Exclusive: Microsoft Plots a Transition Year for Windows 10 (Premium)

An extensive collection of internal documentation viewed by Thurrott.com shows that Microsoft is resetting its Windows 10 strategy this year. The result will be new Windows 10 product editions, branding, and capabilities. Plus a tiered pricing model that will make appropriate new Windows 10 product editions and capabilities available via a wide range of device types.

The amount of information I’ve seen is so extensive and comprehensive that it’s hard to put it all in perspective. But as you may recall, I recently noted that Microsoft seemed to be rebranding Windows 10 S to Windows 10 Pro in S mode. These documents confirm that observation. And they expand on this information by noting that Windows 10 Home will also be available in S mode. (We previously knew that Windows 10 Enterprise could also be made available in S mode, though I’m not aware of any customers actually using that product yet.)

OK. Here’s what happening.

Microsoft will release two versions of Windows 10 this year, Redstone 4 in Spring 2018, and Redstone 5 in Fall 2018. These two releases are tied explicitly to what Microsoft is internally calling a “transition year” for Windows 10, in which its desktop platform will evolve into a more scalable family of offerings that will better meet the needs of its PC maker partners and, ultimately, the consumers who will use their shared products.

For Microsoft, the goals are obvious enough: It wishes to accelerate the transition to “Windows as a service” by driving adoption of the newest version of Windows 10. This requires volume, and to date, the biggest Windows 10 success stories have been with premium devices that can best take advantage of so-called “hero” features like Windows Mixed Reality, 3D, and gaming. So it is making Windows 10 more modular, both technically and from a branding/licensing perspective so that it can drive sales of low-end and mid-tier PCs too. Six straight years of PC sales declines are having their effect, it seems.

“Microsoft’s 2018 goal is to grow Windows units year-over-year … across all price bands and segments,” the firm notes internally. For consumers—which Brad also wrote about this morning—these segments include:

Modern premium. Which competes with Apple MacBook Pro.

Modern mainstream. Which competes with Apple MacBook, iPad Pro, and Chromebook.

Modern entry. Which competes with Chromebook.

Gaming and Mixed Reality. Which really has no competition, though Microsoft lists Apple here.

Always Connected PCs. A new segment that will include both Intel and ARM offerings and will offer smartphone-like battery, standby, and connectivity capabilities.

Cortana-based devices. This is an interesting appearance, given that there is just one in the market. But obviously, Cortana devices ostensibly competes with a wide range of smart devices.

The premise here is that the premium market is well served, and that it’s time to turn the industry’s collective attention to mainstream and entry PCs, and to new categories to drive growth. The data is clear: Premium PC unit sales were up 22 percent last year, but entry-level sales fell 27 percent and mainstream consumer PC sales fell 7 percent.

What we should expect to see here are Windows 10 “hero” features—precision touchpad, Cortana with advanced hardware support, Windows Hello, Windows Mixed Reality compatibility, and pen support—head downmarket.

On the commercial side, Microsoft has little direct competition beyond older PCs running Windows 7, so the aim here is to drive corporate upgrades to Windows 10 and to “enable the modern workplace” with Microsoft 365. As Microsoft notes, Window 7 will exit its support lifecycle in just two years, so 2018 is the big upgrade push.

For the education market, Microsoft faces stiff competition from Chromebook, especially in the US and now in Europe, Australia, and New Zealand too. So the priorities are bit different: better learning outcomes that save teachers time using affordable, easy-to-manage PCs that start at just $189. But Microsoft is pushing PC makers to offer “hero” PCs for this market, and not just low-end crap, and to offer schools trials that can compete with Google’s aggressive courting of this market.

The changes that Microsoft are plotting are mostly internal and will impact its partners most obviously. But the impact will cascade to customers, too, since PC makers might adjust their offerings to take advantage of lower licensing costs for some of the new Windows 10 version. So consumers might see more PCs based on what we used to call Windows 10 S this coming year.

Right. Windows 10 S is no more, as I had suspected.

Instead, Microsoft will optionally offer Windows 10 Home and Windows 10 Pro (and, yes, Enterprise) in S mode to its PC maker partners. And it will do so using a new tiered pricing model where the cost for Pro in S mode, especially, can vary wildly depending on the cost or capabilities of the PC on which it will be offered.

For consumers, this means that more PC—more than just Surface Laptop, anyway—will shipped with a streamlined but restricted Windows version in 2018. And that they will have to pay $49 to upgrade to Windows 10 Pro on these PCs if they find it unworkable.

