IHS Says Microsoft Should Follow Apple’s Lead on Free Operating System Upgrade

El Segundo, CA (Dec. 10, 2013)—Microsoft Corp. over the years has been oft-criticized for copying Apple Inc.’s products. However, Microsoft today could actually garner some admiration by taking a page from Apple’s playbook and offering its latest PC operating system for free, according to a new PC Dynamics brief from IHS Inc. (NYSE: IHS).
Apple’s new operating system, OS X Mavericks, is available at no cost to users. In contrast, Microsoft is charging $120 for its widely disliked Windows 8, even though the upgrade is also free for a slightly reworked Windows 8.1.
While Microsoft isn’t likely to lose its dominant position in traditional PC operating systems anytime soon, Apple’s move could pose a competitive challenge among a segment of fickle consumers.
“With its aspirational products, Apple is already perceived to be an innovator in many ways, and offering free upgrades is yet another step for the trend-setting leader to strengthen its position,” said Clifford Leimbach,  memory and storage analyst at IHS. “Thus, a move like a free upgrade could well be the tipping point for vacillating fence-sitters, pulling them finally into the Apple camp. A Mac could become more appealing to this receptive segment of buyers, especially when free upgrades now—and for the future—are considered in the overall calculations of a new purchase. Factor in Apple’s vaunted ecosystem with its industry-dominant iTunes marketplace for apps, songs and videos, the allure to jump fences could prove irresistible.”
Based on the forecast user base, Mac OS share of market will close the fourth quarter at an estimated 6 percent, down slightly from 7 percent during the third quarter. Share of the Mac OS has been relatively consistent throughout the year, within a range of 5 to 7 percent.
Windows, on the other hand, will retain its overwhelming hold on the operating system market. Share in the fourth quarter will amount to 89 percent, up 1 percentage point from 88 percent in the third quarter.
The market share of Windows in the third and fourth quarter is down slightly from the 90 to 91 percent portion seen in the first half, but no substantial erosion seems to be taking place, as shown in the figure below. The rest of the operating system market, at 5 percent, is represented by mechanisms other than Windows or Mac, such as Linux.

Apple’s premium
Because of the relatively high cost of Apple systems compared to Microsoft offerings, Apple’s free OS upgrades won’t really result in any major gain for the company in the total PC operating system market.
Apple products are priced at a premium: its cheapest laptop model, the MacBook Air, at $999.99 is about $370 more expensive than most laptops going into the fourth quarter, at $628.89 on average. For desktops, the price of a Mac mini starts at $599.99, where the average desktop price is $457.02.
“That’s not to say that Microsoft won’t be suffering some form of pressure,” Leimbach noted. “Consumers may not be bolting from Microsoft, but it’s not because of any love for the system. Instead, Microsoft’s base is staying largely because there are no other alternatives to run to, especially in the low-cost segment where price rules purchases. With no viable alternatives, unhappy Windows users will simply hold onto their current version of Windows. And while price-conscious consumers are likely to stay with Microsoft because of its less expensive PCs, a struggle of sorts may yet emerge in the market for consumers currently on the fence for premium-priced computers.”

Microsoft stays the course
For its part Microsoft is not ceding any territory, and there are no indications that it takes the OS battle less than seriously, even though it has faltered and stumbled in the Windows 8 rollout. Following Apple’s lead would mean losing a source of revenue for Microsoft, something they might not be willing to see go away.
But coming at a time when the PC market is already struggling because of competition from smartphones and tablets, Microsoft is not gaining any new plaudits by requiring a hefty upgrade fee for its new system—an OS that has not won over consumers to begin with.
Microsoft’s lack of forward thinking at this time, even on the relatively simple matter of an upgrade fee, certainly won’t work in its favor, IHS believes.