Transcription
How much do you think this advanced operating environment is worth? How much did you guess? $500? A,000? Even more? No, it's just $99.
That's right. It's $99. It's an incredible value, but it's true. It's Windows from Microsoft. Order today!
Hey, I'm Dave. Welcome to my shop. I'm Dave Plamer, a retired software engineer from the MS DOS and Windows 95 days. And today we're looking at the real reasons that Windows has become essentially free and what that actually costs you.
You see, in the early 2010s, Microsoft found itself at a crossroads. Windows 7, which was launched in 2009, was a resounding success. A stable, popular OS that many individuals and companies were perfectly happy with. Its successor, Windows 8, which launched in 2012, was a bit of a different story. Microsoft's bold UI changes in Windows 8, including removing the Start menu in favor of a touch-centric interface, sparked a lot of backlash. The major changes in the Windows UI were intended largely to accommodate its use as a touch device. But Windows Touch never took off. Many users outright avoided Windows 8, sticking with their beloved Windows 7. Microsoft faced challenges with a fragmented user base and public relations issues. The previous Windows release had shown mixed reviews, and Microsoft's financial results showed the impact.
Meanwhile, the PC market was actually in decline, and for several years people had been buying fewer PCs as smartphones and tablets rose to prominence. PC shipments were slumping year after year—a prolonged slump in the words of industry analysts. Microsoft doesn't really sell a lot of copies at the retail level compared to what they ship with new computers, but they were facing a double whammy. Existing users weren't upgrading to the new system, and at the same time, it was failing to drive demand for new PCs.
Adding to the pressure, competitors were reshaping consumer expectations. Apple had started offering its Mac OS 10 upgrades for free by 2013. Apple's OS 10 Mavericks was a no-cost download, and Apple's CFO declared that paid OS upgrades for Macs were essentially a thing of the past. He was quoted as saying, "You'll never have to pay for a Mac OS upgrade again." Apple could do this because it makes money on the Mac hardware. The free OS was just a value-add to keep customers loyal to the Mac ecosystem. Likewise, the world of Linux had long accustomed tech enthusiasts to the idea of a free operating system. By the mid-2010s, user-friendly Linux distributions such as Ubuntu and Mint provided a zero-cost alternative for those willing to venture outside the Windows world. In short, charging $100 for a Windows upgrade started to feel antiquated when Mac and Linux users were getting upgrades for free. Microsoft was feeling competitive and perceptual pressure to change its model.
Now, if you saw my last episode, then you know why there was no Windows 9. And speaking of past episodes, if you believe you're a subscriber, please just take a second to check your subscription status. It appears that a number of folks who thought they were subscribed somehow got unsubscribed. So give it a quick check. And if you're already indeed subscribed, thanks very much.
And so, as Microsoft geared up for its next release, Windows 10, the company faced multiple challenges: an aging but popular Windows 7, the failure of the Windows 8 strategy, declining PC sales, and a market where operating systems increasingly were either free or tied to device purchases. All of this set the stage for an unprecedented decision: to make Windows 10 a free upgrade.
In February of 2014, Satya Nadella became CEO of Microsoft, and with his leadership came a new philosophy. Nadella recognized that Microsoft needed to adapt from a "Windows first" mentality to a world where cloud services and ongoing customer engagement mattered more. Internally, this was framed as moving to a "Windows as a service" model. Instead of treating Windows as a product that you sell once and then replace after a few years, Microsoft would treat it like a continually evolving service, updated frequently and monetized in new ways over time. This strategic shift set the stage for the Windows 10 launch. Microsoft broke with decades of tradition by announcing that Windows 10 would be a free upgrade for users of Windows 7 and Windows 8 and 8.1. Anybody with a genuine license of those older versions could download Windows 10 at no cost for a limited time. The free offer initially was available for 1 year after release. This was a radical departure from the past. For example, upgrading from Windows 7 to Windows 8 had cost $100 to $200 before. Now Microsoft was foregoing that revenue entirely. The company even signaled that future updates to Windows 10 would also come at no charge, effectively ending the era of paid Windows upgrades.
