00:00:00
how much do you think this advanced
00:00:02
operating environment is worth how much
00:00:03
did you guess
00:00:06
$500
00:00:08
a,000 even more no it's just
00:00:11
$99 That's right It's $99 It's an
00:00:15
incredible value but it's true It's
00:00:17
Windows from Microsoft Order today Hey
00:00:20
I'm Dave Welcome to my shop I'm Dave
00:00:23
Plamer a retired software engineer from
00:00:24
the MS DOS and Windows 95 days And today
00:00:27
we're looking at the real reasons that
00:00:28
Windows has become essentially free and
00:00:31
what that actually costs you You see in
00:00:33
the early 2010s Microsoft found itself
00:00:36
at a crossroads Windows 7 which was
00:00:38
launched in 2009 was a resounding
00:00:40
success A stable popular OS that many
00:00:43
individuals and companies were perfectly
00:00:45
happy with Its successor Windows 8 which
00:00:48
launched in 2012 was a bit of a
00:00:50
different story Microsoft's bold UI
00:00:52
changes in Windows 8 including removing
00:00:54
the Start menu in favor of a touch
00:00:56
ccentric interface sparked a lot of
00:00:58
backlash The major changes in the
00:01:00
Windows UI were intended largely to
00:01:02
accommodate its use as a touch device
00:01:04
But Windows Touch never took off Many
00:01:06
users outright avoided Windows 8
00:01:08
sticking with their beloved Windows 7
00:01:10
Microsoft faced challenges with a
00:01:12
fragmented user base and public
00:01:14
relations issues The previous Windows
00:01:16
release had shown mixed reviews and
00:01:18
Microsoft's financial results showed the
00:01:20
impact Meanwhile the PC market was
00:01:22
actually in decline and for several
00:01:24
years people had been buying fewer PCs
00:01:26
as smartphones and tablets rose to
00:01:28
prominence PC shipments were slumping
00:01:30
year after year a prolonged slump in the
00:01:32
words of industry analysts Microsoft
00:01:34
doesn't really sell a lot of copies at
00:01:36
the retail level compared to what they
00:01:37
ship with new computers but they were
00:01:38
facing a double whammy Existing users
00:01:41
weren't upgrading to the new system and
00:01:42
at the same time it was failing to drive
00:01:44
demand for new PCs Adding to the
00:01:47
pressure competitors were reshaping
00:01:48
consumer expectations Apple had started
00:01:51
offering its Mac OS 10 upgrades for free
00:01:53
by 2013 Apple's OS 10 Mavericks was a
00:01:56
nocost download and Apple's CFO declared
00:01:58
that paid OS upgrades for Macs were
00:02:00
essentially a thing of the past He was
00:02:02
quoted as saying "You'll never have to
00:02:04
pay for a Mac OS upgrade again." Apple
00:02:06
could do this because it makes money on
00:02:08
the Mac hardware The free OS was just a
00:02:10
value ad to keep customers loyal to the
00:02:12
Mac ecosystem Likewise the world of
00:02:14
Linux had long accustomed tech
00:02:16
enthusiasts to the idea of a free
00:02:17
operating system By the mid2010s
00:02:20
user-friendly Linux distributions such
00:02:22
as Iuntu and Mint provided a zerocost
00:02:24
alternative for those willing to venture
00:02:26
outside the Windows world In short
00:02:28
charging $100 for a Windows upgrade
00:02:30
started to feel antiquated when Mac and
00:02:32
Linux users were getting upgrades for
00:02:34
free Microsoft was feeling competitive
00:02:36
and perceptual pressure to change its
00:02:38
model Now if you saw my last episode
00:02:39
then you know why there was no Windows 9
00:02:42
And speaking of past episodes if you
00:02:43
believe you're a subscriber please just
00:02:45
take a second to check your subscription
00:02:47
status It appears that a number of folks
00:02:48
who thought they were subscribed somehow
00:02:50
got unsubscribed So give it a quick
00:02:52
check And if you're already indeed
00:02:54
subscribed thanks very much And so as
00:02:56
Microsoft geared up for its next release
00:02:58
Windows 10 the company faced multiple
00:03:00
challenges An aging but popular Windows
00:03:02
7 the failure of the Windows 8 strategy
00:03:05
