already staying away from Windows Phone and Windows RT. If they remain subject to licensing fees, they'll have even less incentive to use Microsoft's operating systems. In that sense, Microsoft has nothing to lose by making Windows Phone and Windows RT free.

"If you're in (Microsoft's) position in the market, where you're, in many cases, not even considered in it, you might want to do it just to try and shake things up," said Michael Cherry, an analyst with Directions on Microsoft.

Betting the farm, maybe

Even if Microsoft gives away Windows Phone and Windows RT, the company wouldn't be risking its core business, at least not at first. Microsoft could continue to charge licensing fees for traditional versions of Windows on laptops and desktops. The decline in PC sales appears to be slowing down, so Microsoft can continue to milk the licensing model for a long time.

If anything, rumors this week suggest that Microsoft will draw a clear line between its free and licensed operating system. According to ZDNet's Mary Jo Foley, Microsoft plans to merge Windows Phone and Windows RT into a single operating system, focused on Windows Store apps. Meanwhile, a more traditional version of Windows would appeal to laptop and desktop users. This next wave of Windows releases, codenamed "Threshold," could arrive in 2015.

In this scenario, hardware makers could keep selling laptops, desktops, and hybrids with traditional Windows, paying Microsoft a licensing fee. However, if they want to offer Windows hardware for cheap, they'll go with the free, modern version that likely includes a free version of Office.

Originally published on www.pcworld.com. Click here to read the original story.

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