Why do this? Well, the strategy was to maximize the number of people on the latest version of Windows, even if it meant giving it away for free. Microsoft's goal was to unify its user base on Windows 10. Executives spoke openly about targeting 1 billion devices running Windows 10 in the coming years. By removing the payment barrier, Microsoft hoped to get as many users as possible onto Windows 10 quickly, including the holdouts for Windows 7 who skipped Windows 8. A larger, unified audience would make the Windows platform more attractive to developers, echoing Apple's rationale that free upgrades reduce fragmentation and make the platform healthier for app ecosystems. It would also ease Microsoft's support burden, having one modern OS to update all the time instead of three different legacy versions to maintain. So, in short, the free upgrade was a strategic bet to reinforce Windows dominance by boosting adoption. A Microsoft tech analyst summarized the approach this way: "The goal is to get people using Microsoft's latest products, no matter what kind of device they prefer. That would give Microsoft more opportunities to make money later by selling them other services or apps."
This new strategy aligned with Nadella's broader push towards cloud services and subscriptions. Microsoft was no longer just a Windows company. It was building its business around services like Office 365 (subscription-based productivity apps), Azure (cloud computing), and others. Windows 10 was designed to be a gateway to Microsoft's ecosystem rather than a one-off sale. By getting Windows 10 onto a half a billion or more machines, Microsoft would have a huge audience to which it could upsell things like OneDrive (cloud storage), Skype calling plans, Xbox services, and Office 365 subscriptions. In effect, the licensing model was shifting. Instead of making money directly from selling the OS, Microsoft would make money around the OS via services and software that run on Windows.
Notably, Microsoft's move to free upgrades also put it on a path to introduce new subscription offerings. In the years after Windows 10's launch, Microsoft rolled out Windows 10 Enterprise E3-E5. These were subscriptions for businesses, essentially packaging Windows with Office 365 and advanced security tools as a monthly per-user plan. This was branded under Microsoft 365, a bundle that includes Windows, Office, and other services. The free consumer upgrade to Windows 10 was not a direct subscription, but it acclimated customers to the idea that Windows would continuously update, and it opened the door for businesses to consider subscriptions for the OS. It was a clear signal that Microsoft envisioned Windows' future not as the $100 box but as part of a service-based model going forward.
With Windows 10 deployed to a huge user base, Microsoft stood to gain something incredibly valuable in the modern tech industry: data. Windows 10 was built from the ground up to extensively "phone home" with telemetry information about how the OS is used, how well it's running, and what problems it may encounter. Microsoft uses the telemetry data from Windows 10 to identify security and reliability issues, to analyze and fix software problems, to improve the quality of Windows itself and related services, and even to guide design decisions for future upgrades. By knowing what people use the system for, they know which pieces nobody uses and which pieces to focus on, where the common bugs occur, and so on. So, in a sense, Windows 10 was not just an OS but a feedback machine, feeding Microsoft constant insights about you and your computer use. Well, less so you, but certainly your computer use. By making the upgrade free, Microsoft ensured a critical mass of users would generate those insights, allowing the company to refine Windows faster and more efficiently than in the old days of lengthy beta tests. This was part of a larger industry trend, analogous to how Google refines Android all the time or even how Tesla updates their car software based on telemetry.
However, what Microsoft saw as a technical boon, some users saw as a privacy red flag. Windows 10, especially right at launch, collected an unprecedented amount of usage data by default. From basic metrics about your system to personal information (if you use features like Cortana), the OS could log location, web history, app usage, voice queries, and more, sending it back to Microsoft servers. While Microsoft insisted that the data was anonymized and used just to improve the user experience (or at least to do so), the sheer scale of telemetry in a free OS made a lot of people uneasy. It wasn't lost on the tech-savvy crowd that if you're not paying for the product, you probably are the product. And that classic adage was invoked by skeptics who suspected that Microsoft's real strategy was to monetize Windows 10 users through their data and attention.
Indeed, Windows 10 introduced a new wave of built-in advertising and upsell mechanisms within the OS itself. Users began noticing things like suggested apps and Start menu/taskbar pop-ups, nudging them to try Microsoft Edge or OneDrive, and even full-screen prompts to subscribe to Office 365. Microsoft wasn't charging for Windows 10 upfront, but the OS contained numerous hooks to drive users forward and into Microsoft's paid services or their partner apps. In Windows 10 and later Windows 11, the experience out of the box includes these promotional messages. So much so that tech sites started publishing guides on how to turn off the built-in ads. This was a significant shift from older versions of Windows that never had any advertising baked into them. The free OS was partially subsidized by new revenue streams—whether that was the app store's commission (as in Windows 10's built-in app store, which would profit from apps or games that the users buy), or Bing search integration (as more searches equal more ad revenue), or those Microsoft 365 upsells. In short, Windows 10's design leveraged data and user engagement in ways that previous Windows versions never had, reflecting the new monetization approach.
From a technical standpoint, the vast telemetry also meant that Microsoft could iterate on and improve Windows 10 continuously. The company adopted a rapid update cadence, delivering a major update twice a year at first and using data to prioritize fixes and features. This was the practical implementation of "Windows as a service." Microsoft even cited the huge Windows 10 install base as one of the largest online services in the world, highlighting how they viewed Windows 10 more like an evolving platform similar to a social network or cloud service than a static OS. The free upgrade was the catalyst that allowed this ecosystem to form, with over 300 million devices on Windows 10 within the first year—all feeding information back to Microsoft. Whatever concerns existed, Microsoft bet that the technical advantages—such as easier maintenance, faster improvements, and new ways to leverage user data—would pay off in the long run.
The decision to give away Windows 10 also made sense when looking at the cold economics of the PC industry mid-decade. As mentioned earlier, PC sales were stagnating or declining globally. Consumers weren't replacing PCs as often as before. Phones and tablets had taken over many people's computing tasks, and so on. This trend meant that Microsoft could no longer rely on a big revenue bump every time a new Windows drove people to buy new hardware. In fact, by 2015, the traditional pattern of "new Windows launch equals surge in PC sales" had been broken. IDC, the market research firm, noted that unlike past upgrade cycles, Windows 10's release did not spark a hardware buying rush, largely because so many users took the free upgrade on their existing machines. Why spend money on a whole new PC when Microsoft is handing you a refreshed OS for free? Many consumers and businesses indeed chose to extend the life of their old hardware with Windows 10, and IDC cited the free Windows 10 upgrade as a factor that actually dampened PC shipments in 2015 to 2016.
Now, it sounds counterintuitive—Microsoft hurting PC sales, the very industry it helped build—but it reveals how Microsoft was refocusing its business. It was no longer about how many new installs they could generate; it was now about the total number of Windows users unified on the latest product. Microsoft's Windows division did make money from OEM licenses on new PCs, but by the mid-2010s, that was a smaller piece of the overall Microsoft pie, with growth coming from cloud and enterprise services. In the short term, giving away Windows 10 did mean foregoing some revenue and potentially slowing down new PC purchases. But Microsoft calculated that keeping people on Windows, even if it was on older PCs, was better than risking them drifting away. If Windows upgrades weren't free, a user with a 5-year-old laptop might reason, "Well, should I pay 100 bucks for the new Windows, or maybe it's time to switch to a Mac or a Chromebook?" By removing cost from the equation, Microsoft made it easier for that user to stick with Windows. Even if that meant they wouldn't buy a new Windows PC for another year or two, at least they remained within Microsoft's ecosystem rather than, say, buying a Mac, which Apple would love to sell them, touting their free Mac OS upgrades and tight integration with iPhones. In a declining market, customer retention was more important than immediate upgrade revenue.
Competition dynamics were also at play here. Apple's Mac OS was not only free to upgrade, but Apple was aggressively positioning Mac as a premium alternative—the one that "just works" without the perceived bloat or hassle of Windows. By 2015, Apple was regularly updating Mac OS (then OS X) annually at no cost, and it was even bundling its iWork productivity apps in for free. This put psychological pressure on Microsoft's model. Microsoft's own communications chief had to publicly defend why Windows wasn't free. After Apple's announcement, it became clear that to stay competitive in perceived value, Windows 10 needed to break the "pay to upgrade" mold.
