Linked by Thom Holwerda on Sun 13th Jan 2013 14:48 UTC
Windows Tom Warren: "While Intel is trying to keep the Windows tree healthy, Microsoft is hoping that the leaves don't start to drop off before its own family of Surface devices are fully ready. Redmond isn't 'priming the pump' here, it's planting seeds for the future. If Microsoft is successful then it could be the world's biggest Windows OEM in just a few years. The future is Surface." You just have to look at the difference in build quality and supplied software between OEM devices and Surface even though Surface is cheaper to realise that the age of Windows OEMs is coming to an end. The writing's on the wall, and the OEMs know it: there's no future for them in Windows.
Permalink for comment 548615
To read all comments associated with this story, please click here.
RE[2]: OEMs did it to themselves
by tanzam75 on Sun 13th Jan 2013 17:05 UTC in reply to "RE: OEMs did it to themselves"
tanzam75
Member since:
2011-05-19

Microsoft is hardly the victim here. Did you ever stop to wonder why these OEMs install crapware? It's because Microsoft's outrageous licensing fees for what should be a commodity are destroying their margins. These OEMs already have razor thin margins without having to add ludicrous software licensing fees on top of that.


That's not how economics works in a competitive marketplace.

The price of Windows is irrelevant to the OEM -- so long as Microsoft charges the same price to every OEM. Because of the antitrust settlements, all the large OEMs pay the same amount for Windows, as Microsoft is prohibited from offering any discounts except for volume discounts.

If the price of Windows went to zero, then the cost of the laptop would drop by around $60, the volume price of Windows Home Premium for large OEMs. However, the OEMs do not get to keep this $60 for long, in a competitive marketplace. The price of the laptop would quickly get driven down by $60, as PCs are commoditized and largely substitutable for one another.

The OEMs would then end up making the same profit on less revenues. They'll see a slight improvement to working capital, but it will be otherwise ineffectual at lifting them from the pitiful margins they currently earn. In fact, CTO manufacturers like Dell would actually see slightly reduced margins if the OS became free. Dell is famous for holding negative inventory, and thus they would lose the float on the price of the Windows license.

This competitive dynamic is precisely the one that has already played out in the Android phone market. The OS is free -- and of course, Google shares part of the search revenues with the OEMs. Yet the Android marketplace is a bloodbath for every OEM except Samsung.

--

Incidentally, the same goes for Intel as for Microsoft. The price of the chip is irrelevant, so long as Intel does not practice favoritism among the OEMs.

One day, business-school students will study the PC OEM business like they currently study the American airline industry -- as an example of a super-competitive marketplace in which practically nobody (*) makes money. We haven't really seen major bankruptcies yet -- but we will.

(*) There are always exceptions. Lenovo, say, or Southwest Airlines.

Reply Parent Score: 6