5 ms·

The business model for charging for operating systems is going to go away thanks to patents. Why try to charge royalties for an OS when you can simply collect r

The business model for charging for operating systems is going to go away thanks to patents. Why try to charge royalties for an OS when you can simply collect rent? Google give Android away because it's in their interest for handset makers to have an OS that isn't distributed by the people who own Bing. But why should Microsoft even bother with Windows 7?

brudgers 15y ago
As this article points out, the price of Android for handset makers is free - the cost is somewhat more. If Google charged for Android they those costs might in fact cause Google to lose money on Android. On the flip side, the Android ecosystem is so vulnerable in regards to intellectual property claims (don't forget Oracle and Apple are in the price/cost equation, too) that Microsoft's WP7 makes a great deal of sense. Particularly in light of Google's ability to just walk away from Android, it would be foolish to count on it as a consistent source of revenue.
- deleted 15y ago
  [deleted]
- arjunnarayan 15y ago
  While I agree with most of your post, I disagree with the last sentence. I don't think you can count the "cost of Google walking away from Android" unless you also count the "cost of Microsoft walking away from WP7", unless you think there's a significant risk differential between the two events (which you have not justified in your post). In fact, given that Android is open source, the "shit-hits-the-fan because we bet our entire company on the stack" risk-cost for Android is _lower_ because if the penalty was in fact that high, you could continue development in house. And you can't argue that Microsoft is more vested in the WP7 stack than Android, because 1. Android has multiple users and manufacturers who would collaborate on the source if Google abandoned it. 2. Microsoft has walked away from platforms that sucked in the past (Zune).
  - brudgers 15y ago
    There is a significant risk differential and your post points it out. Google can walk away from Android more easily because their core IP is not present in the codebase and therefore providing it to the open source community does not create competitors to their primary revenue stream. WP7 on the other hand, has a code base which almost certainly incorporates significant trade secrets upon which their core business (operating systems) relies. In addition, Microsoft has not walked away from Zune - they have simply abandoned the manufacture of proprietary hardware under the brand. Zune as software is alive and well (and a component of WP7). http://www.zune.net/en-US/products/software/download/default.htm http://www.zune.net/en-US/products/software/download/default... http://www.zune.net/en-us/products/windowsphone7/ http://www.zune.net/en-us/products/windowsphone7/
TomOfTTB 15y ago
I agree there's an irony here (Microsoft getting paid for each handset while Google doesn't get anything). But in the end Google still has the more lucrative position. Because Google is still pretty well embedded into Android. So Google's still serving ads and getting all kinds of information on an ongoing basis. That's worth way more than $5 per phone (I realize people can use other search engines with Android but it falls under the IE6 rule of "most people won't change the defaults") So the reason Microsoft should still bother with Windows Phone 7 is that ongoing revenue stream.
- raganwald 15y ago
  I agree that MSFT might still want to bother with Windows 7, but maybe they should give it away as well in order to drive traffic to Bing?
  - brudgers 15y ago
    The idea that Microsoft should imitate Google and go wholesale into a revenue model based on advertising sales ignores Microsoft's fundamental strength - the trust upon which its B2B relationships (the crown jewels) rely. Microsoft has a customer base which is likely to be stable over the next five to ten years - Google's customers would abandon it in a heartbeat if consumer habits change and Google's platform becomes less cost effective than a competitor's (Google has the same sort of vulnerabilities that newspapers had to Craigslist).
erik 15y ago
Microsoft bothers with Windows 7 because rent collected from IP, while lucrative, is limited compared to the revenue potential of controlling a dominant platform. Also, I can't imagine Balmer's ego or Microsoft's investors allowing Microsoft to ignore an OS niche.
scottdw2 15y ago
