Microsoft recently announced that it will be offering an inexpensive $15 upgrade option for Windows 8.
For mere pocket change, you can reserve a copy of the fancy new OS, which will be a modern version of the Windows 95 concept from 1994. Of course, it’s a matter of perception whether $15 is a great offer or not. There is no doubt, though, that it is another brilliant marketing and sales strategy.
The upgrade offer is in effect now and will continue until January 31, 2013. Windows 8 Pro can be purchased for a mere $14.99 by those who will be buying a “qualifying Windows 7 PC” in the near future. There is no such upgrade option for those who bought a Windows 7 PC prior to June 2. (Such upgrades are a tradition at Microsoft.) Microsoft made the announcement that the revenue derived from such a program will be deferred to the next quarter in order to compensate for a possible dip in OEM revenues – in this case, lower seasonal Q1 sales.
The upgrades have been available for more than a decade and are largely designed to work as a catalyst for the OS launch program and enhance OEM revenues, which currently account for roughly 80 percent of the company’s OS sales. If you are an impatient PC buyer or need a PC now, you will get – in some cases – an outdated OS with a new OS on the immediate horizon (for an additional $15). For Microsoft, it is $15 on top of the regular OS revenues, as it is rather unlikely that many of those current Windows 7 buyers will upgrade anytime soon. So, if they are in a buying mood already, it is a good idea to squeeze an easy $15 out of them – money that otherwise would be lost. In aggregate, that isn’t pocket change. Microsoft expects to sell about 28 to 35 million early upgrade reservations for somewhere between $400 and $550 million.
The $15 charge shows that Microsoft is very confident about the impact of Windows 8 and that the OS will be released on time to hit the Christmas season in full force. Not every Windows OS carried that confidence in the past. Here is what happened with previous releases.
Windows Me (released in September 2000): Microsoft did not offer a pre-release upgrade with Me, which was called the Millennium Edition of Windows 98. It brought multimedia enhancements for an OS that felt very much like the Windows 95 from 1994. However, Microsoft pushed the $109 OS into the market by offering it for $60 from September 2000 to January 2001.
Windows XP (released in October 2001): Microsoft did not officially offer an early upgrade, but the company worked with large PC vendors such as Compaq, Dell, and Gateway to deliver early upgrade options. Up to six weeks prior to the launch of the OS, these companies offered upgrade vouchers from Me to XP. Those who had purchased a Me/2000 PC a few months earlier were offered the upgrade for prices between $20 and $30, depending on the vendor. Microsoft’s official upgrade price was $99 for Windows XP Home and $199 for Windows XP Professional. The early upgrades were handled solely through the vendors with silent support from Microsoft.
Windows Vista (released in January 2007): Windows Vista was plagued by so many problems and mistakes that it could have filled an entire year of Project Management Don’ts lectures. The release of the software itself was the first public hiccup. Knowing that it would miss the Christmas season, Microsoft offered a free Express Upgrade option for Windows XP buyers between October 2006 and March 2007. The campaign kept sales of Windows high and supported Q4 system sales as if Vista had been released. However, Microsoft chose to handle the upgrade through a third-party provider that did not ship those upgrade DVDs to customers until several months after Vista was actually released.
Windows 7 (released in October 2009): For the current Windows, the preordering process got a bit more complicated and catered specifically to those who were unhappy with Vista, even if Microsoft did not go to the great length of providing a free upgrade to disgruntled users. New PC buyers were offered upgrade options between June and October of the release year. Most PC vendors offered the upgrade for free, but they had to eat the OEM cost of the OS, which was between $9 and $15 per PC. Earlier buyers could purchase Windows 7 for half the price between June and October without having to buy a new PC.
With the exception of Vista’s upgrade campaign, which was large-scale damage control, each upgrade campaign showed fine-tuning and evolved over the previous release. What they all have in common is sitting on top of OEM releases since Windows XP. Whether the vendor or the consumer was charged, it is an additional revenue source that is designed to make consumers buy when they normally would not do so.
What makes Windows 8 special in this sequence is that Microsoft is not addressing current Windows owners (other than those with Windows 7) and believes there is enough value in this new OS that people will, in fact, buy a new PC to get it. Such a strategy has failed more often in the past than has succeeded. There is plenty of risk in Windows 8 to suggest that the release of the new OS is not a slam dunk. For example, the received value of Windows 8 is in the Metro UI, the value of which is particularly in horizontal touch screens such as tablets. However, the usability is rather questionable on horizontal screens that require the user to reach across a keyboard.
Interestingly enough, Microsoft has a unique opportunity with Windows 8 to market an OS that has the first truly new Windows UI since Windows 95. The required expense of a new PC, or, alternatively, the full price of an upgrade, could leave money, as well as and users, on the street. Those users have tremendous value for the company in the view of the platform– desktop, tablet, and mobile – the company wants to build. Offering a $15 upgrade for all Windows 7 users and a free upgrade for those buying a Windows 7 PC now, at least for a limited time, could have locked millions of users into a platform ecosystem consisting of these three platforms that Microsoft may not be able to get now.