The people overseeing Microsoft's business strategy should really take a look at this article. Virtual Pants hit the nail on the head: "Now they’re in the business of maintaining other people’s cars for peanuts." A company can't feasibly compete with Apple whose revenue is from hardware and Google whose revenue is from advertisements just by reducing their "Cash Cow" to $40.
Like Apple, Google is giving away its OS. Instead of profiting using hardware, Google sells ads. So, both Apple and Google are giving away Microsoft's core product and profiting tangentially in other ways.