Microsoft's Ballmer: We Want to "Set a New Standard" With First-Party Hardware
October 25, 2012 5:54 PM
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A Surface phone is rumored
Should we be preparing ourselves for a Surface phone?
I. You Ready for a Surface Phone?
That's what Chris Green, principal technology analyst at Davies Murphy Group Europe,
. While he says that Microsoft Corp. (
) may never pull the trigger and release the device, he explains, "Microsoft is hedging its bets. The firm is heavily invested in Nokia succeeding with its Windows Phone handsets but can't allow for its failure to torpedo the platform. At the very least Microsoft will be developing its own handset to go to market in case Nokia and others don't do better."
That's essentially what Microsoft did with Surface, a 10.6-inch Windows RT-powered tablet. After
watching its partners flounder
in the tablet industry, thoroughly outsold by a savvy Apple, Inc. (
), Microsoft sprang into action
announcing its own first party hardware
The results have been mixed.
While there was much
, Microsoft faced tough questions about its
(though to be fair Apple has seen
its own recent hardware choices
preliminary reviews were hot and cold
, arguing the device was unbeatable by some metrics, but rather flawed by others.
Microsoft hinted that a Surface Phone might be incoming. [Image Source: Softpedia]
Microsoft CEO Steve Ballmer
that his company won't shy away from trying to "set a new standard" in hardware markets where it sees its partners struggling. He comments, "Is it fair to say we're going to do more hardware? Obviously we are... Where we see important opportunities to set a new standard, yeah we'll dive in."
"We have committed ourselves on a path where we will do whatever is required from both a hardware and a software innovation perspective and the cloud innovation perspective in order to propel the vision that we have."
II. Microsoft Entrance Scares Some Struggling OEMs
The promise of Microsoft "diving in"
to some OEMs. Taiwan's Acer, Inc. (
to reconsider the Surface tablet. In an interview its CEO JT Wang commented, "We have said [to Microsoft] think it over. Think twice. It will create a huge negative impact for the ecosystem and other brands may take a negative reaction. It is not something you are good at so please think twice."
But Acer is not exactly the most self-assured PC maker out there. Mr. Wang described the build quality of his company's own products last year
, bemoaning how "unprofitable" his firm was.
More confident firms seem less worried about Surface phones or tablets.
Dell says it's fine with Microsoft making its own tablet. [Image Source: TMG Buzz]
Dell, Inc. (
) VP Kirk Schell views the Surfaces as an opportunity to introduce customers to the promise of Windows 8, which will in turn drive his company's sales. He remarks, "The announcement of Surface was necessary to have a proof of concept and to get people excited about what was coming to push application development and create some buzz out there. They've invested so much in Windows 8 it was important to make it work, so I felt Surface was the logical thing to do."
III. Nokia on Surface Phone: "Great!"
When asked about the prospect of a surface phone, former Microsoft Canada executive Stephen Elop -- now the CEO of Nokia Oyj. (
for the idea. He commented, "[It would be] a stimulant to the ecosystem."
It's possible Microsoft could partner with a third party to produce its vision in the form of Microsoft-branded hardware; if so Nokia would likely be a leading candidate. That's the approach Google Inc. (
) -- like Microsoft, a software company at its roots -- used to promote Android tablets/smartphones, via its
But it's possible that Microsoft will simply design the devices on its own. As it has shown with the Surface tablet and the Xbox/Xbox 360, Microsoft has evolved into a company thoroughly capable of producing its own intriguing third party hardware.
Microsoft isn't looking to leave its treasured OEM partners behind. In fact much of its own Surface tablet launch event was dedicated to promoting its OEM's Windows 8 designs, designs which are technically rival's of the event's star attraction. Talking about Windows 8 and Surface Mr. Ballmer stated, "This is one of two or three big moments in Microsoft's history."
Steve Ballmer called the launch of Windows 8/Surface a top moment in Microsoft's history. [Image Source: Getty Images]
Big indeed, but Microsoft isn't looking to usurp its partner OEMs quite yet, although it's clearly unafraid to give them a friendly push.
Nokia [Surface Phone discussion]
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RE: 3rd Party Opportunity
10/26/2012 5:47:12 AM
Mainly hardware. Apps and media are not profit centers for any of these companies. They add value to the ecosystem, thus helping to buy hardware, but hardware is where the profit lies.
Everyone has similar payouts to developers, record companies, movie studios, etc etc, and the profit margins really aren't there. iTunes and the App Store is the least profitable part of Apple's business. Music and app stores make almost nothing for Microsoft and Amazon.
Profit is in the hardware, period. Amazon is unique in the tech world because they are willing to take on 1% profit margins on their business.
RE: 3rd Party Opportunity
10/26/2012 3:24:23 PM
You don't half talk some shit you know.
Of course Microsoft doesn't make money on it's App or Music store. It simply doesn't have the volume to break even.
As for Apple not making money. It charges 30%. I'm sure that more than covers it's expenses. Given the volume of paid apps it sold last year, only a complete and utter numpty would claim they don't make any money from Apps.
As for Amazon not making money from Music or Apps, sure.
Just sure mate.
Hardware becomes a commodity eventually. Something even Apple will struggle to overcome.
You truly are a clueless joke.
RE: 3rd Party Opportunity
10/26/2012 5:27:16 PM
No, its true.
Apple makes 30% on apps and even less on movies and music. Their overall profit margin on iTunes is closer to 10% with movies and music, which are the same rates that Amazon and Microsoft makes.
Everyone pays similar wholesale prices for media and has similar payouts for developers.
Out of that profit comes the cost of running the service and things like bandwidth and storage costs. When all said and done this sort of thing has a little less than 10% profit for all of these companies.
The exception are companies that compete with brick and mortar retail distribution. Valve's cut for Steam slides anywhere from 30% to
much higher than what Apple/MS/Amazon get, but again it is competing with full retail titles sold at B&M stores.
If you really don't believe me, here is a breakdown of where Apple's profit lies. The yellow wedge is from iTunes/App Store. Also note that Amazon and Microsoft make similar profit margins selling media and mobile applications:
I'll say it again, movies, music, and mobile apps are not a direct profit center. Amazon is giving away hardware to make very little on media. Their profit is at around 1% while their stock PE is at around a stratospheric 300. Amazon is clearly not interested in the profit margins that other techs make, and I wonder when investors will finally accept that and price the stock accordingly.
Bring facts to a discussion next time.
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