Below the Surface

Early data shows that the PC market has not experienced a “pop” from Windows 8. Market watchers have been anticipating this pop since every previous version of Windows has led to a surge in shipments. PC vendors have also been hoping for this to lift their volumes. Volumes have been stagnant for a while, as the following chart shows:

Screen Shot 2012-12-13 at 12-13-3.45.58 PM

If we combine the traditional PC and tablet markets—what I refer to as “large and medium screen PCs”— there has been growth. However the growth is all due to the tablets. When seen in a share split (blue tablets vs. brown Windows PC’s) the shift toward tablet computing is clear.

The question is whether Microsoft will be successful in shifting to this new computing model? Microsoft’s problem is not that it has difficulty offering an operating system for tablets. The problem is that the economics of both systems and application software on tablets is destructive to its margins.

A PC has for several decades been “taxed”[1] with a Windows and Office license. The exact figure is imprecise because of subscription accounting used by Microsoft, but we can take Microsoft revenues for Windows and Office and divide by PC shipments to get an average.

Screen Shot 2012-12-13 at 12-13-3.47.14 PM

This view shows how Windows revenues per PC have held steady for the last three years and Office have moved up slightly. In the latest quarter Windows “captured” $52 per PC shipment and Office “captured” $67.

The problem for Microsoft is that pricing systems software at $50 and a suite of apps at $67 for a tablet that costs $200 to the end-user is prohibitive.

Firstly because an OEM could not justify paying $50 to Microsoft while competing with another vendor whose (Android) software license costs nothing. It implies an increase in his bill of materials without the ability to charge more for the product and hence a reduction or elimination of margin.

Secondly because consumers (or IT buyers) would have a hard time justifying $67 for an Office license for every tablet when most apps are either free or under $10. (Apple charges $9.99 each for iOS versions of Pages, Numbers and Keynote which can be installed on several devices.)

The economics of tablets imply a “commoditization” of system and application software. So what’s Microsoft to do?

The answer is Surface where the software margin is captured in hardware. This explains the pricing of Surface. The price isn’t significantly below what Apple charges because Microsoft wants to capture a comparable (30%+) margin. On a $500 product that amounts to $150. After subtracting hardware operating and distribution costs we can get pretty close to the $120 it currently obtains from a PC.

This also explains the lack of appetite for “partnerships”. OEMs which would normally compete on hardware would have to deal with zero margins (or less) after license fees and would be encouraged to cut corners and shave costs, compromising the experience and causing the platform to suffer.

Microsoft does not like the phrase “post-PC” because it implies the end of its hegemony. They like to think of the PC becoming a new form factor in which they have the same role they’ve always had. However, looking beyond the form factor we see that mobility itself is disruptive in the implied modularity of the PC.

Device economics offer the explanation for an otherwise perplexing Surface strategy. The question remains how many Surface units could Microsoft possibly sell to maintain its revenues.

  1. A “tax” is implied only when purchases are mandatory.
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  • Ittiam

    Another excellent article…. Tough time for MS …. I wonder what is a viable strategy

    • JohnDoey

      I don’t think there is a strategy. The company is designed to be a monopoly. A part of the reason that Steven Sinofsky is gone is he actually expected Microsoft employees to work. It is bad enough that they work at Microsoft, and now you say they have to work in a disciplined way on a software project? The people who work there just want to play with their code, they want to be cowboy coders. It is a key feature that you can just play with code all day and the company still gets paid via software subscription. How are you going to transition that corporate culture to one that can compete in an Apple-dominated market where excellence is something the user is not only recognizing, but that is now all they are willing to pay for. None of the generic stuff is even profitable except for Samsung, and that is only because they are a massive component maker and intellectual property thief.

      • I’m not certain if I agree with your assessment re: Sinofsky. Microsoft’s current products are largely a reflection of his strategy to tackle the mobile market by shoehorning the Windows monopoly into it. The results have been ugly.

