5 ms·

I think this pretty well reflects Microsoft's long-term consumer risk, too. More than half of MSFT's revenue (http://www.tannerhelland.com/4273/microsoft-money

I think this pretty well reflects Microsoft's long-term consumer risk, too. More than half of MSFT's revenue (http://www.tannerhelland.com/4273/microsoft-money-updated-2012/ http://www.tannerhelland.com/4273/microsoft-money-updated-20...) comes from Windows and Office (and over half the profit, Windows http://news.yahoo.com/microsoft-defer-revenue-windows-upgrade-offer-140940839--finance.html http://news.yahoo.com/microsoft-defer-revenue-windows-upgrad...). Back in the 90s and early 00s, the rate of change in the PC market was amazing. The hardware you could buy in 1998 basically didn't exist in 1996, so there always was something new and exciting to spur new hardware sales. New hardware sales represent the bulk of Microsoft's Windows licensing (the so-called "Microsoft Tax") revenue and so a large part of MSFT's profits. All MS had to do was be the default OS and their profit would grow without lifting a finger (obviously that's greatly simplified, MS had to do a lot of things). Now that this hardware revolution is no longer taking place, MS' Windows licensing rev (and thus the huge profits) are threatened. Competition in the PC market have driven hardware profits to zero. MS and their clone makers have painted themselves into a corner. Contrast this with Apple's strategy - produce desirable hardware that people buy for non-technical reasons (design, fashion, software, etc.) instead of raw figures (CPU, Memory, etc.). Folks will upgrade because they want to, not because they need to. That's a lot harder to pull off, but Apple seems to be doing a great job of it. Ultimately, I think Apple's strategy is going to make a lot more sense in the long run. Drive the cost of the operating system upgrades to zero (I'd be shocked if the next OSX upgrade costs anything; I was quite surprised that Mountain Lion was {edit: not} a fee upgrade), limit the age of device that can run it, and create products that people want.

