DailyTech - Microsoft Acknowledges Partners May be Harmed by Surface Tablet

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Gadgets Microsoft Acknowledges Partners May be Harmed by Surface Tablet
Jason Mick (Blog) - July 27, 2012 5:33 PM

27 comment(s) - last by robinthakur.. on Aug 8 at 6:12 AM

By outcompeting its partners, Microsoft is endangering them

"[O]ur Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform," writes Microsoft Corp. (MSFT) on the fourteenth page of its annual report filed with the U.S. Securities and Exchange Commission.

As noted by The New York Times, the quote represents Microsoft's most forthright comment regarding the fact that the media and public has largely perceived Microsoft's first-party Windows 8 tablet as superior to rival designs from OEM partners.

Microsoft CEO Steve Ballmer says that 10.6-inch Surface tablet is merely "priming the pump" for OEM partners' Windows 8 tablets. But his filing indicates clearly that he and his company are aware that OEMs may be damaged by their inability to compete with his slick tablet offering.

There's some risk to Microsoft from this approach. Competing with a customer ruined the relationship of Samsung Electronics Comp., Ltd. (KSC:005930) with Apple, Inc. (AAPL) and likewise Google, Inc. (GOOG) with Apple.

_{"Surface" may prove poison to Microsoft's own. [Image Source: Microsoft]}

However, not competing is ultimately an even more risky choice. After all, it's hard to argue that Google is worst off for owning the world's most-used smartphone platform, despite the headaches that decision earned for it.

Likewise, if Surface does well it may create some headaches regarding OEM relations, but it would also be a boon to Microsoft's empire of holdings.

Source: SEC

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They had to

By B3an on 7/27/2012 6:22:11 PM , Rating: 5

I don't think MS had a choice but to make their own tablet. Time and time again the OEM's have proven incapable on making quality, well designed, well functioning tablets with attention to detail. Theres no polish, they just pump this stuff out.

Surface will likely the first tablet i get, partly because the OS will actually make a tablet useful, with the touch cover it can even replace my laptop.

RE: They had to

By ChronoReverse on 7/27/2012 7:02:13 PM , Rating: 3

Google pretty much learnt the same lesson as shown by the Nexus 7. A lot of the manufacturers just don't understand that putting out weak products is going to be noticed and will result in weak sales.

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RE: They had to

By Mk4ever on 7/27/2012 7:13:23 PM , Rating: 2

True, but as far as I know, Google's device is meant for developers, but lacks some features that many people deem necessary, such as capacity (limited to 16GB), or memory card slot, or a decent camera, etc.

So in my opinion, their devices are meant to encourage developers, but lack features intentionally to prevent true competition with the OEMs.

Is Microsoft doing the same?

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RE: They had to

By augiem on 7/27/2012 7:38:02 PM , Rating: 2

Google's device isn't meant for developers. It's meant to push content consumption through Google Play. They're playing a different game than Apple right now. Apple's making all their money on hardware with meager revenue from media. Google, like Amazon, are betting long term. They probably hope they can get people hooked into their universe of services for life, so they're not trying to make money off the hardware at the moment. Even though current spending on these devices is beans compared to the dough Apple's raking in through hardware sales, eventually the future will probably be much more device agnostic and accessing your "stuff" will be possible through any device you happen to be nearby -- a kiosk/atm, glasses, your car, your phone/tablet, your microwave, a window/billboard at a shopping mall, a mirror in the bathroom, your shopping cart, a neural link, etc, etc. At that point, hardware sales will cease to be important because people will be able to connect to their profile from anywhere. Whoever is providing the service that keeps track of your personal profile and lets you do what you want from all these portals will be the king. Google is probably betting on that future.

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RE: They had to

By augiem on 7/27/2012 7:39:44 PM , Rating: 3

I neglected to make the point that the limited local storage is just a way to get you dependent on Google's cloud offerings. It's baby steps toward that future when everything around you is just a dumb terminal for your online profile.

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RE: They had to

By TheJian on 7/29/2012 2:43:05 PM , Rating: 2

It also serves to drive down one of apple's cash cows :) If you can make ipod/ipad/iphone commodity items, you're left competing with google on their own turf.