    • IMHO the basic problem is not so much what Horace has said here; it’s a refusal to accept a new computing order. As I have said many times before:

      The issue is NOT “PC vs post-PC” or “PC vs Tablets”.

      The issue is that computing HW has become cheap enough that for most people (already in the US for 50% or so of the population; soon enough for the rest of the world) there is no need to restrict oneself to a single “computer” that performs all ones computing tasks. What is not changing, however, is the human body.
      Putting these facts together, the future consists of a single individual owning some combination of a desktop PC AND a laptop AND a tablet AND a smartphone AND a smartwatch. And in such an environment
      (a) you want each item to work optimally in the circumstances for which it is targeted — one handed operation for the phone, a variety of casual orientations (lying in bed, sitting in a train, etc) for the tablet, using the keyboard for a laptop, with a large screen for the desktop, etc.
      (b) you want all the devices to work well together — to quote Sun, “the [personal] network is the Computer”. This means a full-featured environment for keeping all tese devices more-or-less effortlessly in sync, ie iCloud.

      If we compare with Apple’s competitor, my take is:
      – Google has some of the vision.
      However they have punted on the syncing problem. Their answer to syncing is to maintain everything on their servers and a constant network connection. This strikes me as shortsighted and self-defeating — network performance and costs (especially over cell) are not going to improve nearly as fast as local storage. And so we have the great whine of our age — the complaint that “the telcos are screwing us over because they won’t give us superfast unlimited wireless data for $20 or less a month” — a whine no different from, and no more grounded in reality, than the whine of the seventies that “the Arabs” were charging us far too much for “our” oil.

      Google also have little control over hardware. And so rather than a rationally designed suite of hardware, each optimized for a particular task, we get a random mishmash of stuff all over the place. In principle, yes, they allows for rapid evolution, blah blah. In practice what we see is a recapitulation of the PC world — an unending collection of me-too hardware, no money available for serious R&D, with the few innovations that occur usually poorly thought out and badly performing,

      – MS have some of the tech necessary, but none of the vision. They have various interesting network and synch technologies available (in true MS fashion, they have five or more such technologies available, with no rationalization of them into a SINGLE UI+API+brand), but rather than accept the heterogenous future they’ve insisted on forcing that future to conform to a single UI which works poorly no matter what the target device (except perhaps the phone). This is the equivalent of if IBM had insisted that the IBM PC in 1980 run MVS and be programmed in COBOL.
      You can see this in the UBIQUITOUS Surface ads right now. Unlike the WP8 ads, which at least show some version of what WP8 can do for Jessica Alba (even though it’s not clear why Jessica couldn’t keep track of her two daughters using Android or iOS), the Surface ads don’t show a damn thing about what Surface can actually do that is valuable. From the ads, the takeaway is that Surface comes with multiple colors, and makes a very obvious SNAP when you put it down on a table. OOOOOKKKKKKK…, and that’s better than an iPad why exactly?

      The point is — this is bigger than MS not having the right technology or the right hardware. MS don’t even understand the nature of the game that is being played. And by the time they finally do wake up — when they realize they need to offer a mobile OS that works well as a mobile OS AND a keyboard OS that works well as a keyboard OS, along with a branded sync solution — the problem they face will be the sort of thing leads to civil war within MS — which of the many different partial solutions we have to these problems will be chosen, and which will be tossed overboard?

      • Ian Ollmann

        I think they do understand, at least some of them. The problem is that the playing field went from being tilted from heavily in favor of MS (early: IBM endorsement, late: monopoly) to not in favor. Such is disruption. There is probably no winning strategy for them that isn’t a bet the company move. There is merely lose a little or lose a lot.

        They are opting for the lose a little path: Use your existing core strengths to try to leverage yourself into the new market, so as to disrupt yourself. This is somewhat better than the alternative where the other guy disrupts you. You still get to keep some of the money.

        There are two problems with this:

        1) Surface is better designed as a business strategy than it is as a product and consumers aren’t interested in buying business strategies.

