(Adds CEO quote, details on Windows pricing, Cortana launch)
By Bill Rigby
SAN FRANCISCO, April 2 Microsoft Corp
is to give away its Windows operating system to makers of
smartphones and small tablets for consumers as it seeks to make
more of an impact on those fast-growing markets and counter the
massive success of Google Inc's free Android platform.
Microsoft's move, announced at its annual developers
conference in San Francisco, is an attempt to broaden the small
user base of mobile versions of Windows, in the hope that more
customers will end up using Microsoft's money-making,
cloud-based services such as Skype and Office.
Up to now, Microsoft has charged phone and tablet makers
between $5 and $15 per device to use its Windows system, as it
has done successfully at higher prices for many years with
Windows on personal computers. Hardware makers factor the cost
of that into the sale price of each device.
That model has been obliterated in the past few years by the
fast adoption of Google's Android system for phones and tablets,
which hardware makers quickly embraced and now accounts for more
than 75 percent of all smartphones sold last year. Apple Inc's
iPhone and iPad account for most of the rest of the
mobile computing market.
By contrast, Windows-powered phones held only 3 percent of
the global smartphone market last year. Windows tablets have
only about 2 percent of the tablet market, according to tech
research firm Gartner.
Microsoft's move to make Windows free for some consumer
devices bucks a central tenet of Bill Gates' original
philosophy, that software should be paid for, which led to
Microsoft's massive financial success over the last four
decades. But analysts said it is a realistic reaction to the
runaway success of free Android.
"Microsoft is facing challenges on the mobile and tablet
fronts and need to change their strategy to move the growth
needle, this is a good and logical first step," said Daniel
Ives, an analyst at FBR Capital Markets.
Windows will be free for companies making phones and tablets
with screen sizes under nine inches (23 cm) for the consumer
market. A license fee will still apply for business devices.
It comes a week after new Microsoft Chief Executive Satya
Nadella unveiled new versions of Word, PowerPoint and Excel
applications for Apple Inc's iPad. A year's free
subscription to Microsoft's cloud-based Office 365 service will
be offered on the new devices running the free Windows,
Both moves show that Microsoft is now more interested in
gaining market share for its cloud-based services such as Office
on any platform or device, rather than its traditional approach
of putting Windows at the center of everything it does and
extending its influence from there.
In the new era of mobile computing, Nadella acknowledged
Microsoft's underdog status.
"We are going to innovate with a challenger mindset," said
Nadella in a question and answer session at the developer
conference. "We are not coming at this as some incumbent trying
to do the next version of Windows, we are going to come at this
by innovating in every dimension."
Nadella did not have a snappy answer to the question of what
Microsoft's overarching mission now was, after it had achieved
its original goal of putting a computer on every desk and in
every home. Instead he elaborated on remarks he made last week
about the importance of mobile devices as everything we do
becomes digitized and connected to the internet.
"Our vision, simply put, is to thrive in this world of
mobile first, cloud first," said Nadella. "Our goal is to really
build platforms, create the best end-user experiences, the best
developer opportunities and IT infrastructure for this
ubiquitous computing world."
Also at the gathering, Microsoft formally announced it has
developed a voice activated phone assistant feature called
Cortana, a direct rival to Apple's Siri.
The feature has been rumored for some months and a test
version was demonstrated at the event by Joe Belfiore, a Windows
The Cortana service, which can take verbal instructions to
search the Web, set alarms, make calls and a host of other
actions, is still in beta testing but will soon be a standard
feature on Windows phones, said Belfiore.
He announced that the latest version of Microsoft's
smartphone software, called Windows Phone 8.1, will be rolled
out to consumers as a downloadable upgrade in the next few
months, and new phones running the software will be in stores by
late April or early May.
(Reporting by Bill Rigby; Editing by David Gregorio and Andrew