Originally Posted by lukefrench
cost of the additional copies
is almost 0 for microsoft, because those costs are supported by the hardware manufacturer. Now you need to repay the investments in R&D and such, but that is another story. What microsoft do here is reducing his profits and its future R&D possibilities.
In 2013, after Windows 8 had been finished, Microsoft made $78b in revenue and net income of $22b so their net margin is far from 100% once their software reaches deployment. They have over 100,000 employees. They don't just fire them and then hire them back when they need to put out a new version of Windows. There are ongoing marketing costs to let people know that Windows exists and expenses to bribe retail staff to convince customers to buy a Microsoft product instead of a knowingly superior product. They have stores to run too. The Windows division alone had $10b in operating expenses in 2013 out of $19b revenue.
With the product price threshold of $250, this move shouldn't affect their current revenue much as they have insignificant marketshare at the low end anyway. This is a desperate move to gain marketshare in lower-end products. It also shows they don't know what the problem is with Windows. For Microsoft to win, they don't need Android to fail, they just need to do a better job. They don't know how to do a better job in mobile.
It actually starts with hardware, no doubt why they tried their move with Nokia. When you look at the distribution of hardware units, it's massively dominated by Samsung and Apple. Microsoft isn't a hardware company, Nokia was a low quality hardware company. They need multiple leading mobile hardware manufacturers to push Windows as the default or at least premium OS. It's not appealing for manufacturers to do this now in mobile though because they already lost the apps race. Like what happened with Windows on the desktop years ago, it was the combination of the hardware price, the software compatibility and existing userbase. When retailers were asked about Mac support, we heard the phrases 'everybody uses Windows', 'Macs are overpriced', 'there's more software on Windows'. This perception kept building to give Microsoft 90% marketshare. They were too late in mobile and this has now happened with iOS and Android. What about Windows mobile support, well it's the same answers: 'everybody uses iOS and Android', 'Windows mobile products are overpriced vs Android products', 'there's more software on iOS and Android'. They'll try to fix the 2nd one, Android app compatibility might fix the 3rd and with those fixed, it will take time to fix the 1st but they have a mountain to climb and they are at the bottom.
The biggest problem they have is that the solutions to their problems only benefit them. In order for their partners to adopt their software, there has to be a benefit for them too. With Windows, the benefit was having a platform a lot of manufacturers used and a lot of developers supported. The manufacturers already have that. They need to offer something Android doesn't rather than the same things it already does. They can do this to an extent with exclusive software that is compelling. Office isn't compelling enough but exclusive games from their Windows/XBox partners might help. I don't really think that they will be able to offer anything that would be more compelling to hardware manufacturers at this point.