Microsoft to offer Windows for free on phones, tablets

By Bill Rigby

SAN FRANCISCO (Reuters) - Microsoft Corp (NSQ:MSFT) said on Wednesday it will give away its Windows operating system to makers of smartphones and small tablets as it seeks to grab a toehold in those fast-growing markets.

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 cloud-based services such as Skype and Office.

Up to now, Microsoft has charged phone and tablet makers to use versions of its Windows system on devices, as it has done successfully 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 challenged in the past few years by Google Inc's (NSQ:GOOG) free Android system for phones and tablets, which hardware makers embraced and accounted for more than 75 percent of all smartphones sold last year.

By contrast, Windows-powered phones have been well reviewed but 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 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.

It comes a week after new Microsoft Chief Executive Satya Nadella unveiled new versions of Word, PowerPoint and Excel applications for Apple Inc's (NSQ:AAPL) iPad.

The move showed Microsoft is now more interested in gaining market share for its cloud-based services on any platform or device, rather than its traditional approach of putting Windows at the center of everything it does.

(Reporting by Bill Rigby; Editing by David Gregorio and Andrew Hay)