Linked by Thom Holwerda on Tue 16th Oct 2012 12:14 UTC
Windows After yesterday's TV advertisement, Microsoft finally unveiled the pricing for its Surface tablet - the ARM Windows RT version that is. The cheapest Surface - 32GB without touch cover - will set you back $499. They're aiming straight for iPad pricing here, ignoring the popular cheaper Android offerings. Update: only available in Australia, Canada, China, France, Germany, Hong Kong, the United Kingdom and the United States. As usual.
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What an interesting experiment
by Tony Swash on Tue 16th Oct 2012 16:55 UTC
Tony Swash
Member since:
2009-08-22

Microsoft can see the writing on the wall - finally. The days of growth in the PC market are over, what looms is at best stagnation in units sold and probably gentle but persistent decline. On top of that the generous mark up for software that MS has enjoyed for so long will also decline as the vast inexpensive app markets come to dominate and define software pricing.

So now Microsotf has to do two very difficult things at once, both things it has never done before.

One is to make and sell hardware at a reasonable profit and in numbers that matter. Selling lots of units is doable if you reduce the price until the profit disappears but that is not a road Microsoft can embrace this time round. If Microsoft is to successfully reengineer it's business for the post-PC world and shift from being a company that makes it's money from software to one that makes money from selling hardware it cannot sell at cost, it must make a profit on the hardware it sells. This becomes even more critical given the fact that a move by Microsoft into hardware is also a move away from it's OEMs no matter what Microsoft says about it. As soon as MS starts selling hardware it calls into question it's OEM ecosystem partnerships and raises the very real risk that a move towards a new business model (hardware) will undermine and disrupt the old business (software licences+OEMs).

So MS must make profits on Surface now and that is a hard thing to do because it is up against competitors such as Apple, with four decades of hardware experience and with the planet's best supply chain, and Amazon and Google, who can both continue to sell at cost because they make their income from services (their hardware is just a gateway to their services).

The second very hard thing that Microsoft has to do is to enter markets (phones, tablets) where it is a tiny bit player and carve out a profitable and successful niche for itself without the benefits of incumbency that it has enjoyed for so long in the PC world. Microsoft hasn't really had much experience at doing that, of entering and growing and making profits in existing markets. The Xbox in the console market wasn't really the same because Microsoft could sell it at cost (in fact make a pretty big loss when all it's capital costs are factored in) because it was seen as loss leader forging an entry to the lucrative living room. Microsoft is not looking for another loss leader, it's looking for another profit centre.

Microsoft's strategic response to this new challenge, of entering and succeeding in a new market full of dynamic incumbents, was Windows 8, an attempt lever it's position in the PC market to build instant installed base so that it's tablet and phone offerings could ride the on the back of it's PC business and attract developers, enterprise customers and generate some traction. It might work but the danger is that in reshaping Widows 8 to help its touch based devices MS will kill the goose that, for now, is still laying the golden eggs. If Windows 8 causes a stutter in it's desktop market whilst not leading to a tablet and phone take off MS could find itself in a difficult position.

The next eighteen months are going to be very tense times at Redmond as they wait to see if it all pans out.

How very interesting.

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