For PC makers, this means that they have a stunning array of new pricing tiers from which to choose.

For consumer PCs, Windows 10 Home, Windows 10 Home Advanced—a new internal branding used for Windows 10 Home installed on high-end PCs—and Windows 10 Home in S mode will be made available at a variety of price points that range from $25 to $101, depending on PC capabilities. Here, the pricing for both versions is identical across the board because the switch to “full” Home is free. That is not the case for commercial PCs, as you will see below, or for Windows 10 Pro in S mode generally.

The cost to a PC maker for licensing Home, Home Advanced, or Home in S mode for an entry-level device (Atom/Celeron/Pentium processor, 4 GB or less of RAM, 32 GB or less of SSD storage, and various screen sizes depending on device type) is $25. For value PCs (Atom/Celeron/Pentium processor, 4 GB or less of RAM, 64 GB or less of SSD storage, or 500 GB or less of HDD storage), the cost is $45.

Jump up to the mid-market (what Microsoft calls “core”) and the price jumps to roughly $65 or $86, depending on the target locale. These PCs are rated to meet the requirements for the “advanced” features that justify the Home Advanced SKU. Licensing Home Advanced (or Home in S mode) on so-called Core+ and Advanced PCs (the latter of which will include high-end Core i9, six-core Core i7, or Threadripper hardware) will cost $87 and $101, respectively.

In the commercial (and EDU) market. pricing for Windows 10 Pro in S mode will range from just $10 for small tablets, entry-level PCs, and value PCs (all of which will ship with Atom or Celeron processors and have 4 GB or less of RAM) to $117 for mid-range (or what Microsoft calls “core”) PCs. In each case, the end-customer can upgrade to full Pro for $49.

Normal Windows 10 Pro pricing is all over the map in the commercial space: It runs the gamut from $30 for small tablets (with 7-to-9-inch displays an Atom or Celeron processors) to $117 for mid-range (“core”) processors. (Or $165 if the customer needs downgrade rights.) Workstation PCs—one wonders if the branding there changes to Windows 10 Pro in Workstation mode, which it should—are even more expensive to license; depending on the device capabilities, the cost is $144 to $244.

The transition from Windows 10 Home to a tiered set of SKUs that include Windows 10 Home in S mode, Windows 10 Home, and Windows 10 Home Advanced, starts on April 1, 2018, with high-end PCs that justify the Advanced pricing first appearing on May 1, 2018.

The transition from Windows 10 S and Windows 10 Pro to Windows 10 Pro in S mode and Windows 10 Pro starts with the release of Redstone 4 (so March/April). As before, those who acquire a Windows 10 Pro in S mode PC will be able to upgrade to “full” Windows 10 Pro for $49 by using an in-box Store-based purchase. There does not appear to be an expiration date, and nor should there be.

As the S mode value proposition, Microsoft provides some incredible numbers. And I mean that literally.

No stats are provided for Surface Laptop, which is the only mainstream PC to ship with Windows 10 S. Where I suspect the conversion rate to Windows 10 Pro is very close to 100 percent.

But for “3rd party devices,” which for now are only low-end education PCs, Microsoft claims the following:

• 60 percent of users stay on Windows 10 S. Only 40 percent upgrade to Pro.
• 60 percent of switchers do so in the first 24 hours.
• 83 percent of users will stay on Windows 10 S if they do not switch in the first 7 days.

To ease the burden of S mode, those who purchase a Windows 10 Home in S mode PC can upgrade to full Windows 10 Home for free; there is no $49 charge as we see with Pro. (Education customers can also upgrade at any time for free.) This is a great decision on Microsoft’s part.

Finally, Microsoft will improve S mode this year with further improvements to Edge, a new AV/Security Apps capability for third-party AV solutions, and optimizations aimed at low-storage devices.

Overall, this strategy seems solid. It’s clear that Windows 10 S as originally envisioned made no sense at all and was too much of a hard stop. By making S a mode of all mainstream Windows versions and then providing a free or inexpensive upgrade path, Microsoft has effectively eliminated the single biggest complaint about this offering. But in spreading S mode across the product family, it is likewise signaling that it remains serious about pushing the industry to a more streamlined platform. It’s not the full retreat I had hoped for—the ability to actually run desktop apps, if only with a lot of nagging—but it is a great step forward.

This story is happening in real time and I suspect there will be more to say.