Microsoft Corporation's Defense Against Google is Starting to Work
Existential threats don't come around all the time, but Google easily represents exactly that for Microsoft . The search giant continues to undermine nearly every aspect of the software company's fundamental business model. Microsoft had been selling software for decades when Google came along and wanted to give it all away for free, subsidized by advertising revenue.
This includes Chrome OS threatening Windows and Google Apps for Work threatening Office, among others. Of course, it will take many years to determine whether these threats can actually hurt Microsoft, but you can't ignore them. As recently as 2012, Microsoft dismissed Google Apps, saying its rival wasn't "truly serious."
More recently, Microsoft responded to Google's undercutting by eliminating licensing fees for Windows and Windows Phone earlier this year for smaller and low-cost devices. Much like Google, Windows with Bing will rely on cloud services and advertising for monetization. Most important, it's a compelling offer to Microsoft's legions of OEM partners.
The strategy is starting to work.
Fifty more and counting
When the software titan unveiled Windows 10 to the world this week, Windows chief Terry Myerson noted that 50 new OEMs have begun developing Windows phones and tablets since the new strategy was announced.
On the July earnings conference call, CEO Satya Nadella offered up various remarks, including that "we are encouraged by the initial response from OEMs to our new consumer offerings like Windows with Bing." Nadella also said he expects "a fantastic lineup of value-based notebooks and tablets to the markets this holiday" as a result. But Myerson is now providing even more detail regarding Microsoft's pipeline.
With Android and Chrome OS available for free, and with Android now the predominant mobile operating system in the world, Microsoft had little choice but to meet Google at the $0 price point. It needs OEMs on its side, and charging upward of $50 per device simply wouldn't fly in this day and age in which high-quality, smaller tablets retail for $200.
Additionally, following the Nokia acquisition, charging smartphone OEMs a Windows Phone licensing fee in order to compete directly with Microsoft is also a tough sell.
It's not over yet
Myerson's data point is encouraging for Microsoft's prospects in mobile, but it's only part of the picture. Original equipment manufacturer support, while necessary, doesn't ensure victory. Microsoft will still need to bolster its app catalog, while continuing to develop its Bing monetization strategy for the free versions of Windows.
The company is already doing a good job at growing its Office 365 subscriber base, which stands at over 5.6 million. Office 365 will be an important monetization method for these smaller and low-cost devices, one in which the consumer directly buys into the value proposition (as opposed to Bing's advertising monetization) for a subscription fee.
At the same time, Windows 8 hasn't exactly been a hit among consumers or enterprises. The company has yet to detail the pricing structure or distribution models for Windows 10 -- is a Windows 10 with Bing in store for 2015?
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The article Microsoft Corporation's Defense Against Google is Starting to Work originally appeared on Fool.com.Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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