        2) As Horace nicely points out today, the problem with the new disruptive market is that the net profit that they allow can not hope to reach the net profit they currently enjoy. They would have to sell ~1 Surface for every PC lost to a tablet just to keep at the same net revenue. It seems certain that they aren’t going to manage anything close to that because the tablet market is still owned by iOS and Android. See also #1 above.

        Intel and Microsoft are in the same boat. They have foie gras wastelines and the menu looks to be watercress salad for the foreseeable future.

  • JohnDoey

    > If we combine the traditional PC and tablet markets—what I refer to as
    > “large and medium screen PCs”—

    They are just full-size screens. A 1024×768 PC app view or better.

    • The ability to display a PC app interface and actually run a PC app are two separate things. There is no evidence that business are giving out iPads instead of desktop computers, though more and more mobile operatives are using iPads with their laptops. The question is if they will use just an iPad and nothing else, and I don’t see that happening until you get a better input method for text than touch (maybe voice?).

      • There are a ton of people who don’t need a desktop computer to do their daily jobs. Accountants will need to hang onto their desktop computer, but receptionists? Salesmen? Anyone who works standing up? For these people the tablet is much much better because mobility and flexibility is more important.

      • Drew

        I work at a very large German coperation, and, yes, they are giving out lots o lots of iPads to their employees. We have iPad solution for our sales forces, manager read and comment presentations on their iPads, notes are taken on iPads during meeting, Email, etc. you name it.

      • neutrino23

        Actually, there is evidence. Distributors to businesses now see significant iPad sales.

      • rational2

        We use a wireless keyboard with the iPad at home. The iPad replaced the PC.

    • One comment on this: “I read an article that said that Microsoft should become a mutual fund and just buy Apple stock. They would make more money for their shareholders that way.”
      The statement is probably unfair. My understanding on the business side is that, for all MS’ faults, they have never fought their shareholders on money issues, unlike most companies — they retained earnings when that was what most shareholders wanted, and they switched to dividends and stock buybacks when that was what shareholders wanted.

      We can criticize them for taking on a succession of lousy projects, of failing to adapt, of poor execution; but it’s not helpful to criticize them for one of the few flaws they haven’t really exhibited.

      • jawbroken

        What does doing what their shareholders want have to do with making their shareholders money?

      • I suspect many of their shareholders would prefer they stop making stupid acquisitions and just paid more dividends. Billions syphoned away over the years on stupid and non-accretive purchases.

      • dajhilton

        Yes, but Microsoft hasn’t returned 25% to 60% annual growth levels in their stock price, which I am certain is what their shareholders wanted, more than the dividends, buybacks, etc, as they saw Apple stock rocket past the MSFT shares they were holding.

        Microsoft may not have ‘fought’ their shareholders, but the claim made by the poster is demonstrably correct: they would have made their shareholders far more money if they had just invested in Apple stock.

      • The statement is unfair, sure, but it’s also ludicrous. Why waste time discussing it?

    • narg

      Not sure how you call almost 90 million a month in the above graph “no demand for Microsoft”. Are you just stupid or blind? And, they don’t have to say “Microsoft” since they know its there without asking. You’re just trying to be obtuse.

  • obarthelemy

    There are 3 flavors of Windows 8: Phone, ARM Tablet, and x86 (unified desktop and tablet).

    On the desktop, Windows 8 makes no sense at all. Its most important feature is that there are good freewares to get rid of the Metro UI, and boot right into a regular desktop. For corps, roaming installs are probably nice. For consumers, there’s nothing new, not even tiered storage using SSD, a la ReadyBoost.

    On Phones, Windows 8 is mainly an under-the-hood cleanup of the codebase (Windows Phone 7 was based on Windows CE, Windows Phone 8 is based on NT, like its desktop counterpart). No real new features. Live Tiles in particular are a big disappointment: though better than iOS’s plain Icons, they are significantly less interesting than Android’s Widgets. Apart from that Win8 still lacks apps, and even OS features (notifications…).

