3 ms·

Why Surface is Not a Microsoft Business

11 points by cek 14y ago

pedalpete 14y ago
Good article, but I think it takes a short-view of the future of Microsoft. Microsoft can't continue charging the OS prices they charged in the past. Android on tablets and the potential for Chrome to take a big bite out of their bread and butter business in the next 10 years is a huge risk. I believe Microsoft recognizes the threat, and is throwing everything they've got at maintaining their market dominance in the OS race in order to just be in the race in the future. Also, I'm not sure I agree that there is no profit in the surface. Though the author could be correct that the $499 version without the cover could have low or 0 margin, I doubt many people are going to by the coverless version. I suspect that was a marketing decision so they can have a $499 tablet, but realistically, 95% of consumers are going to by a cover, and if the keyboard cover is a great product, it makes sense that would be the default purchase.
wlesieutre 14y ago
Surface might make less money than an OEM license for RT would have, but there's no way another company could drive the tablet sales that Surface will. With the increased adoption, their cut from Windows Store software sales should make up for some initial shortfalls.
aik 14y ago
What about profits from the app store and accessories?
- cek 14y ago
  Apple's App Store generates something near 2% of Apple's profits.[1] The number of apps that are 'for pay' in app stores is going down. I worked on the Windows Phone 7 app marketplace. The economics of running such a service are not cheap, especially as you take certification more seriously (which Windows 8 is doing). All of these contribute to the fact that even if MS ever makes any profit off of the Windows 8 Store, it will be minuscule compared to the overall business. [1] http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples-gross-profit/ http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples...
cageface 14y ago
The $499 price means Microsoft will not make any real margin on the Surface. So Apple is making a killing selling the iPad for $499 but Microsoft is making no margin on the Surface RT at the same price? Is Apple's supply chain really that much more efficient? If Microsoft can't even make money at price parity with Apple what chance do they have in this market?
- virmundi 14y ago
  I don't know the particulars of the MS supply chain vs Apple. However, I would assume that Apple's chain is rather tight with few loose/weak links. They've been in the game for more years than Microsoft. MS never really made hardware devices like this. The Zune was never popular enough to have the supply chain around it that Apple had with the iPod family.
  - Mythbusters 14y ago
    Of course xbox has been made with such a model but I'd agree that it never has that price pressure that surface has.
sopooneo 14y ago
"It is not a “Microsoft business” (Microsoft businesses generate $5B+ a year in PROFIT). The Windows business makes $11.4B in PROFIT every year." Isn't Windows a subset of Microsoft's business? If so, how can a part of the business generate more profit than the whole business?
- goldenchrome 14y ago
  I think he's defining a "Microsoft business" as a Microsoft-run operation that makes 5B+ profit a year. The Windows business is therefore a "Microsoft business" because it makes 11.4B profit.

11 points by cek 14y ago

Good article, but I think it takes a short-view of the future of Microsoft. Microsoft can't continue charging the OS prices they charged in the past. Android on tablets and the potential for Chrome to take a big bite out of their bread and butter business in the next 10 years is a huge risk. I believe Microsoft recognizes the threat, and is throwing everything they've got at maintaining their market dominance in the OS race in order to just be in the race in the future. Also, I'm not sure I agree that there is no profit in the surface. Though the author could be correct that the $499 version without the cover could have low or 0 margin, I doubt many people are going to by the coverless version. I suspect that was a marketing decision so they can have a $499 tablet, but realistically, 95% of consumers are going to by a cover, and if the keyboard cover is a great product, it makes sense that would be the default purchase.

wlesieutre 14y ago

Surface might make less money than an OEM license for RT would have, but there's no way another company could drive the tablet sales that Surface will. With the increased adoption, their cut from Windows Store software sales should make up for some initial shortfalls.

aik 14y ago

What about profits from the app store and accessories?

cek 14y ago
Apple's App Store generates something near 2% of Apple's profits.[1] The number of apps that are 'for pay' in app stores is going down. I worked on the Windows Phone 7 app marketplace. The economics of running such a service are not cheap, especially as you take certification more seriously (which Windows 8 is doing). All of these contribute to the fact that even if MS ever makes any profit off of the Windows 8 Store, it will be minuscule compared to the overall business. [1] http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples-gross-profit/ http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples...

cageface 14y ago

The $499 price means Microsoft will not make any real margin on the Surface. So Apple is making a killing selling the iPad for $499 but Microsoft is making no margin on the Surface RT at the same price? Is Apple's supply chain really that much more efficient? If Microsoft can't even make money at price parity with Apple what chance do they have in this market?

virmundi 14y ago
I don't know the particulars of the MS supply chain vs Apple. However, I would assume that Apple's chain is rather tight with few loose/weak links. They've been in the game for more years than Microsoft. MS never really made hardware devices like this. The Zune was never popular enough to have the supply chain around it that Apple had with the iPod family.
- Mythbusters 14y ago
  Of course xbox has been made with such a model but I'd agree that it never has that price pressure that surface has.

sopooneo 14y ago

"It is not a “Microsoft business” (Microsoft businesses generate $5B+ a year in PROFIT). The Windows business makes $11.4B in PROFIT every year." Isn't Windows a subset of Microsoft's business? If so, how can a part of the business generate more profit than the whole business?

goldenchrome 14y ago
I think he's defining a "Microsoft business" as a Microsoft-run operation that makes 5B+ profit a year. The Windows business is therefore a "Microsoft business" because it makes 11.4B profit.