tonyedgecombe 14y ago
Apple's strategy makes sense for Apple, driving down the cost of software makes their hardware more attractive. This doesn't make a great deal of sense for Microsoft, what does is driving down the price of hardware. Their strategy has always been to treat the hardware as a commodity because it is in their interest to do so.
- MattRogish 14y ago
  I think it made sense in the 90s-00s rapid innovation space. Microsoft needed a computer on every desk/laptop/car/whatever in order to push Windows and Office licenses. Dramatic advances in hardware drove high turnover and more OEM licensing rev/profit. Now that folks aren't upgrading very often, the cost of the Windows license is starting to be a much bigger proportion of the total cost, basically creating a price floor of PCs. This sucks if you're an OEM - you have a baked-in cost you don't control (aka MS Tax). Microsoft must naturally drop the licensing price to OEMS in order for OEMs to eek out some profit. Long run Windows OEM license fees tend to zero. It's already happening with Windows 8 upgrade pricing (Mac OS X has already started this trend) and I expect it to continue. MSFT knows this which is the primary reason to making their Surface Tablet (and Office online, to get SaaS recurring rev). I don't believe for a minute that they are only doing this as a "reference" implementation.
Zirro 14y ago
"I was quite surprised that Mountain Lion was a fee upgrade" My knowledge of American anti-competition laws is lacking, but I remember back when they were able to release iOS-upgrades for the iPhone, but not the iPod Touch for free. At the time, there was supposedly something on the legal side of things which they were afraid to run afoul with by releasing free iPod Touch updates. I suppose, if they were to release new versions of OS X for free, they may risk being sued for trying to push competitors out of the market by giving away a product that others are trying to sell. No, it doesn't seem right to me, but sometimes laws are outdated or simply abused.
- russell 14y ago
  You are mistaken. Free upgrades are not illegal. The Apple OS is not even a competitor of Windows because they dont run on the same hardware. MS got into trouble because they tried to use their dominant os position to force out competitors of their other products.
- greedo 14y ago
  It was due to the way Apple had been accounting for OS upgrades, not due to competitive/monopoly concerns.
  - WildUtah 14y ago
    Specifically it's because Apple likes to take the Research and Experimentation Tax Credit for operating system development. The R&E credit requires that you work on a new product and not on simple refinement of an existing product and its features. There are a lot of subjective factors involved in qualifying and Apple felt more secure by requiring some money to upgrade. The big advantage was not the income but the big fat check from the federal government at the end of the year. The R&E credit is a pork barrel scam for big companies with clever accounting departments, of course. But if it's there, why not take it?
    - MattRogish 14y ago
      According to this article, http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=all http://www.nytimes.com/2012/04/29/business/apples-tax-strate... : "In 1996, 1999 and 2000, for instance, the California Legislature increased the state’s research and development tax credit, permitting hundreds of companies, including Apple, to avoid billions in state taxes, according to legislative analysts. Apple has reported tax savings of $412 million from research and development credits of all sorts since 1996." $412M on the hundreds of billions Apple has earned since 1996 are pennies. That doesn't seem that much... Are there more?
notatoad 14y ago
>Competition in the PC market have driven hardware profits to zero. MS and their clone makers have painted themselves into a corner. this might serve to explain why the latest version of windows seems to be tailored for mobile devices, TVs, and other consumer electronics instead of traditional PCs. You can't sell somebody a new desktop every year anymore, but you absolutely can sell the same person a new tablet every year.
- MattRogish 14y ago
  Yup. Mobile computing devices are the PCs of the 90s. Even more so with the two-year contract extension device subsidization. $100 for the latest and greatest iPhone every two years? Absolutely! Eventually the iDevice market will "settle down" just like regular PCs, and so I think Apple's strategy of software and design lock-in makes a ton of sense. In the long run, it's much easier (comparatively speaking) to innovate on the software end than on the hardware end. Once the iDevice gold rush is over, the software lock-in will keep me in the Apple family. With more and more things moving to the "cloud" I think that will continue to make phones and tablets "disposable" in the way PCs aren't. Apple is trying to get there with the App store and iCloud, but they are still long off from "buy a new MacBook Air, sign in to iCloud, and it's just like your old computer!" (aside: device subsidies never really worked for PCs, wasn't ePC some sort of a leased computer model?)
ctdonath 14y ago
produce desirable hardware that people buy for non-technical reasons instead of raw figures Of late I've been contending that specs are excuses admitting inadequacy. Until recently, every new computer (broadly defined) was listed with a proliferation of specifications (_.__MHz CPU _GB RAM ___GB HD ...). Now, in particular with the iPad and trending with other machines, no specifications (beyond what amounts to "small, medium, or large") are given. Why? specifications are needed to convince buyers the product is good enough when it isn't. Most users just want something that's capable enough that they don't have to think about the technical limitations. Most users glaze over at random-looking numbers associated with meaningless abbreviations denoting implementation details they don't understand; their question isn't "how many gigahertz is the processor?" it's "if I click something will I be annoyed by the delay?" The real answer to the latter question is "yes, you will". To obscure that dissatisfying answer, sellers toss out the profusion of specifications in an attempt to convince buyers that the product is good enough to buy anyway. Users, able to at least evaluate whether X > Y, compare the numbers and convince themselves that those numbers are as large as they can be and still have an affordable package. Apple's goal is to sell hardware. With the onset of "retina" displays, flash memory, multi-core processors, iCloud, etc. all those specifications transition from confusion to "good enough". Doesn't matter what the number of pixels are, you can't discern them so it's good enough. Doesn't matter what the storage capacity is, between terabytes local and near-bottomless cloud behind it you won't run out. Flash is so fast you mostly won't care. Processor speeds equal supercomputers of recent past. It's all "good enough" - making the comparison between Apple products and "lots of incomprehensible random numbers & abbreviations" easy. PC makers still flaunting specifications are saying "no, really, it's good enough - see?" making customers hesitate their purchase. Apple is going for "details are irrelevant, it's good enough - period."
- michaelt 14y ago
  I disagree with you here - PC makers list specs because it is technical specs, rather than user experience, that set their product apart from competing PC makers. I mean, you compare a Dell laptop to an HP laptop, or a $500 Dell laptop to an $800 Dell laptop for that matter, they're all running Windows 7. How would you market one product over another without admitting their differences? Admittedly, PC makers might be wise to stop fighting one another for market share and instead focus on fighting Apple for market share.

tonyedgecombe 14y ago

Apple's strategy makes sense for Apple, driving down the cost of software makes their hardware more attractive. This doesn't make a great deal of sense for Microsoft, what does is driving down the price of hardware. Their strategy has always been to treat the hardware as a commodity because it is in their interest to do so.

MattRogish 14y ago
I think it made sense in the 90s-00s rapid innovation space. Microsoft needed a computer on every desk/laptop/car/whatever in order to push Windows and Office licenses. Dramatic advances in hardware drove high turnover and more OEM licensing rev/profit. Now that folks aren't upgrading very often, the cost of the Windows license is starting to be a much bigger proportion of the total cost, basically creating a price floor of PCs. This sucks if you're an OEM - you have a baked-in cost you don't control (aka MS Tax). Microsoft must naturally drop the licensing price to OEMS in order for OEMs to eek out some profit. Long run Windows OEM license fees tend to zero. It's already happening with Windows 8 upgrade pricing (Mac OS X has already started this trend) and I expect it to continue. MSFT knows this which is the primary reason to making their Surface Tablet (and Office online, to get SaaS recurring rev). I don't believe for a minute that they are only doing this as a "reference" implementation.

