Microsoft has announced that its new Windows 10 will be a free upgrade for a wide range of current Windows users. This accompanies the company’s similar offers of free Microsoft Office apps for users of iOS and Android systems.
Windows is Microsoft’s signature product, the operating system that at one time ran the vast majority of personal computing devices, propelling Microsoft to a market dominance that the federal government sought to curtail with an antitrust action in the 1990s. MS Office featuring Word, Excel and PowerPoint has been the leading productivity suite for years as Microsoft overwhelmed early leaders such as WordPerfect and Lotus 1-2-3. The Microsoft divisions responsible for Windows and its productivity software have historically earned the bulk of the company’s profit, “cash cows” per the BCG Matrix.
So why give these products away in 2015? Is this a case of killing the cash cows (akin to liquidating the goose that laid the golden egg)?
The rationale becomes clearer with an examination of the BCG Matrix. This analysis method divides areas of a business into four categories:
- Stars: Business units or products with high growth rate and high market share. They typically require heavy investment (e.g., extensive marketing campaigns) as they increase share and solidify their success.
- Cash Cows: Market leaders with low growth rates that produce consistent income without heavy investment. They generate the money required to finance the company’s other endeavors.
- Question Marks: High growth rate but low market share. They consume cash while the company determines if they are turning into stars.
- Dogs: Low growth and low share. The name says it all.
Microsoft has treated Windows and Office as stars instead of cash cows, failing to develop true stars to stimulate or at least harness changes in consumer trends. Its best attempt to branch out has been its gaming division, dominant in its market but a frequent money-loser.
The company acted oblivious to the shift to mobile computing. In 2007, it released the disastrous, bloated Windows Vista while Apple launched the iPhone. Its belated attempt to assert itself in the mobile space, Windows 8, was also derided as clunky and blamed for accelerating the downturn in PC sales, the very product that Microsoft was trying to support with its “dual” operating system approach.
Sales of Windows have continued to decline with the drop in PC sales. Office no longer enjoys unquestioned ubiquity as consumers have found substitute products that are cheaper or even free, such as Google Docs. CEO Steve Ballmer stepped down as Microsoft was increasingly deemed a has-been, its revenue currently one-third of Apple’s.
Microsoft’s new CEO, Satya Nadella, has promised a turnaround. Microsoft’s cloud computing services and mobile devices are increasing in sales. The Windows and Office giveaways are designed to keep people using Microsoft products while introducing them to the company’s latest offerings. They may be free for many consumers now, but Windows and Office are finally being used like true cash cows, supporting Microsoft’s direction for the future.