    On ARM Tablets, Win RT is a strange beast: lacking as an OS, lacking Apps, with Office, but no compatibility with other x86 legacy Apps. Is it targeted at people who like clacking sounds, and/or who need Office, but no other legacy apps ? I think that’s a very narrow niche. The upcoming x86 tablets, which will offer the full Windows experience (Office *and* all legacy apps), might be more interesting. And compete more with ultrabooks than other ARM tablets, price- and features-wise.

    • I’d say the people that could use Windows RT are the people that could “live on an iPad” for everything except for Office documents. With the number of web-based things you can do these days like Facebook, Twitter, mobile banking, shopping, etc… having a dedicated app isn’t really all that necessary (it really wasn’t necessary before the App Revolution).

      This is also why I think that the Desktop remains in Windows RT, because it gives you access to a “real” web browser if you hook up a mouse and keyboard, which is invaluable. You should not think of Windows RT tablets as an iPad made by Microsoft, as it is purposefully and explicitly made not to be (unlike Android tablets which bring nothing new to the table).

      • Tatil_S

        If editing Office docs are an important part of a user’s need, not just a nice to have feature on some rare occasion, the user will need a keyboard and mouse to comfortably use Office on WinRT, as MS did not spend much effort into customizing the interface for touch based use. A tablet lacking in touch optimized apps found in other platforms and requiring a keyboard and mouse, just for an Office suite that is not fully compatible with the desktop version, sounds like just a crappy laptop, rather than a compelling tablet.

        When web based apps were the only option, market craved for native third party apps. When Facebook app on iOS was just a mobile web page wrapped as an app, it was slow and buggy. Now that it is coded as a native app, the difference is like day and night. I don’t see the advantage of native apps over websites narrowing any time soon, as it is still not negligible on desktop systems with vastly more powerful CPUs and years of head start.

      • There was a big exchange regarding this topic on I made the same point re: Microsoft Surface. Instead of doing two things well, it does half of each poorly.

      • The problem I have with that statement is the same could have been said about the iPad in comparison to a laptop and a phone, but there are certain scenarios which a tablet clearly accels at. An iPad is not a better iPhone or a better Mac. It is something different. Similar with most Windows RT devices. Could you manage a website on your iPad with the appropriate app? Sure, but you’d probably want to do it on your Mac. Could you carry around your iPad everywhere you go like an iPhone? It’s certainly possible, but rather bulky.

      • Here’s the difference:

        Once the Surface added a keyboard and the desktop UI, it opened up the comparison with laptops. With the tablet UI, it can be compared to other tablets.

        With Windows RT, you can not use the tablet interface exclusively. Much has to be done in the traditional desktop. That makes the entire UX inferior to a pure tablet like the iPad by default.

        With the desktop, you have Office … and nothing else. So compared to a regular Windows laptop, Surface is inferior because you can’t actually load any other desktop Windows applications. So, once again, the UX is inferior by default to a regular Windows laptop.

        This isn’t a matter of two UIs working well separately or cohesively together. It is two UIs bolted onto a single OS, both of which are severely limited by default.

        If the iPad had been introduced with mobile phone functionality, I guarantee it would have been slammed as the biggest, most non-sensical smartphone ever created, regardless of its strengths.

      • obarthelemy

        Which is why Surface RT offers a choice of excellent keyboards, and mouse support, via a true USB port or Bluetooth, or a touchpad.

      • Tatil_S

        Ok let me rephrase it then: a lousy laptop, because it cannot run legacy Windows apps and it comes preloaded with Office apps that are only partially compatible with the desktop versions, despite “a choice of excellent keyboard and mouse support”.

