Technology: Ground control

Of course, they’re in a bacon factory. The title of the cartoon is “Facebook and you”. And below is a reminder that ‘if you’re not paying for it, you’re not the customer; you are the product being sold.’

This cartoon has been in my mind this week as my work PC plagues me relentlessly (mind you, a plague which wasn’t relentless wouldn’t be much of a plague, more a slight cold) to upgrade to Windows 10. Unless you’re Mac fanbois, it’s likely your ‘pooters have been asking you to do the same thing.

The relative merits of Windows 7, 8, 8.1 and 10 are – while fascinating, of course – not our subject today. Rather it’s the pricing model Microsoft has adopted that is interesting.

The deal is that (unless you’re on a pricey enterprise licence) if you update to Windows 10 before next summer, your license will be forever free. If you update after that time, normal service will be resumed and you’ll have to pay.

Microsoft in being generous shocker! Has Redmond gone all hippy commune on us? Is this a belated apology for just how awful Vista was? Probably not. So what is going on?

There are three theories

First, it is a defensive move. Apple’s share of the desktop and laptop market, according to tech research firm Gartner, was up to nearly 12 per cent in the US at the end of 2014 (this stat includes all desktop, laptop, ‘premium ultramobiles’, whatever those are, and Windows tablets but excludes iPads and other tablets). Windows 8 sucked hard unless you use a touchscreen, and you probably don’t. Macs are seriously expensive, but they work, and from university campuses to coffee shops in the City, an illuminated fruity logo is never far away.

That’s not a trend Microsoft will want to see continue, and a free OS bump to Windows 10 might well be a move to keep disgruntled Windows 8 users onside. While 12 per cent doesn’t sound much, if we factor out enterprise licences, the proportion is likely much higher.

Second, it is integrative. Microsoft has been explicit about wanting to deliver an operating ecosystem which works across desktop, laptop, tablet and smartphone. Windows 8, or even 8.1, is not that. But Windows 10 looks like it has a much better chance of achieving that goal. If it is good to use (and initial reports sound promising), then Redmond will be hoping that the desktop/laptop experience will act as an anchor, and will tempt people into buying an Xbox, Windows (ha ha, no, stop it) phones, and particularly the Surface tablet family. One system to rule them all from the pocket to the handbag to the living room to the office – why muck around with iOS or Android or even (no, really, you’re killing me) BlackBerry? ‘No, Jacinta, you can’t have an iPad, but here’s a Surface Pro 3’.

Thirdly, it’s shifty. Anyone who uses Lightroom or Photoshop from Adobe has got used to the concept that you can’t buy software, you only rent it or subscribe to it. Some like this, some don’t, but ‘buy once, use forever’ will soon be a thing of the past. Yes, if you upgrade before next summer you’re ‘forever free’ on Windows 10 – but that will only be for the installs you have now. Change the motherboard in your machine, or buy a new one, and if you are to continue your Windows 10 experience I’ll bet a bottle of something 18-year-old and decent that you will be on the hook for a monthly subscription, probably along with your Office 365 tax.

Grains of truth

Any or all of those may have some grains of truth. But – bringing us back to our pigs – there’s something else inside Windows 10 which might be the core of the issue. Cortana, Microsoft’s digital assistant, is wired in far more deeply than ever before.

In Windows 10, Cortana powers search, both online and for files on your machine. It can do this via typing, of course, but if your machine has a microphone you can set it to wake up when you say “Hey, Cortana” and then search for what you want. You can use natural language search – “Hey, Cortana, what’s the weather like in Edinburgh?” (“Absolutely bloody awful, Mark”) or tell it to open the new Edge browser (“Hey, Cortana, open Edge” – insert your own U2 joke here).

I’ve watched a few demos of Cortana, and it/she is pretty great. But the price to pay? Cortana only works if you allow it to phone home. And when it does phone home it tells Microsoft a whole lot more than what you’re searching for. We are in the realms of big data here. For my money, a massive free rollout of Windows 10 is designed to get people excited about and on the hook for using Cortana. From that, Microsoft gets a big data source which, finally, can – over time – start to challenge Google.

So we move to a world where you speak into the mic on your tablet (Surface, made by Microsoft) to wake a digital assistant (Cortana from Microsoft) to open a browser (Edge from Microsoft) to use a search engine (Bing from Microsoft) to find what it is you are looking for, at which point you get served a bunch of ads which might just be the most valuable thing in the chain.

This is what Apple has done so brilliantly in the mobile and tablet market; but it hasn’t quite managed to unite everything across devices and so really get that baked-in loyalty (and rich source of valuable big data). Microsoft might have just managed it.

I promised we would talk about finance, a little, so here goes. I think there are quite a lot of similarities between what’s going on with Windows and what’s going on in the platform market. True, platforms are not free – but they are to advisers. Most platforms make only a relatively modest profit if any at all – but they are the gateway drug. The platform is, to use our example above, Cortana. And once you are in the ecosystem, why would you spoil it by going elsewhere for other stuff?

This is not new – anyone who used U-Scan alongside their Skandia platform would recognise the model. It helped that U-Scan was genuinely good. These days, anyone who uses, say, MyFolio alongside their Standard Life Wrap, or WealthSelect on Old Mutual Wealth, or even AAP on 7IM would also recognise it.

Using the data

Platform margins aren’t going anywhere good (although a recent paper we put out suggests prices will fall more slowly than folk think). Increasingly, more providers will look to some kind of vertical integration to supplement income sources. That might take all kinds of forms – from the full-fat Old Mutual Wealth, SJP and Standard Life models, to lighter-touch ancillary generators like Nucleus’ Wrapstore model.

But what no platform has done properly yet is monetise its MI; its data. Most have other fish to fry, but eventually someone will get round to the idea that the most valuable asset might not be the 0.35 per cent a year, but the information sitting on the servers. Platforms are allowed to charge fund managers for MI. They’re allowed to market D2C services to end consumers. You can see how all this could shake out.

In both markets then the pigs have it. The product is not what you think it is. It is a bunch of stuff that goes around that. This is not necessarily sinister, or wrong. Each part of the vertically integrated propositions which will be vying for your attention as advisers might be excellent. But it is the totality of the game that’s interesting for the shareholders of these businesses – not the components themselves.

Mark Polson is principal of platform and specialist consultancy the lang cat