Nadella bends Microsoft to his will with Office 365, Windows pricing

Microsoft CEO Satya Nadella is wasting no time in turning the Microsoft ship toward new Windows pricing models, services, and mobile, as demonstrated in the company's earnings conference call Thursday.

Nadella kicked off the third-quarter earnings conference call with the tagline "mobile first cloud first," setting the theme for changes at Microsoft as it prepares to close the Nokia mobile business acquisition on Friday.

Some of his thoughts on key facets of Microsoft's business:

Windows pricing: Windows pricing in the mobile segment has changed since he came on board, and Nadella said that Microsoft is "innovating [on]...price," in his opening remarks.

This led to a question from an analyst about Microsoft now offering Windows for free on devices with screens smaller than 9 inches.

"We participated in the PC market, now we are in a market that's much bigger than the PC market...wearables, Internet of Things...and we want to be able to price by category. And that's what we did, we looked at what made sense for use to do on tablets and phones below 9 inches...and we felt that the price needed to be changed." he said.

And, not surprisingly, he sees it as a big opportunity.

"In the world of ubiquitous computing, we want Windows to be ubiquitous. It's not one price, one business model...and it's actually a market expansion opportunity."

The new 'one-family" Windows: Nadella emphasized that Windows in the future will be defined less by the separate Windows camps -- PCs, Windows RT, Windows Phone -- and be more unified. "We think about Windows [as] this universal Windows application model. How different it is to think of Windows as one family now."

Office 365: "This is the core engine that's driving a lot of our cloud...When we talk about Office 365 now having iPad apps, we also launched something called the Enterprise Mobility Suite...We now have a platform for identity management, device management, and data protection."

Services that "attach" to a device as a new revenue stream: "This transition from one-time licensing or purchases to a recurring stream...you have back-end subscriptions for Office 365, advertising, the app store. These are all things that attach to device."

Chief Financial Officer Amy Hood also chimed in, saying that there was stabilization in the consumer PC business and that the gross margins for the Surface tablet products have improved with the second generation devices.

Also, Microsoft stated in its earnings release that Surface sales jumped 50 percent over the same period last year to $500 million. But that's down from the $893 million reported in the previous quarter.