UPDATE 4-Microsoft to give away Windows 10, unveils hologram glasses

Wed Jan 21, 2015 3:46pm EST
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(Adds background on financial effect)

By Bill Rigby

SEATTLE Jan 21 (Reuters) - Microsoft Corp will give away its upcoming Windows 10 operating system as a free upgrade to users of the most recent versions of Windows and Windows Phone, as the world's largest software company tries to retain customers in the mobile era.

The 'free' strategy is a calculated gamble for Microsoft, designed to put Windows in as many devices as possible. The company would then make up for any lost revenue by selling services such as Office over the Internet, or cloud.

"It's a necessary evil as CEO Satya Nadella and Microsoft have recognized the 'golden goose' and major revenue opportunities will happen after the upgrades have taken place," said Daniel Ives, an analyst at FBR Capital Markets.

"Microsoft needs to lay seeds for its cloud-centric strategy and Windows 10 is the epicenter of that strategy. It's all about making it attractive for the ecosystem to upgrade onto this next-generation platform."

The immediate revenue hit is unlikely to be large, as Microsoft gets no more than $500 million of its $20 billion or so annual Windows revenue from upgrades, analysts said. The vast majority of Windows revenue comes from hardware makers installing it on new personal computers and businesses paying for multi-year licenses.

Investors were not impressed. Microsoft shares fell 1 percent to $45.91 on Nasdaq shortly before the close.

The company is expected to say more about the financial effects of the new approach when it reports quarterly earnings next week.   Continued...