The answer is simple: "Disruption". Smartphones are disruptive to the PC industry. In fact they are a canonical example of disruptive innovation. A phone is nowhere near as good as a PC, but it's cheaper and more convenient. It fits in your pocket and gives you instant access to your data, no matter where you are. The margins for smartphone software, thanks largely to Apple, are much smaller than the margins for desktop software. In fact, you could see the promotion of $0.99 software via the app store as a strategic move by Apple to coerce Microsoft into not pursuing mobile software. That's a typical move by a disruptive innovator, to focus on low-margin low-end segments of the market, which a dominant incumbent is generally motivated to walk away from, preferring instead to focus on high-end high-margin products. The 30% fee Apple charges push margins even lower. In some ways, this is working. There is no version of Microsoft Office for the IPad or the IPhone, for example. Some of this is likely due to the fact that Microsoft's application software business is being disrupted from multiple sources (there is a web version of Office). Both Google and Apple are pushing desktop office in the same direction that Toyota pushed GM : toward SUVs. Apple also has a strong motivation to commoditize mobile software because it has major positions in several complementary markets: Hardware Sales, Music sales, Video Sales, and Application Delivery (the app store). If Microsoft doesn't compete, fiercely, in both mobile and web their fate will end up being very similar to both General Motors' and DEC. Windows Mobile 7 is a first step in this direction. It's not sufficient, they should be selling mobile versions of Office too, but it's a fist step. I would say that Microsoft's efforts to collect Android patents are really an effort to reduce the margins handset makers can extract from sales of Android phones. It's not meant to serve as a profit center for the company. In any case, Microsoft's introduction of Windows Mobile 7 serves several purposes: 1. It pushes a business model that commoditizes hardware, rather than software. 2. It makes it more difficult for their competitors to displace Microsoft's enterprise business. If they don't release their own mobile OS and mobile Apps, then it's only a matter of time until that happens. See the following for more info: http://www.youtube.com/watch?v=nJ7EG58J5eo http://www.youtube.com/watch?v=nJ7EG58J5eo
- raganwald 15y ago
  I find your comment interesting, however I do not agree that "Pushing a business model that commoditizes hardware, rather than software" is compelling. Google is already doing that, so Microsoft doesn't need to sell Windows 7 to achieve this goal. I also wonder if your statement that "If Microsoft doesn't compete, fiercely, in both mobile and web fate will end up being very similar to both General Motors' and DEC." I agree that it is in danger of irrelevance, but I am not convinced that Windows 7 is the right way to compete in mobile. I can't think of anything better, but that doesn't mean that Windows 7 is the right thing to do. I am reminded of the politician's fallacy: "We must do something. This is something. Therefore we must do it." But doing the wrong thing is worse than doing nothing at all.
iamelgringo 15y ago
The business model for charging for operating systems is going to go away thanks to patents. Sorry, Reg. I can't disagree more. The top 2 tech companies by market cap have Billions of dollars in cash on hand because they sell OS's (among other things). Apple would be a maker of very shiny hardware if it weren't for OSX and iOS. It's the OS that's the "special sauce" of Apple products. And, last I checked, Microsoft was still making Billions per quarter selling OS's. Ubuntu and all flavors of Linux are free, and have been for years. Yet, they've never really reached decent market share, because people generally feel like the user experience with an OS like OSX or Windows is generally better than the user experience with Linux. People are generally willing to pay a hundred bucks for a nice OS. Android is free-ish. You don't pay for it, but you do pay in kind by giving Google access to your location data, your email data, your voice data, etc... Renting OS's... Who's doing that now? Who's making money on that?
- whatusername 15y ago
  Don't forget that the number 3. (Which is almost at # 2 ) has at least three OS's: http://en.wikipedia.org/wiki/Z/OS http://en.wikipedia.org/wiki/Z/OS http://en.wikipedia.org/wiki/IBM_i http://en.wikipedia.org/wiki/IBM_i http://en.wikipedia.org/wiki/AIX_operating_system http://en.wikipedia.org/wiki/AIX_operating_system And they're all a lot more expensive than Windows. And don't forget HP (http://en.wikipedia.org/wiki/NonStop http://en.wikipedia.org/wiki/NonStop http://en.wikipedia.org/wiki/HP_UX http://en.wikipedia.org/wiki/HP_UX ) and Oracle ( http://en.wikipedia.org/wiki/Solaris_%28operating_system%29 http://en.wikipedia.org/wiki/Solaris_%28operating_system%29 )
- raganwald 15y ago
  You seem to think that I was saying that operating systems don't have value and/or that it is not possible to make money developing operating systems. What I was actually saying was that the business model of charging for the operating system (You give me $100 and I'll give you a copy of RaganwaldOS) is going away. Making money by using a proprietary OS to extract a higher margin from selling hardware is what Apple does, and giving the OS away so they can extract "pay in kind" is what Google does. Microsoft's model is going away as well. Maybe not today, but it is going away. We already have a situation where their biggest customers--the PC makers--make more money from JunkWare than they do from their so-called margins. Given that the PC makers are actually JunkWare distributors, they are all actively and aggressively looking for ways to extract themselves from Microsoft's rent-seeking position.