declining PC sales and a market where
00:03:07
operating systems increasingly were
00:03:08
either free or tied to device purchases
00:03:11
All of this at the stage for an
00:03:12
unprecedented decision to make Windows
00:03:14
10 a free upgrade In February of 2014
00:03:17
Sacha Nadella became CEO of Microsoft
00:03:20
and with his leadership came a new
00:03:21
philosophy Adella recognized that
00:03:23
Microsoft needed to adapt from a Windows
00:03:25
first mentality to a world where cloud
00:03:27
services and ongoing customer engagement
00:03:29
mattered more Internally this was framed
00:03:32
as moving to a Windows as a service
00:03:34
model Instead of treating Windows as a
00:03:36
product that you sell once and then
00:03:37
replace after a few years Microsoft
00:03:39
would treat it like a continually
00:03:41
evolving service updated frequently and
00:03:43
monetized in new ways over time This
00:03:45
strategic shift set the stage for the
00:03:47
Windows 10 launch Microsoft broke with
00:03:50
decades of tradition by announcing that
00:03:51
Windows 10 would be a free upgrade for
00:03:53
users of Windows 7 and Windows 8 and 8.1
00:03:56
Anybody with a genuine license of those
00:03:58
older versions could download Windows 10
00:04:00
at no cost for a limited time The free
00:04:02
offer initially was available for 1 year
00:04:04
after release This was a radical
00:04:06
departure from the past For example
00:04:08
upgrading from Windows 7 to Windows 8
00:04:10
had cost $100 to $200 before Now
00:04:13
Microsoft was foregoing that revenue
00:04:14
entirely The company even signaled that
00:04:17
future updates to Windows 10 would also
00:04:19
come at no charge effectively ending the
00:04:21
era of paid Windows upgrades Why do this
00:04:23
well the strategy was to maximize the
00:04:25
number of people on the latest version
00:04:27
of Windows even if it meant giving it
00:04:29
away for free Microsoft's goal was to
00:04:31
unify its user base on Windows 10
00:04:34
Executives spoke openly about targeting
00:04:36
1 billion devices running Windows 10 in
00:04:38
the coming years By removing the payment
00:04:40
barrier Microsoft hoped to get as many
00:04:42
users as possible onto Windows 10
00:04:44
quickly including the holdouts for
00:04:46
Windows 7 who skipped Windows 8 A larger
00:04:49
unified audience would make the Windows
00:04:50
platform more attractive to developers
00:04:52
echoing Apple's rationale that free
00:04:54
upgrades reduce fragmentation and make
00:04:56
the platform healthier for app
00:04:58
ecosystems It would also ease
00:05:00
Microsoft's support burden having one
00:05:02
modern OS update all the time instead of
00:05:04
three different legacy versions to
00:05:05
maintain So in short the free upgrade
00:05:08
was a strategic bet to reinforce Windows
00:05:10
dominance by boosting adoption A
00:05:13
Microsoft tech analyst summarized the
00:05:14
approach this way The goal is to get
00:05:17
people using Microsoft's latest products
00:05:18
no matter what kind of device they
00:05:20
prefer That would give Microsoft more
00:05:22
opportunities to make money later by
00:05:24
selling them other services or apps This
00:05:26
new strategy aligned with Nadella's
00:05:28
broader push towards cloud services and
00:05:30
subscriptions Microsoft was no longer
00:05:32
just a Windows company It was building
00:05:34
its business around services like Office
00:05:36
365 subscription-based productivity apps
00:05:39
Azure cloud computing and others Windows
00:05:41
10 was designed to be a gateway to
00:05:43
Microsoft's ecosystem rather than a
00:05:45
one-off sale By getting Windows 10 onto
00:05:47
a half a billion or more machines
00:05:49
Microsoft would have a huge audience to
00:05:51
which it could upsell things like One
00:05:52
Drive cloud storage Skype calling plans
00:05:55
Xbox services and Office 365
00:05:57
subscriptions In effect the licensing
00:05:59
model was shifting Instead of making
00:06:01
money directly from selling the OS
00:06:02
Microsoft would make money around the OS
00:06:04
