The future of Microsoft lies with free Windows. That has never been clearer than it is today.

In India, according to a report by the Times of India, the software giant is now letting smartphone makers use its Windows Phone operating system at no cost, hoping to expand the reach of the OS. In a world where Google's Android mobile operating system is available free of charge – letting hardware manufacturers more easily build smartphones and tablets, particularly in parts of the world where the market is still developing – this move only makes sense for Microsoft, and it's part of a larger shift by the company towards free OS software.

This shift means that Microsoft will lose Windows licensing revenues – traditionally a large part of its business – but it can use Windows Phone and other OSes to boost the popularity of its many online services, such as the Bing Search engine, where there is potentially more money to be made in advertising. In other words, Microsoft is becoming more like Google, which is offering a free operating system, ChomeOS, on desktops and laptops as well.

Recent press leaks show that the news from India is no isolated occurrence. Just last month, reports indicated that Microsoft is readying a free version of Windows 8.1, and that the company will cut Windows prices 70 percent on the cheapest laptops and tablets. In December, another report said that Microsoft is considering free licensing for its phone and tablet operating systems. And it looks like handset maker Nokia, which Microsoft recently agreed to acquire, is preparing a phone that runs Android itself.

The implications of these moves are profound, at least for Microsoft. The company was built on the idea of selling operating systems, and even after it released the most popular workplace software package ever made, the lucrative Microsoft Office, the company still made 47 percent of its revenue from Windows at one point in the 1990s. That figure has declined, but Windows still accounts for around a quarter of sales.

Nonetheless, Microsoft must move towards free Windows or risk dying on the vine. The company largely missed the world's big shift to mobile computing, which has seen smartphone and tablet sales eclipse sales of PCs and laptops. Though Microsoft released an innovative mobile OS in 2010 – Windows Phone 7 – Apple's iOS and Google's Android had already captured the smartphone market. Even grabbing third place has proven difficult for Microsoft, since the company asks handset makers to pay licensing frees for Windows Phone.

Former CEO Steve Ballmer never budged on Windows pricing. But under newly installed CEO Satya Nadella, the company seems increasingly ready to forgo license fees. (Microsoft could not be reached for comment on the Times of India report.) As the former head of Microsoft's cloud and enterprise division, Nadella has proven he can effective change the way Microsoft operates and push it into the future. The key here is to see Windows as a loss leader for other Microsoft offerings, such as web services, online storage, and software subscriptions.

This may not pan out for Microsoft. It has a long way to go if it's going to replace its Windows revenues, and it still depends heavily on the sales of local software applications, another weakness in a world where the cost of software is plunging thanks to crowded mobile app stores and free online services. But free Windows is certainly the best way forward.