brudgers 15y ago

As this article points out, the price of Android for handset makers is free - the cost is somewhat more. If Google charged for Android they those costs might in fact cause Google to lose money on Android. On the flip side, the Android ecosystem is so vulnerable in regards to intellectual property claims (don't forget Oracle and Apple are in the price/cost equation, too) that Microsoft's WP7 makes a great deal of sense. Particularly in light of Google's ability to just walk away from Android, it would be foolish to count on it as a consistent source of revenue.

deleted 15y ago
[deleted]
arjunnarayan 15y ago
While I agree with most of your post, I disagree with the last sentence. I don't think you can count the "cost of Google walking away from Android" unless you also count the "cost of Microsoft walking away from WP7", unless you think there's a significant risk differential between the two events (which you have not justified in your post). In fact, given that Android is open source, the "shit-hits-the-fan because we bet our entire company on the stack" risk-cost for Android is _lower_ because if the penalty was in fact that high, you could continue development in house. And you can't argue that Microsoft is more vested in the WP7 stack than Android, because 1. Android has multiple users and manufacturers who would collaborate on the source if Google abandoned it. 2. Microsoft has walked away from platforms that sucked in the past (Zune).
- brudgers 15y ago
  There is a significant risk differential and your post points it out. Google can walk away from Android more easily because their core IP is not present in the codebase and therefore providing it to the open source community does not create competitors to their primary revenue stream. WP7 on the other hand, has a code base which almost certainly incorporates significant trade secrets upon which their core business (operating systems) relies. In addition, Microsoft has not walked away from Zune - they have simply abandoned the manufacture of proprietary hardware under the brand. Zune as software is alive and well (and a component of WP7). http://www.zune.net/en-US/products/software/download/default.htm http://www.zune.net/en-US/products/software/download/default... http://www.zune.net/en-us/products/windowsphone7/ http://www.zune.net/en-us/products/windowsphone7/

TomOfTTB 15y ago

I agree there's an irony here (Microsoft getting paid for each handset while Google doesn't get anything). But in the end Google still has the more lucrative position. Because Google is still pretty well embedded into Android. So Google's still serving ads and getting all kinds of information on an ongoing basis. That's worth way more than $5 per phone (I realize people can use other search engines with Android but it falls under the IE6 rule of "most people won't change the defaults") So the reason Microsoft should still bother with Windows Phone 7 is that ongoing revenue stream.

raganwald 15y ago
I agree that MSFT might still want to bother with Windows 7, but maybe they should give it away as well in order to drive traffic to Bing?
- brudgers 15y ago
  The idea that Microsoft should imitate Google and go wholesale into a revenue model based on advertising sales ignores Microsoft's fundamental strength - the trust upon which its B2B relationships (the crown jewels) rely. Microsoft has a customer base which is likely to be stable over the next five to ten years - Google's customers would abandon it in a heartbeat if consumer habits change and Google's platform becomes less cost effective than a competitor's (Google has the same sort of vulnerabilities that newspapers had to Craigslist).

erik 15y ago

Microsoft bothers with Windows 7 because rent collected from IP, while lucrative, is limited compared to the revenue potential of controlling a dominant platform. Also, I can't imagine Balmer's ego or Microsoft's investors allowing Microsoft to ignore an OS niche.