via services and software that run on
00:06:06
Windows Notably Microsoft's move to free
00:06:09
upgrades also put it on a path to
00:06:11
introduce new subscription offerings In
00:06:13
the years after Windows 10's launch
00:06:15
Microsoft rolled out Windows 10
00:06:16
Enterprise E35 These were subscriptions
00:06:19
for businesses essentially packaging
00:06:21
Windows with Office 365 and advanced
00:06:23
security tools as a monthly per user
00:06:25
plan This was branded under Microsoft
00:06:27
365 a bundle that includes Windows
00:06:29
Office and other services The free
00:06:32
consumer upgrade to Windows 10 was not a
00:06:33
direct subscription but it acclimated
00:06:35
customers to the idea that Windows would
00:06:37
continuously update and it opened the
00:06:39
door for businesses to consider
00:06:40
subscriptions for the OS It was a clear
00:06:43
signal that Microsoft envisioned Windows
00:06:44
future not as the $100 box but as part
00:06:46
of a service-based model going forward
00:06:48
With Windows 10 deployed to a huge user
00:06:50
base Microsoft stood to gain something
00:06:52
incredibly valuable in the modern tech
00:06:54
industry data Windows 10 was built from
00:06:56
the ground up to extensively phone home
00:06:58
with telemetry information about how the
00:07:00
OS is used how well it's running and
00:07:03
what problems it may encounter Microsoft
00:07:05
uses the telemetry data from Windows 10
00:07:07
to identify security and reliability
00:07:09
issues to analyze and fix software
00:07:11
problems to improve the quality of
00:07:13
Windows itself and related services and
00:07:15
even to guide design decisions for
00:07:17
future upgrades By knowing what people
00:07:19
use the system for they know which
00:07:20
pieces nobody uses and which pieces to
00:07:22
focus on where the common bugs occur and
00:07:24
so on So in a sense Windows 10 was not
00:07:27
just an OS but a feedback machine
00:07:29
feeding Microsoft constant insights
00:07:31
about you and your computer use Well
00:07:33
less so you but certainly your computer
00:07:35
use By making the upgrade free Microsoft
00:07:37
ensured a critical mass of users would
00:07:39
generate those insights allowing the
00:07:40
company to refine Windows faster and
00:07:42
more efficiently than in the old days of
00:07:44
lengthy beta tests This was part of a
00:07:46
larger industry trend analogous to how
00:07:48
Google refineses Android all the time or
00:07:50
even how Tesla updates their car
00:07:52
software based on telemetry However what
00:07:54
Microsoft saw as a technical boon some
00:07:57
users saw as a privacy red flag Windows
00:07:59
10 especially right at launch collected
00:08:02
an unprecedented amount of usage data by
00:08:04
default From basic metrics about your
00:08:05
system to personal information if you
00:08:07
use features like Cortana the OS could
00:08:10
log location web history app usage voice
00:08:13
queries and more sending it back to
00:08:14
Microsoft servers While Microsoft
00:08:16
insisted that the data was anonymized
00:08:18
and used just to improve the user
00:08:20
experience or at least to do so the
00:08:22
sheer scale of telemetry in a free OS
00:08:24
made a lot of people uneasy It wasn't
00:08:26
lost on the techsavvy crowd that if
00:08:28
you're not paying for the product you
00:08:30
probably are the product And that
00:08:32
classic adage was invoked by skeptics
00:08:33
who suspected that Microsoft's real
00:08:35
strategy was to monetize Windows 10
00:08:37
users through their data and attention
00:08:40
Indeed Windows 10 introduced a new wave
00:08:42
of built-in advertising and upsell
00:08:44
mechanisms within the OS itself Users
00:08:46
began noticing things like suggested
00:08:48
apps and the start menu taskbar pop-ups
00:08:50
nudging them to try Microsoft Edge or
00:08:52
One Drive and even full screen prompts
00:08:54
to subscribe to Office 365 Microsoft
00:08:57
wasn't charging for Windows 10 up front
00:08:59
but the OS contained numerous hooks to
00:09:01
drive users forward and into Microsoft's
