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Windows 10 marks turnaround moment for Microsoft

The goal of the software maker's flagship product is to renew faith in the Windows world.

Now playing: Watch this: Microsoft opens a new Windows to the world

Microsoft's Joe Belfiore, head of the software operating systems group, is in Redmond, Washington, Wednesday preparing to press a very important button.

Once pressed, it will send a notification around the world reminding hundreds of millions of people that Windows 10, Microsoft's flagship software, is ready to download and install -- for free.

"We want people to think about how they can move their PCs forward, but also move other things in their lives forward," Belfiore said in an interview Tuesday. Microsoft is treating the moment as a way to ask the world to join it in looking ahead, equipped with a global, yearlong advertising campaign dubbed "Upgrade Your World." The move to Windows 10 is being treated as a rebirth moment not just for customers, but for Microsoft as well.

Windows 10 is the full realization of a touch-based operating system capable of acting as both as tablet and a PC. James Martin/CNET

That Microsoft, which became the world's largest software maker selling Windows, is giving away what it once sold for about $120 reflects a company ready and willing to accept the reality of selling software in 2015. That means products given away for free with the hope customers will buy subscriptions to more lucrative online services. The Windows 10 giveaway is also a sign that Microsoft wants people to see it in a different way -- as a technology giant with eyes on the future instead of the stodgy seller of office software that missed the boat on smartphones and botched its attempt to design an operating system for touch-based devices.

For the Microsoft naysayers out there, Windows 10 may be a wake-up call. The software is already being touted in reviews as a much-needed refresh that puts Microsoft on par with -- and in some respects, far ahead of -- competing operating systems like Apple's Mac OS X Yosemite. CNET's Nate Ralph says "Windows 10 bridges the gap between PCs and tablets without alienating anyone."

Microsoft isn't competing with other companies so much as it's competing with itself. Windows runs on more than 90 percent of the world's PCs. But the most popular version of the software, running on three of every five devices, is Windows 7, which came out six years ago. Compare that to Apple's Yosemite operating system, which was released in September 2014 and four months later was running on nearly half of Apple's Macintosh computers.

The problem was clear as glass: Windows 8, which came out in 2012 and was a stark departure from traditional versions of Windows, was a step sideways. Windows 10, which will run on devices of all sizes and shapes, is the course correction. Its purpose is also to give life to Microsoft's mantra to "reinvent productivity."

Whether Microsoft's users are too shell-shocked from past experiences to upgrade to Windows 10 remains to be seen. And for Microsoft, the next step is selling the promise of Windows 10 in a world where everybody has been getting along just fine with a product that came out in 2009.

"The key challenge now is that, for a long time, Microsoft didn't really have to sell Windows. It just sort of was there. You had to take it," says Steve Kleynhans, an analyst at research firm Gartner. "Now they're in a situation where they're actually having to prove to you that there's some excellence, some value there ... that's a tough sell."

Windows as a service

To understand where Windows goes from here -- and how integral it will be to Microsoft's future -- look no further than the Windows Insider Program.

Belfiore, who has led the OS engineering and product design groups at Microsoft since 2013, is being joined today at Microsoft headquarters by these so-called "insiders," Windows fans who have spent the better part of the last year testing and tinkering with early versions of the software to help Microsoft get it just right.

The company invited members of the program to thank them for having transformed the development process for Windows into something collaborative, Belfiore said. By letting Microsoft peer into how machines running Windows 10 were being used, these PC users helped create Windows 10. The change in development approach has been one of the hallmarks of CEO Satya Nadella, who took charge last year and vowed to make Microsoft more consumer-friendly and transparent about its product roadmap.

"We don't sit around and speculate about what people want," Belfiore said. "We go and look at what's happening in the real world and we can make decisions based on real concrete facts."

Many of the 5 million insiders will be the first users of Windows 10, which began launching as soon as yesterday in Australia, due to the time difference, and is now making its way to the remaining 189 countries around the world. In that sense, pressing a button to "release" Windows 10 is symbolic. But it's also a way to nudge millions of PC users who don't obsessively check their computers for new updates or seek out ways to get software early rather than wait for it to be delivered to them through automatic updates.

The automatic update process is critical. Microsoft is no longer treating Windows as something that it ships and then forgets about until it needs to squash a software bug or do much-needed maintenance. Instead, Windows 10 is being treated as a service, Belfiore says, that will be changed frequently. An update will have collections of sometimes small, sometime large changes that will be sent out to Windows users during times of low traffic on the Internet, such as the middle of the night.

You'll wake up the next morning and realize that you now have the most up-to-date version of Windows without having to put in the effort.

"We do that in part to make sure that people have the best experience," Belfiore said, "But also so that if a developer is writing an application, a developer gets the benefit of knowing that the largest number of machines all have the latest version."

Features like Cortana, Microsoft's personal digital assistant, will be continuously and automatically updated as the company makes incremental changes to Windows over time. James Martin/CNET

Microsoft won't say yet whether there will be a Windows 11. Nor will Belfiore say if Microsoft will follow in the footsteps of Apple, which makes minor and sometimes major tweaks to its now free OS X software every year and slaps on a fun name. After naming numerous versions of OS X after cats (Snow Leopard, Jaguar, Puma and so on), the company switched to California place names in 2013 with Mavericks. Yosemite was released last year, and Apple plans to ship El Capitan sometime this fall.

Belfiore said Microsoft will likely take an approach that lets it communicate the Windows 10 changes to the broadest amount of users -- both pros and regular joes alike -- and explain how to get those updates without breaking anything critical you like to do in Windows, such as gaming.

For those worried Microsoft is turning Windows into a subscription service, fear not. The company says if you claim your free upgrade, which is available to the Windows 7 and Windows 8.1 users running the software on 77 percent of all PCs in the world, you'll receive updates for the entirety of your device's lifespan.

Surviving in a 'freemium' world

While Microsoft may begin earning back the goodwill of customers with the free upgrade and aesthetic appeal of Windows 10, that doesn't address its more pressing issue: making money.

Under the stewardship of Nadella, Microsoft has spent the past 18 months transforming its products and its approach to customers. The company is moving away from selling licensed software at flat (and high) rates -- like more than $150 for an Office license -- and now offers subscriptions to its cloud-based apps and services like Office 365, which is priced starting at $100 a year of consumers and as little as $5 a month per user for businesses. Mobile versions of its software, including the popular Office suite of productivity apps, are available free of charge on devices made even by competitors including Apple.

It's a big change and intended to get millions of users begin using Microsoft products again, including the Word document editing software and Outlook email app.

"They can't sell software like they used to," said Roger Kay, an analyst at Endpoint Technologies Associates. "If all they do is make software and give it away, what's their business model?"

Competitors have largely figured that part out. Google gives away software and services, including free online storage and online tools that replicate the core functions of Microsoft's Office app suite, but makes money through advertising on its search engine. Apple, which used to sell OS X and its other software, moved away from that business model in October 2013 and opted to give it away instead. It now makes most of its money from its popular hardware including the iPhone and iPad.

Microsoft has placed its bets on helping consumers and companies maneuver data living online, where it sells access to full desktop versions of Office as part of its Office 365 subscription service and powerful tools that tap into its Azure cloud computing platform.

"They have to find other sources of real revenue," said Gartner's Kleynhans. "They've identified subscription services and cloud services as being real targets."

The company's commercial cloud business -- which includes Office 365, Azure and software for helping businesses manage their data in the cloud -- grew 88 percent in fiscal 2015 and Microsoft said the division is now on track to pull in more than $8 billion in annual sales. Nadella has said he wants the cloud division, which he oversaw before becoming chief executive in February 2014, to be a $20 billion-a-year business by 2018.

Microsoft can afford to wait since it can continue to rely somewhat on traditional sales. It still charges PC makers like Acer and Lenovo a fee to install new versions of Windows on the computers they sell to consumers. And businesses still pay Microsoft to help maintain older versions of Office and Windows for large numbers of employees running those programs on their PCs at work everyday.

But those revenue streams won't last forever and Microsoft has made it clear that resting on its laurels is both what lost it the smartphone race and forced it into blundering with Windows 8. If the company is to succeed, it has to continue to bridge the wants and needs of the businesses it serves with the desires of the average computer user.

"Microsoft is arguably one of the few companies that can mix your personal and work life," said Jan Dawson, an analyst at Jackdaw Research. "Microsoft can bridge that gap in a way that Google can't."

The challenge, Dawson added, is convincing the world that Windows 10 can truly be everything to everybody -- the software that sits at the center of "your whole life."

For Belfiore, Windows 10 is not a risk that could sink the company, but the proper evolution of Microsoft's marquee product.

"We've talked about this notion of getting 1 billion devices on Windows 10," he said. "I think this is a big opportunity."