How are users “compensated” with a cheaper OS licenses in Windows 10. Most everyone uses the OS included with their device and will rarely pay for an update.

It doesn’t mean it’s free.

When you buy a Mac Book you usually dish out around 1500 USD at the very least, where the cost of materials is at best 1/3 of that. You mostly pay for the design, the OS and the privilege.

You can get a PC with Windows 10 Home Edition for 400 USD or so. The implied price point for the OS is way lower.

The economic decision here (re ads) is to be able to make some money on the mass low-end market, while still being able to develop a decent OS.

Case in point: Microsoft Surface Book, which runs at about 2000 USD and is a product comparable to Apple’s has no ads.

Maybe part of that decision is because so many people pirate Windows and are unwilling to pay for it, they’re trying to earn money through advertising instead...

Very good point! Thank you, I haven't thought about it this way.

Afaik, Microsoft doesn't make much from large OEM sales since they give such a steep discount. I asked Lenovo to reduce the price on my laptop because I wouldn't be using Windows, so they gave me ~$40 discount and asked me to not enable Windows (which I didn't). This tells me that Windows for OEMs is around that price, which is less than half of the retail price.

Also, a $400 laptop is hardly comparable to a $1500 Apple laptop. I've had one of those, and the hardware really sucks, and stuff starts breaking within a year. It may have the same CPU, but the rest of the components are really crappy. If you want an closer comparison, compare high end laptops with the Apple laptops (Lenovo X- series, Dell XPS series, etc), which run at a much more similar price. If they're lower, it's because they have more competition than Apple does (Apple doesn't license its OS to competitors, so if you want their OS, you must buy their hardware).