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Kevin Turner, Microsoft chief operating officer. (Microsoft File Photo).

Microsoft Windows has made headway in the market for low-end laptops and tablets this year by reducing the price it charges device manufacturers, charging no royalty on devices with screens of 9 inches or less. That has resulted in a new wave of Windows notebooks in the $200 price range and tablets in the $99 price range.

str11_gallery_img2The long-term success of the strategy against Android tablets and Chromebooks remains to be seen. But we’re now seeing “the arrival of truly excellent low-end, Windows-based tablets and PCs,” writes Paul Thurrott on the Windows Super Site, pointing in particular to the HP Stream tablets and notebooks.

Microsoft chief operating officer Kevin Turner made the same point during a presentation Thursday at a Credit Suisse technology investment conference in Phoenix, Ariz. Turner also made it clear that Microsoft won’t just be reducing the cost of Windows: It’s planning to make up at least part of the difference through a new business model.

The plan is to “monetize the lifetime of that customer through services and different add-ons that we’re (going) to be able to incorporate with that solution.”

That sounds a lot like some form of subscription-based Windows. With Microsoft’s Windows 10 on the way next year, there have been various reports pointing to the possibility of a new pricing structure for Windows, where a basic level of the operating system would be free, and certain features would cost extra. Microsoft has already gone down this path with Office, making the productivity suite free on iPads, for example, and charging an annual subscription for advanced features.

Turner didn’t go into specifics about the Windows plan, promising more details next year. But he made it clear during audience Q&A that the company doesn’t intend to lose money on Windows. Here’s an excerpt from the transcript.

AUDIENCE QUESTION: Does Windows 10 kind of go down this path of a loss leader in trying to keep people within your ecosystem and then up-sell everything else on top of that? How are you thinking about that as you go down this path?

KEVIN TURNER: We haven’t announced the Windows 10 pricing framework yet. The one thing I can tell you that we’ve not had any conversations on is Windows 10 being a loss leader for us.

PHIL WINSLOW, CREDIT SUISSE: Are you going to start losing money on Windows?

KEVIN TURNER: Yes, let me — that’s not any conversations that we’ve had. The thing about it is, though, we’ve got to monetize it differently. And there are services involved. There are additional opportunities for us to bring additional services to the product and do it in a creative way. And through the course of the summer and spring we’ll be announcing what that business model looks like. At the same time it’s wonderful to see these nine-inch and below devices explode, because that was an area, candidly, I was blocked out and I had no share of what was getting built. So it’s a very fascinating transition for us.

And finding new ways to monetize the lifetime of that customer on those devices, again, I would tell you we’re learning, we’re growing, and we’re smarter and wiser every day. And we still have some more learning and growing to do in that space. But, stay tuned. The business model stuff will be out in the early — probably the early part of 2015.

A move to some form of subscription-based Windows would not be a surprise, given CEO Satya Nadella’s push to reposition Microsoft as a leader in cloud services and mobile devices. As Microsoft rolls out the new business model, one litmus test will be whether the company can keep the pricing simple and the value clear — something that has been a challenge in the past.

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Microsoft CEO Satya Nadella at Microsoft’s shareholders meeting last week.

During his prepared remarks at the Credit Suisse conference, Turner talked candidly about the new realities facing the company.

“The first 39 years of our company, we had one of the greatest business models of all time built around certainly the Windows client operating system, and the PC operating system, and catching that wave of innovation certainly was very good to the company.”

However, Turner added, “This was our past. If you look at our future, it’s really about becoming a Cloud OS, a devices operating system, having first party hardware to light up those experiences, and really being the company that can uniquely provide for dual-users this idea of digital work and digital life experiences.”

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