scottdw2 15y ago

The answer is simple: "Disruption". Smartphones are disruptive to the PC industry. In fact they are a canonical example of disruptive innovation. A phone is nowhere near as good as a PC, but it's cheaper and more convenient. It fits in your pocket and gives you instant access to your data, no matter where you are. The margins for smartphone software, thanks largely to Apple, are much smaller than the margins for desktop software. In fact, you could see the promotion of $0.99 software via the app store as a strategic move by Apple to coerce Microsoft into not pursuing mobile software. That's a typical move by a disruptive innovator, to focus on low-margin low-end segments of the market, which a dominant incumbent is generally motivated to walk away from, preferring instead to focus on high-end high-margin products. The 30% fee Apple charges push margins even lower. In some ways, this is working. There is no version of Microsoft Office for the IPad or the IPhone, for example. Some of this is likely due to the fact that Microsoft's application software business is being disrupted from multiple sources (there is a web version of Office). Both Google and Apple are pushing desktop office in the same direction that Toyota pushed GM : toward SUVs. Apple also has a strong motivation to commoditize mobile software because it has major positions in several complementary markets: Hardware Sales, Music sales, Video Sales, and Application Delivery (the app store). If Microsoft doesn't compete, fiercely, in both mobile and web their fate will end up being very similar to both General Motors' and DEC. Windows Mobile 7 is a first step in this direction. It's not sufficient, they should be selling mobile versions of Office too, but it's a fist step. I would say that Microsoft's efforts to collect Android patents are really an effort to reduce the margins handset makers can extract from sales of Android phones. It's not meant to serve as a profit center for the company. In any case, Microsoft's introduction of Windows Mobile 7 serves several purposes: 1. It pushes a business model that commoditizes hardware, rather than software. 2. It makes it more difficult for their competitors to displace Microsoft's enterprise business. If they don't release their own mobile OS and mobile Apps, then it's only a matter of time until that happens. See the following for more info: http://www.youtube.com/watch?v=nJ7EG58J5eo http://www.youtube.com/watch?v=nJ7EG58J5eo

raganwald 15y ago
I find your comment interesting, however I do not agree that "Pushing a business model that commoditizes hardware, rather than software" is compelling. Google is already doing that, so Microsoft doesn't need to sell Windows 7 to achieve this goal. I also wonder if your statement that "If Microsoft doesn't compete, fiercely, in both mobile and web fate will end up being very similar to both General Motors' and DEC." I agree that it is in danger of irrelevance, but I am not convinced that Windows 7 is the right way to compete in mobile. I can't think of anything better, but that doesn't mean that Windows 7 is the right thing to do. I am reminded of the politician's fallacy: "We must do something. This is something. Therefore we must do it." But doing the wrong thing is worse than doing nothing at all.

iamelgringo 15y ago

The business model for charging for operating systems is going to go away thanks to patents. Sorry, Reg. I can't disagree more. The top 2 tech companies by market cap have Billions of dollars in cash on hand because they sell OS's (among other things). Apple would be a maker of very shiny hardware if it weren't for OSX and iOS. It's the OS that's the "special sauce" of Apple products. And, last I checked, Microsoft was still making Billions per quarter selling OS's. Ubuntu and all flavors of Linux are free, and have been for years. Yet, they've never really reached decent market share, because people generally feel like the user experience with an OS like OSX or Windows is generally better than the user experience with Linux. People are generally willing to pay a hundred bucks for a nice OS. Android is free-ish. You don't pay for it, but you do pay in kind by giving Google access to your location data, your email data, your voice data, etc... Renting OS's... Who's doing that now? Who's making money on that?

whatusername 15y ago
Don't forget that the number 3. (Which is almost at # 2 ) has at least three OS's: http://en.wikipedia.org/wiki/Z/OS http://en.wikipedia.org/wiki/Z/OS http://en.wikipedia.org/wiki/IBM_i http://en.wikipedia.org/wiki/IBM_i http://en.wikipedia.org/wiki/AIX_operating_system http://en.wikipedia.org/wiki/AIX_operating_system And they're all a lot more expensive than Windows. And don't forget HP (http://en.wikipedia.org/wiki/NonStop http://en.wikipedia.org/wiki/NonStop http://en.wikipedia.org/wiki/HP_UX http://en.wikipedia.org/wiki/HP_UX ) and Oracle ( http://en.wikipedia.org/wiki/Solaris_%28operating_system%29 http://en.wikipedia.org/wiki/Solaris_%28operating_system%29 )
raganwald 15y ago
You seem to think that I was saying that operating systems don't have value and/or that it is not possible to make money developing operating systems. What I was actually saying was that the business model of charging for the operating system (You give me $100 and I'll give you a copy of RaganwaldOS) is going away. Making money by using a proprietary OS to extract a higher margin from selling hardware is what Apple does, and giving the OS away so they can extract "pay in kind" is what Google does. Microsoft's model is going away as well. Maybe not today, but it is going away. We already have a situation where their biggest customers--the PC makers--make more money from JunkWare than they do from their so-called margins. Given that the PC makers are actually JunkWare distributors, they are all actively and aggressively looking for ways to extract themselves from Microsoft's rent-seeking position.