00:09:03
paid services or their partner apps In
00:09:06
Windows 10 and later Windows 11 the
00:09:08
experience out of the box includes these
00:09:10
promotional messages So much so that
00:09:12
tech sites started publishing guides on
00:09:13
how to turn off the built-in ads This
00:09:16
was a significant shift from older
00:09:18
versions of Windows that never had any
00:09:19
advertising baked into them The free OS
00:09:22
was partially subsidized by new revenue
00:09:24
streams Whether that was the app store's
00:09:26
commission as in Windows 10's built-in
00:09:28
app store which would profit from apps
00:09:30
or games that the users buy or Bing
00:09:32
search integration as more searches
00:09:34
equal more ad revenue or those Microsoft
00:09:36
365 upsells In short Windows 10's design
00:09:39
leveraged data and user engagement in
00:09:41
ways that previous Windows versions
00:09:43
never had reflecting the new
00:09:45
monetization approach From a technical
00:09:47
standpoint the vast telemetry also meant
00:09:49
that Microsoft could iterate on and
00:09:50
improve Windows 10 continuously The
00:09:53
company adopted a rapid update cadence
00:09:55
delivering a major update twice a year
00:09:57
at first and using data to prioritize
00:09:59
fixes and features This was the
00:10:01
practical implementation of Windows as a
00:10:03
service Microsoft even cited the huge
00:10:06
Windows 10 install base as one of the
00:10:08
largest online services in the world
00:10:10
highlighting how they viewed Windows 10
00:10:12
more like an evolving platform similar
00:10:14
to a social network or cloud service
00:10:15
than a static OS The free upgrade was
00:10:18
the catalyst that allowed this ecosystem
00:10:20
to form with over 300 million devices on
00:10:22
Windows 10 within the first year All
00:10:24
feeding information back to Microsoft
00:10:26
Whatever concerns existed Microsoft bet
00:10:28
that the technical advantages such as
00:10:30
easier maintenance faster improvements
00:10:32
and new ways to leverage user data would
00:10:34
pay off in the long run The decision to
00:10:36
give away Windows 10 also made sense
00:10:38
when looking at the cold economics of
00:10:40
the PC industry mid decade As mentioned
00:10:42
earlier PC sales were stagnating or
00:10:44
declining globally Consumers weren't
00:10:46
replacing PCs as often as before Phones
00:10:49
and tablets had taken over many people's
00:10:51
computing tasks and so on This trend
00:10:53
meant that Microsoft could no longer
00:10:55
rely on a big revenue bump every time a
00:10:57
new Windows drove people to buy new
00:10:58
hardware In fact by 2015 the traditional
00:11:01
pattern of new Windows launch equals
00:11:03
surge in PC sales had been broken IDC
00:11:07
the market research firm noted that
00:11:08
unlike past upgrade cycles Windows 10's
00:11:11
release did not spark a hardware buying
00:11:13
rush largely because so many users took
00:11:14
the free upgrade on their existing
00:11:16
machines Why spend money on a whole new
00:11:18
PC when Microsoft is handing you a
00:11:20
refreshed OS for free many consumers and
00:11:23
businesses indeed chose to extend the
00:11:25
life of their old hardware with Windows
00:11:26
10 and IDC cited the free Windows 10
00:11:28
upgrade as a factor that actually
00:11:30
dampened PC shipments in 2015 to 2016
00:11:33
Now it sounds counterintuitive
00:11:35
Microsoft's hurting PC sales the very
00:11:37
industry it helped build but it reveals
00:11:39
how Microsoft was refocusing its
00:11:41
business It was no longer about how many
00:11:43
new installs they could generate It was
00:11:45
now about the total number of Windows
00:11:47
users unified on the latest product
00:11:49
Microsoft's Windows division did make
00:11:51
money from OEM licenses on new PCs but
00:11:54
by the mid2010s that was a smaller piece
00:11:56
of the overall Microsoft pie with growth
00:11:58
coming from cloud and enterprise
00:12:00
services In the short term giving away
00:12:02
Windows 10 did mean foregoing some
00:12:04