        If you don’t care about Office, then you get a so-so tablet with some portions still waiting to be touch optimized, limited market share, limited distribution and limited app selection. Winning formula, it ain’t…

    • mjtomlin

      “which will offer the full Windows experience (Office *and* all legacy apps), might be more interesting” – obarthelemy

      It won’t. It’s always been a niche market and always will be. Windowing based operating systems are a pain to use on small screens. Productivity goes way down. If people really wanted to run full blown Windows on a tablet device, they would have taken off already, but they haven’t. Adding a kickstand and keyboard/cover is not going to help.

  • japplerules

    I cannot recall but have you made estimates yet for Apple’s fiscal first quarter 2013 yet? Thanks.

  • “The economics of tablets imply a “commoditization” of system and application software.”

    This is where the app model perfected by Apple has been the most devastating to the PC. It has long been the gripe in PC circles that PC software lacked “granularity.” The major software programs on the PC tend to be large, complex and cumbersome. Major software companies were reluctant to disrupt their own model by creating less complex programs for fear that it would open them up to competition from smaller software development companies who could compete on price as long as they only had to create a limited feature set. Most of the major players in software on the PC side benefited from “feature-itis” because it locked out smaller competitors and justified the absurd margins on their software packages.

    Enter the iOS ecosystem. Now people can buy functionality a la carte more or less and the big software companies can’t compete for fear of cannibalizing their own products. Also, the limited feature sets of apps opened them up to competition from smaller development firms and even single developers who may not have had the resources to create big programs but who had the expertise to make small, elegant apps with superior user interfaces. Then Apple delivered the coup de grace with iWork and iLife on the iPad, excellent products that delivered a great deal of functionality with an excellent UX at a great price (all subsidized by hardware sales). The economics of software development has been flipped on its head. Now the huge profit pool in software is shared amongst thousands of smaller software development companies and individual coders instead of a handful of monolithic companies.

    It is only the ergonomics of the tablet that have protected companies like Adobe from a complete cratering of their revenues and profits. If Apple introduced a stylus that offered the level of fine control necessary for much of the major software applications, the economics of the app model would be having a greater negative effect on the entire PC ecosystem. Luckily for the PC world, Apple hasn’t though efforts are underway by others to do just that.

    • obarthelemy

      I think you’re off the mark. Apps on the iPad are not “more granular”, they’re just lacking features. Pages does a lot less than Word. And what it doesn’t do can’t be added by plugging in another app: it just can’t be done, full stop. People can’t buy features as they need them: they just trade a lot fewer features for greater ease of use, lower price, and mobility.

      Now, the fact that the features are more limited is probably a Good Thing, because professional Apps, Office in particular, have evolved into an unholy mess of features with incompatible that most casual users drown in. Professional users though need them badly: I *need* macros, stylesheets, outlines, headers/footers/references, OLE, tables, templates, … for my work documents. They do get in the way for my personal letters though, and my elderly parents just get lost in Office’s menus, even in the Ribbon.

      Desktop, full-featured, apps, have a nice future. Their market is not disappearing, they do stuff tablet apps can’t do and won’t do for a long while. What is new, and what wrong-footed MS, is not so much that people don’t need big Apps on a big OS anymore, it’s that *a lot more* people need small apps on a small OS.

      • I think your points are largely semantic.

      • obarthelemy

        How so ?

      • 1. “Apps on the iPad are not “more granular”” – obarthelemy

        Strawman. I never made the claim and the quote isn’t even in my original post. I stated that people can add “functionality a la carte” which I think is a fairly accurate statement (though some would classify “features” and “functions” as different things. For the purpose of my original post, I used the terms interchangeably)

        2. “People can’t buy features as they need them: they just trade a lot fewer features for greater ease of use, lower price, and mobility.” – obarthelemy

        People are, for all intents and purposes, creating highly personalized computing experiences by blending small apps of limited functionality together to suit their individual needs. And this is being done relatively inexpensively. Contrast this with the monolithic applications that have been the hallmark of the PC platform. It’s apparent that the app model allows for a far greater degree of personalization and yes “granularity” in a sense.