As for Linux, while it remained a niche product on the desktop, it was a constant thorn for Microsoft among power users and developers. With Windows 8's unpopular changes and later Windows 10's data collection, a segment of users openly contemplated switching to Linux for a more traditional or privacy-respecting experience. Microsoft had long been wary of losing mindshare to Linux. By making Windows 10 free and familiar (bringing back the Start menu, for example), they hoped to recapture those users. Interestingly, around this time, Microsoft also began embracing Linux in other ways—for example, bringing Bash and Ubuntu to Windows and supporting Linux on Azure—reflecting the reality that they needed to "play nice." But fundamentally, a free Windows 10 undercut one of Linux's top selling points (cost), and it kept budget-conscious users on board with Windows.
Another economic factor was the notion of piracy and emerging markets. When I had worked on the very first version of Windows product activation, we had taken extensive plans to eliminate some common piracy paths—like running a Chinese language pack atop a pirated copy of an English volume license disc, and so on. Because, although not always stated out loud, we knew that in many countries a lot of people were running pirated copies of Windows. This was especially true in the "BRIC" nations—Brazil, Russia, India, and China. And so, by offering Windows 10 for free, even to those with non-genuine copies, Microsoft initially flirted with upgrade paths, and the company had a chance to convert pirates into legitimate users who might then buy apps or services in the Windows ecosystem. It was a long-game strategy to get everyone on Windows 10 legally, even if you don't charge for the OS, because down the line each user represents potential value via the Microsoft Store, Xbox games, Office subscriptions, and so on. It's the same reason Google gives away Android for free. The more people using your platform, the more ways you have to earn money indirectly from that platform.
The economic landscape around Windows 10's launch made a one-time OS sale much less important than the lifetime value of a Windows customer. Microsoft was willing to take an upfront loss with free upgrades and possibly slower PC sales in exchange for the strategic win of keeping hundreds of millions of users in the Windows fold. The bet was that a larger audience on Windows 10 would yield greater revenue over time through services and would fend off competition from Apple and Google (Chromebooks and Android) and also the Linux world by removing cost as a reason to leave Windows. It was a defensive play as much as an offensive one.
Windows 10 launched in July 2015 with massive fanfare, and indeed millions rushed to upgrade in the first days and weeks. Microsoft's marketing push was relentless. They offered the upgrade through a special "Get Windows 10" app that popped up on Windows 7 and 8 systems, encouraging users to reserve their free copy. The rollout was successful in pure numbers. Over 200 million devices were running Windows 10 by the start of 2016, according to Microsoft results, showing the effects of their turnaround strategy, and 300 million by May 2016, making it the fastest-adopted Windows ever.
From a user standpoint, getting a new OS without paying was a pleasant surprise—something pretty much unheard of for Microsoft. Many tech-savvy folks jumped on board early, especially those who disliked Windows 8 and yearned for the return of the Start menu and a more desktop-friendly experience, which Windows 10 provided. In numerous cases, people commented that Windows 10 basically feels like a better Windows 7, and it's free, so why not? There was a general sense of optimism from a large swath of the user base that Microsoft had righted the ship.
Not everybody is happy with the status quo, however, and I count myself among them. Whether Windows is a monthly subscription or an annual license doesn't really matter to me, but I don't want telemetry and advertising in my pro versions of the retail license. I, for one, would gladly pay 10 or maybe even 20 bucks a month for a version of Windows Pro that included no advertising or unnecessary telematics. I go back and forth between Mac OS, Windows, and Linux several times a day, and the difference is palpable. Mac OS is a tool that helps me get my work done. Windows is a tool that's a bit of an adversary that helps monetize me just a little too often for my tastes.
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Thanks for joining me out here in the shop today. In the meantime, and in between time, hope to see you next time right here in Dave's Garage. This little chair will be waiting for one of you, and a rocking chair for another who likes to rock, and a big armchair for two to curl up in. All next time on Dave's Garage. [Music]