Microsoft’s (NASDAQ: MSFT) offering of its Windows operating licenses has been a cash cow for the business, selling approximately 630 million copies of Windows 7. It has finally announced that the next iteration of the franchise, Windows 8, will be released to the public on October 26. For this release the company is focused widespread adoption and is trying to make the OS more intuitive and “cool.”  Part of its strategy is to incentive adoption by making a license for the OS cheaper.
Windows 8 will will be available via $40 upgrades for users on Windows Vista or Windows 7. This move also might have been undertaken, in part, to mitigate the impact that the adoption of free open source platforms such as Linux, and of the piracy of its operating system, are having on revenues. Additionally, Microsoft is facing increased competition from its primary competitors Apple‘s (NASDAQ: AAPL) Mac OSX and Google‘s (NASDAQ: GOOG) Chrome OS, and a decrease in prices will provide a financial incentive for continued adoption of Windows by consumers. In our model, we forecast that, by 2018, the average price for a copy of Windows OS for PC makers will drop to $50.
Windows 8 has many new features which have fans excited. It has a new dynamic desktop, Windows Live sync, and Windows To Go (which allows the users to back up their computer on a thumb drive).  These features seek to compete directly with Windows competitors; Apple’s dynamic and intuitive desktop setup and Chrome OS’ cloud based functionality. If Microsoft succeeds in its attempt to get greater consumer adoption with these new features and lower prices, it will not only gain market share in the PC space but could also gain market share for tablets since the Windows tablet will also run Windows 8 as users would prefer a consistent OS experience across platforms.
We currently have a $40 Trefis price estimate for Microsoft, which stands around 30% above the market price. The Windows Operating Systems are the second most valuable division of the company, representing 26% of Microsoft’s total value.Notes: