Personal Finance

Instant Analysis: Microsoft's Key Moment Arrives

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Does it matter?

Known as Windows 10 Enterprise E3, the new OS will include an unspecified number of additions or enhancements. But the real enticement -- especially for businesses that use Windows as their primary computing platform -- is the promise of regular security upgrades. Subscribers will get the latest software as it's released.

For investors, the announcement reflects a shift in how Microsoft will collect and grow earnings in the years to come. Instead of selling chunks of software to retailers and computer makers, and collecting revenue at the point of purchase, the company will write contracts for access to "services," including the Azure cloud platform, the Office 365 productivity suite, and now, Windows.

Some contracts will naturally be bigger than others and include some upfront outlays, which means we can expect to see Microsoft accruing a significant balance of deferred revenue. In its fiscal second quarter, this "unearned" but very real revenue added $12.57 billion to cash flow from operations, up 23.2% year over year. Recognized revenue was up just 3%, and that's only if you account for currency effects and other adjustments.

All of which means -- whether the company chooses to admit it or not -- Microsoft is essentially copying the business model that's made what it is today.

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Tim Beyers owns shares of Apple and The Motley Fool owns shares of and recommends Apple and The Motley Fool owns shares of Microsoft and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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