revenue and potentially slowing down new
00:12:06
PC purchases But Microsoft calculated
00:12:08
that keeping people on Windows even if
00:12:10
it was on older PCs was better than
00:12:12
risking them drifting away If Windows
00:12:14
upgrades weren't free a user with a
00:12:16
5-year-old laptop might reason well
00:12:18
should I pay 100 bucks for the new
00:12:19
Windows or maybe it's time to switch to
00:12:20
a Mac or a Chromebook By removing cost
00:12:23
from the equation Microsoft made it
00:12:25
easier for that user to stick with
00:12:27
Windows Even if that meant they wouldn't
00:12:29
buy a new Windows PC for another year or
00:12:31
two at least they remained within
00:12:33
Microsoft's ecosystem rather than say
00:12:35
buying a Mac which Apple would love to
00:12:37
sell them touting their free Mac OS
00:12:39
upgrades and tight integration with
00:12:40
iPhones In a declining market customer
00:12:43
retention was more important than
00:12:44
immediate upgrade revenue Competition
00:12:47
dynamics were also at play here Apple's
00:12:49
Mac OS was not only free to upgrade but
00:12:51
Apple was aggressively positioning Mac
00:12:53
as a premium alternative the one that
00:12:55
just works without the perceived bloat
00:12:57
or hassle of Windows By 2015 Apple was
00:13:00
regularly updating Mac OS and then OS 10
00:13:02
annually at no cost and it was even
00:13:04
bundling its iWork productivity apps in
00:13:06
for free This put psychological pressure
00:13:09
on Microsoft's model Microsoft's own
00:13:11
communications chief had to publicly
00:13:13
defend why Windows wasn't free After
00:13:15
Apple's announcement it became clear to
00:13:17
stay competitive in perceived value
00:13:19
Windows 10 needed to break the pay to
00:13:21
upgrade mold As for Linux while it
00:13:23
remained a niche product on the desktop
00:13:25
it was a constant thorn for Microsoft
00:13:27
among power users and developers With
00:13:29
Windows 8's unpopular changes and later
00:13:31
Windows 10's data collection a segment
00:13:33
of users openly contemplated switching
00:13:35
to Linux for a more traditional or
00:13:37
privacy respecting experience Microsoft
00:13:39
had long been wary of losing mind share
00:13:41
to Linux By making Windows 10 free and
00:13:44
familiar bringing back the Start menu
00:13:46
for example they hoped to recapture
00:13:47
those users Interestingly around this
00:13:49
time Microsoft also began embracing
00:13:51
Linux in other ways For example bringing
00:13:53
Bash and Ubuntu to Windows and
00:13:54
supporting Linux on Azure reflecting the
00:13:57
reality that they needed to play nice
00:13:59
But fundamentally a free Windows 10
00:14:01
undercut one of Linux's top selling
00:14:02
points cost and it kept budget conscious
00:14:05
users on board with Windows Another
00:14:07
economic factor was the notion of piracy
00:14:10
and emerging markets When I had worked
00:14:12
on the very first version of Windows
00:14:13
product activation we had taken
00:14:15
extensive plans to eliminate some common
00:14:17
piracy paths like running a Chinese
00:14:19
language pack at top a pirated copy of
00:14:21
an English volume license disc and so on
00:14:24
Because although not always stated out
00:14:25
loud we knew that in many countries a
00:14:27
lot of people were running pirated
00:14:28
copies of Windows This was especially
00:14:30
true in the brick nations Brazil Russia
00:14:33
India and China And so by offering
00:14:35
Windows 10 for free even to those with
00:14:37
non-genuine copies Microsoft initially
00:14:39
flirted with upgrade paths and the
00:14:41
company had a chance to convert pirates
00:14:43
into legitimate users who might then buy
00:14:45
apps or services in the Windows
00:14:47
ecosystem It was a long game strategy to
00:14:50
get everyone on Windows 10 legally even
00:14:51
if you don't charge for the OS because
00:14:53
down the line each user represents
00:14:55
potential value via the Microsoft Store
00:14:57
Xbox games Office subscriptions and so
00:14:59
on It's the same reason Google gives
