It's more complicated than that. OEMs pay Microsoft for the OS, then take on the risk of trying to design and sell a product. The $35 or whatever OEMs pay for

It's more complicated than that. OEMs pay Microsoft for the OS, then take on the risk of trying to design and sell a product. The $35 or whatever OEMs pay for Windows 8 becomes part of their manufacturing costs. When Microsoft makes their own design, they essentially don't have that cost. Google can afford to sell at thin margins because they make most of their money off advertising. The more Android units out there, the more ads they can display. Microsoft hasn't yet cracked the post-sales revenue problem; once the OS is sold it goes into the hands of the OEM who tends to make their money off hardware upsells, crapware preinstalls, service contracts, etc. So, Microsoft can't discount their Windows 8 licenses to near-zero without the risk of making nothing on the deal. If you read further down into the article, I think that is what the "services" part of the 10-K is implying. Microsoft is looking for a way to slice off some of that post-sale revenue. An easy way to do that, obviously, is to make their own hardware, but it will be even more interesting to see how they transition from their OS-licensing revenue model to a post-sale-services revenue model.