SEARCH. Nicely done google :)

At the same time of course, they end up with a ton of ways to get you to use that search. If you couple that with Gbit internet (up and down) I think they'll win hands down unless others get their own pipe. I agree, google/amazon are looking further out for success rather than today. As long as they lose nothing on the device, google can continue to marginalize apple sales into oblivion (much like MS IE vs. Netscape). Once google has serious gaming going (tegra3/4/5 etc) on a billion devices, devs will have to take notice also in a serious way. Consoles are already looking like their going to be on their way out with the next rev. Ouya is no doubt going to help tegra-nvidia/google in this area (and perhaps all android devices in the end). Many more are on the way as we see with Vizio Co-star doubling it's remote as a gamepad. It sold out in 12 hours and makes ANY HDMI TV google tv of sorts. A touch of gaming and chrome as a browser (with flash...like it or not) makes it a fairly attractive item. Any android phone with gamepad support and hdmi out (I'd say this will be norm shortly as all socs will be decent gamers next year compared to today's xbox360/ps3 etc) will continue to make handheld purchases questionable to parents.

The writing is on the wall...This is also the only way android (or any other) can hope to attack the stranglehold Microsoft has on gaming with DirectX. You have to get them written for your platform rather than DirectX to get anywhere.

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RE: They had to

By robinthakur on 8/8/2012 6:12:34 AM , Rating: 2

Google are not quite there yet on making their device suitable for content creation though, due to a distinct lack apps. Apple very nearly is (with a bluetooth keyboard, alot of execs where I work are happy to use their iPad in place of their thin clients for the majority of purposes and it plays nicely with Exchange, SharePoint, Lync etc) hence the Nexus 7 is for Consumption only. MS look to be in a good position with their Surface, and assuming it sells ok and doesn't violate Apple's patents on powered, attached keyboards (and doesn't split the market with the two confusing and largely incompatible RT and regular types) then things will get interesting in the tablet space. Google strategy depends on volume of sales though. For this to happen, you need one model to be on the market for a while, and to be seen as the standard for COnsucmers to go to (Apple's strategy) which typically doesn't happen with Android devices, unless the other manufacturers of Android tablets just give up at this point. For the volume they sell, it hardly seems worth the investment.

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RE: They had to

By althaz on 7/27/2012 7:39:21 PM , Rating: 2

That's utter crap. Google's device is lacking those features because they couldn't afford to put them in. Google don't make any money from the Nexus 7 directly, it just stops more people buying other tablets.

Microsoft is building a higher end tablet, because their OEMs refuse to do so.

Google built a cheap tablet that's not crap, because their OEMs refused to do so.

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RE: They had to

By Cheesew1z69 on 7/27/2012 7:52:12 PM , Rating: 4

Asus built it

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RE: They had to

By augiem on 7/27/2012 7:29:45 PM , Rating: 2

No only that but Apple for the past 5 years is proof that selling premium priced hardware can be an excellent revenue and profit source. Hardware sales makes up the vast majority of Apple's income according to their reports. If it weren't for their excessively priced hardware, they'd have never surpassed Microsoft. The trick they managed that nobody else could was to convince their customers to trash their $600-$800 phones/tablets every year to buy yet another one. We'll see if they can keep it up, but for now, they're king because of it. Of course MS wants some of that pie! Mmmm... its lemon meringue!

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RE: They had to

By TakinYourPoints on 7/27/12, Rating: 0

By TakinYourPoints on 7/27/2012 8:02:57 PM , Rating: 0

quote:
If it weren't for their excessively priced hardware, they'd have never surpassed Microsoft.

Microsoft's profit margins are significantly higher than Apple's, but that comes down to the fact that software carries far more profit than hardware. Physical production and commodity prices guarantees that hardware will always be less profitable per unit.

The only way Apple beat Microsoft in net profit was by exceeding them in gross revenue by over double, and that only happened a bit over a year ago. Selling hardware by itself won't make you bank compared to selling software. Selling a LOT of it can.

As for being excessively priced, a comparable smartphone or tablet costs about as much as what Apple sells. For a while the alternatives like the Xoom cost more for far inferior hardware specs. Now everyone is undercutting price at the cost of profit, look at the Nexus 7. Ultrabooks are about in line with the Macbook Air, and even the Mac Pro is in line or cheaper than a Dell Precision with Xeons and ECC RAM. Apple doesn't make econoboxes or low-end laptops like you see at Best Buy, that's the main difference.

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