00:15:01
away Android for free The more people
00:15:04
using your platform the more ways you
00:15:05
have to earn money indirectly from that
00:15:07
platform The economic landscape around
00:15:10
Windows 10's launch made a one-time OS
00:15:12
sale much less important than the
00:15:14
lifetime value of a Windows customer
00:15:16
Microsoft was willing to take an upfront
00:15:18
loss with free upgrades and possibly
00:15:19
slower PC sales in exchange for the
00:15:21
strategic win of keeping hundreds of
00:15:23
millions of users in the Windows fold
00:15:25
The bet was that a larger audience on
00:15:27
Windows 10 would yield greater revenue
00:15:28
over time through services and would
00:15:30
fend off competition from Apple and
00:15:32
Google and Chromebooks and Android and
00:15:34
also the Linux world by removing cost as
00:15:36
a reason to leave Windows It was a
00:15:38
defensive play as much as an offensive
00:15:40
one Windows 10 launched in July 2015
00:15:43
with massive fanfare and indeed millions
00:15:45
rushed to upgrade in the first days and
00:15:47
weeks Microsoft's marketing push was
00:15:49
relentless They offered the upgrade
00:15:51
through a special get Windows 10 app
00:15:53
that popped up on Windows 7 and 8
00:15:55
systems encouraging users to reserve
00:15:56
their free copy The rollout was
00:15:58
successful in pure numbers Over 200
00:16:01
million devices were running Windows 10
00:16:02
by the start of 2016 according to
00:16:04
Microsoft results showing the effects of
00:16:06
their turnaround strategy and 300
00:16:08
million by May 2016 making it the
00:16:11
fastest adopted Windows ever From a user
00:16:13
standpoint getting a new OS without
00:16:15
paying was a pleasant surprise something
00:16:17
pretty much unheard of for Microsoft
00:16:19
Many tech-savvy folks jumped on board
00:16:21
early especially those who disliked
00:16:22
Windows 8 and yearned for the return of
00:16:24
the start menu and a more desktop
00:16:26
friendly experience which Windows 10
00:16:27
provided In numerous cases people
00:16:30
commented that Windows 10 basically
00:16:32
feels like a better Windows 7 and it's
00:16:33
free so why not there was a general
00:16:35
sense of optimism from a large swath of
00:16:37
the user base that Microsoft had writed
00:16:39
the ship Not everybody is happy with the
00:16:42
status quo however and I count myself
00:16:44
among them Whether Windows is a monthly
00:16:46
subscription or an annual license
00:16:48
doesn't really matter to me but I don't
00:16:49
want telemetry and advertising in my pro
00:16:51
versions of the retail license I for one
00:16:54
would gladly pay 10 or maybe even 20
00:16:56
bucks a month for a version of Windows
00:16:57
Pro that included no advertising or
00:16:59
unnecessary telematics I go back and
00:17:02
forth between Mac OS Windows and Linux
00:17:04
several times a day and the difference
00:17:06
is palpable Mac OS is a tool that helps
00:17:08
me get my work done Windows is a tool
00:17:10
that's a bit of an adversary that helps
00:17:12
monetize me just a little too often for
00:17:14
my tastes I'm rapidly approaching a
00:17:16
million subscribers and given that I'm
00:17:18
mostly in this for the subs and likes I
00:17:20
would be humbly grateful if you help me
00:17:21
over that hump by subscribing to the
00:17:23
channel if you're not already subscribed
00:17:25
And if you are thank you very much Don't
00:17:27
forget to check out the free sample of
00:17:29
my book on Amazon link in the video
00:17:30
description It's everything I know today
00:17:32
about living a great life on the autism
00:17:34
spectrum that I wish I had known long
00:17:36
ago Thanks for joining me out here in
00:17:38
the shop today In the meantime and in
00:17:40
between time hope to see you next time
00:17:42
right here in Dave's
00:17:46
garage This little chair will be waiting
00:17:48
for one of you and a rocking chair for
00:17:51
another who likes to rock and a big
00:17:54
armchair for two to curl up
00:17:56
in All next time on Dave's Garage
00:18:04
[Music]