Zirro 14y ago

"I was quite surprised that Mountain Lion was a fee upgrade" My knowledge of American anti-competition laws is lacking, but I remember back when they were able to release iOS-upgrades for the iPhone, but not the iPod Touch for free. At the time, there was supposedly something on the legal side of things which they were afraid to run afoul with by releasing free iPod Touch updates. I suppose, if they were to release new versions of OS X for free, they may risk being sued for trying to push competitors out of the market by giving away a product that others are trying to sell. No, it doesn't seem right to me, but sometimes laws are outdated or simply abused.

russell 14y ago
You are mistaken. Free upgrades are not illegal. The Apple OS is not even a competitor of Windows because they dont run on the same hardware. MS got into trouble because they tried to use their dominant os position to force out competitors of their other products.
greedo 14y ago
It was due to the way Apple had been accounting for OS upgrades, not due to competitive/monopoly concerns.
- WildUtah 14y ago
  Specifically it's because Apple likes to take the Research and Experimentation Tax Credit for operating system development. The R&E credit requires that you work on a new product and not on simple refinement of an existing product and its features. There are a lot of subjective factors involved in qualifying and Apple felt more secure by requiring some money to upgrade. The big advantage was not the income but the big fat check from the federal government at the end of the year. The R&E credit is a pork barrel scam for big companies with clever accounting departments, of course. But if it's there, why not take it?
  - MattRogish 14y ago
    According to this article, http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=all http://www.nytimes.com/2012/04/29/business/apples-tax-strate... : "In 1996, 1999 and 2000, for instance, the California Legislature increased the state’s research and development tax credit, permitting hundreds of companies, including Apple, to avoid billions in state taxes, according to legislative analysts. Apple has reported tax savings of $412 million from research and development credits of all sorts since 1996." $412M on the hundreds of billions Apple has earned since 1996 are pennies. That doesn't seem that much... Are there more?

notatoad 14y ago

>Competition in the PC market have driven hardware profits to zero. MS and their clone makers have painted themselves into a corner. this might serve to explain why the latest version of windows seems to be tailored for mobile devices, TVs, and other consumer electronics instead of traditional PCs. You can't sell somebody a new desktop every year anymore, but you absolutely can sell the same person a new tablet every year.

MattRogish 14y ago
Yup. Mobile computing devices are the PCs of the 90s. Even more so with the two-year contract extension device subsidization. $100 for the latest and greatest iPhone every two years? Absolutely! Eventually the iDevice market will "settle down" just like regular PCs, and so I think Apple's strategy of software and design lock-in makes a ton of sense. In the long run, it's much easier (comparatively speaking) to innovate on the software end than on the hardware end. Once the iDevice gold rush is over, the software lock-in will keep me in the Apple family. With more and more things moving to the "cloud" I think that will continue to make phones and tablets "disposable" in the way PCs aren't. Apple is trying to get there with the App store and iCloud, but they are still long off from "buy a new MacBook Air, sign in to iCloud, and it's just like your old computer!" (aside: device subsidies never really worked for PCs, wasn't ePC some sort of a leased computer model?)

ctdonath 14y ago

produce desirable hardware that people buy for non-technical reasons instead of raw figures Of late I've been contending that specs are excuses admitting inadequacy. Until recently, every new computer (broadly defined) was listed with a proliferation of specifications (_.__MHz CPU _GB RAM ___GB HD ...). Now, in particular with the iPad and trending with other machines, no specifications (beyond what amounts to "small, medium, or large") are given. Why? specifications are needed to convince buyers the product is good enough when it isn't. Most users just want something that's capable enough that they don't have to think about the technical limitations. Most users glaze over at random-looking numbers associated with meaningless abbreviations denoting implementation details they don't understand; their question isn't "how many gigahertz is the processor?" it's "if I click something will I be annoyed by the delay?" The real answer to the latter question is "yes, you will". To obscure that dissatisfying answer, sellers toss out the profusion of specifications in an attempt to convince buyers that the product is good enough to buy anyway. Users, able to at least evaluate whether X > Y, compare the numbers and convince themselves that those numbers are as large as they can be and still have an affordable package. Apple's goal is to sell hardware. With the onset of "retina" displays, flash memory, multi-core processors, iCloud, etc. all those specifications transition from confusion to "good enough". Doesn't matter what the number of pixels are, you can't discern them so it's good enough. Doesn't matter what the storage capacity is, between terabytes local and near-bottomless cloud behind it you won't run out. Flash is so fast you mostly won't care. Processor speeds equal supercomputers of recent past. It's all "good enough" - making the comparison between Apple products and "lots of incomprehensible random numbers & abbreviations" easy. PC makers still flaunting specifications are saying "no, really, it's good enough - see?" making customers hesitate their purchase. Apple is going for "details are irrelevant, it's good enough - period."

michaelt 14y ago
I disagree with you here - PC makers list specs because it is technical specs, rather than user experience, that set their product apart from competing PC makers. I mean, you compare a Dell laptop to an HP laptop, or a $500 Dell laptop to an $800 Dell laptop for that matter, they're all running Windows 7. How would you market one product over another without admitting their differences? Admittedly, PC makers might be wise to stop fighting one another for market share and instead focus on fighting Apple for market share.