Paul Thurrott has thrown some fuel on the fire regarding Microsoft’s plans to allow Desktop (aka, existing) apps to run on the ARM-based Windows 8 tablets (and notebooks).  Basically he is reporting that one reliable source is telling him that Desktop apps will not be supported while another is telling him that they will be supported.  Which source is right?  Probably both.

Consider that Microsoft has (at least) three different audiences for Windows 8 tablets: Entertainment-oriented Consumers, Power-User Consumers,  and Enterprises (including small business).  Many consumers, like those willing to purchase an Apple iPad or Amazon Kindle Fire, are obviously willing to sacrifice the ability to run legacy apps in order to have an optimized consumption-oriented experience.  Meanwhile there are other consumers who are avoiding existing tablets specifically because they want to be able to run one or more legacy applications.  More importantly, most Enterprises from small to large have legacy business applications that they find critical to put in the hands of their employees.  Windows 8 tablets become extremely attractive to them as a way to put tablets, with new applications, in the hands of their employees while allowing those employees access to legacy applications as well.  As everyone is already aware of, Windows has long come in multiple editions.  And thus Microsoft has the opportunity to create different editions of Windows 8 to address these varying user requirements.

In comments on another of my posts people have brought up the question of will Microsoft price Windows 8 in a way that allows OEMs to offer consumer tablets that are price competitive with Android and IOS tablets.  Once again I go back to the editions point.  Microsoft must have an edition of Windows 8 whose OEM pricing takes the cost of the operating system largely out of the competitive equation.  We’ve seen Microsoft do this before.  Recall that Netbooks were originally conceived as Linux devices, priced so cheaply that they couldn’t absorb the cost of Windows in the Bill of Materials.  Microsoft responded with a lower priced Windows Starter Edition and pretty quickly over 80% of Netbooks were shipping with Windows rather than Linux.  We’ve also seen Microsoft offer the Office Home and Student Edition at a very attractive price, constructed of applications and licensing conditions that allow consumers to stick with Office without significantly cannibalizing sales of higher priced editions of Office to businesses.  SQL Server Express Edition is free even as Enterprise Edition costs $10s of thousands per processor.  Microsoft knows how to use pricing and licensing to simultaneously open up markets and maintain its margins.  And they will try to do this with Windows 8 on Tablets (ARM or x86) as well.

A very sensible licensing structure for Microsoft would be to offer OEMs a low-priced Tablet Edition that does not include support for Desktop apps as an entry-level product.   At the same time most if not all other editions of Windows 8 would ship with the ability to support Tablets as just another configuration, and thus include the ability to run Desktop apps on them.  That would be for x86 or ARM.  So what you would see is the base price for Windows 8 Tablets includes the Tablet Edition, but if you wanted the ability to run Desktop Apps you could upgrade to “Windows 8 Home Premium” and if you wanted the ability to also hook up to your corporate Domain you would upgrade to “Windows 8 Professional or Windows 8 Enterprise”.  In other words, the model would be just as it has been with Netbooks, where they are offered with Windows Starter Edition but many users upgrade to one of the more feature-rich editions.  In the case of Windows 8 Tablets the Metro-only vs Desktop and Metro applications capability is a very natural line for Microsoft to differentiate on.

If Microsoft does this successfully it will be healthy for their bottom line.  They will make less on pure consumption devices, but this is an area that is nearly all new business.  Meanwhile Tablets that are truly replacing notebooks, as well as Tablets used by Enterprises, will yield Microsoft the same revenue and profit they get out of Windows 7 PCs.  Over the long haul, as more apps move to the Metro model, Microsoft will have to find new ways to differentiate between editions if it wants to maintain margins.  But that is a problem for Windows 9, 10, and 11.  For Windows 8 the Metro/Desktop App split would be perfect.

The really interesting question is around what legacy apps will actually run on ARM-based systems.  Will, for example, SAP recompile their client bits for ARM?  How many versions back will they do this?  It’s an important question because an Enterprise may not want to upgrade to a newer version of SAP just to get ARM support.  What about Intuit’s products?  For small businesses the ability to run Quickbooks, and for consumers Quicken, would be huge in deciding they wanted support for Desktop Apps.  What are these and other ISVs telling Microsoft?  If there is one fly in the ointment of my analysis it is that what the ISVs tell Microsoft could alter its plans.  If ISVs only want to support ARM with new Metro apps then Microsoft could decide not to offer ARM Desktop App support.  But I doubt this is the message they are getting from ISVs.  If we are going to see ARM-based Notebooks then ISVs will want to be there, and that means the apps would work on Tablets as well.

So the bottom line is that we are likely to see Desktop App support for ARM-based Windows 8 systems, but that most consumers will experience Windows 8 Tablets using a Desktop App-free Windows 8 Tablet Edition.