        So are apps “granular” in the strict sense? No, though I’ve heard of apps that do indeed have complementary functionality. But does the app model allow for far greater personalization and user control because of the limited functionality and low cost of apps? Yes. And that is the case precisely because apps are more digestible to the average person, in size, expense, usability and utility.

      • obarthelemy

        “Now people can buy functionality a la carte more or less “. No they can’t. You can’t,for example, get Word-equivalent features on an iPad. You *must* renounce features.

        “iWork and iLife on the iPad, excellent products that delivered a great deal of functionality with an excellent UX at a great price”. Not so much a great price. I just bought a 3-pack of Office licenses on Amazon for 50 euros. Significantly cheaper the (Pages+Numbers+Slides(?)+Notes(?))x3. And OpenOffice is free.

      • jawbroken

        Nobody said you can buy all equivalent functionality a la carte, which is what you seem to be arguing about, with yourself.

      • jawbroken

        And, of course, your office licenses aren’t equivalent because they are per person and not per device (might work out better or worse). And, of course, we can see from the article you’re commenting on that your price is not typical.

      • “You can’t,for example, get Word-equivalent features on an iPad. You *must* renounce features.”

        That depends on *which* features you’re talking about. Most Word users use a remarkably small subset of features – but Microsoft’s problem (as an Office product manager once admitted to me) is that the subset varies by user.

        In the iOS eco-system, there are hundreds of low-cost apps around which affectively aim themselves as specific niches. Pages hits the biggest one, for people who want simple word processing and layout features. Others, like QuickOffice, appeal to those who want to work natively with Google Docs. Others, like Writing Kit, appeal to those who need plain text writing and research tools. And so on.

        The idea that you can buy a package which just meets *your* needs at a low price is Microsoft’s biggest nightmare. Back in the old days, everyone bought Office because no matter what your needs, there was a feature for it – but you paid a high price to get them. Now, in the “there’s an app for that” world, you buy a more simple package which has the subset of features you need, at a much lower cost.

      • As the iPod/iTunes ecosystem unbundled music albums, the iPhone unbundled software features previously known as “productivity applications”.

      • mjw149

        This is true – to a point. It is also true that most of the client functionality has been displaced by the cloud/server, and that makes the unbundling possible. The vast majority of MS Office’s most ‘advanced’ features have been obsoleted (printing) or moved to the server/cloud, like embedding video, collaboration, security, VBA (replaced by web techs).

        So, Pages is a single $10 app, but it’s really just the tip of the cloud iceberg. Same with email, telephony, evernote, google docs, Siri.

      • “Desktop, full-featured, apps, have a nice future. Their market is not disappearing, they do stuff tablet apps can’t do and won’t do for a long while. What is new, and what wrong-footed MS, is not so much that people don’t need big Apps on a big OS anymore, it’s that *a lot more* people need small apps on a small OS.”

        This part sums it up very well.

      • Jeff G

        Desk top, full feature apps are disappearing for some people (like me). I wrote a book on Pages, love the simplicity, focus and ease of formatting. I deliver it to my publisher (who uses MS Word, so I don’t have to). Since buying iPad in 2011 and iPhone in 2012, about 90% of my time is spent on those devices, and I only go to computer when I have to. Full feature has a future, for sure, but not necessarily a growth future, like smart-mobile-specific apps has.

      • I agree.

      • mjw149

        It is disappearing. ‘Full featured’ Excel and Access are being replaced by SAS/Cognos/Oracle on the server side and google docs/office 365 on the client side. The broad middle of client apps is disappearing, because of convenience/cost on the bottom and security/management on the top.

        Left unsaid is that Office in businesses has been left largely untouched by market forces, so far. But the erosion has clearly started. IT shops increasingly are strained by over complicated MS client software, which is great for their employment, but a nightmare for security and costs. It used to be that MS software was the stuff that ‘just works’, but not it’s increasingly the byzantine flaky stuff. Oracle servers don’t go down. Unix servers don’t go down. Users can’t hack what they can’t touch.

    • Yes. But I would take it a step further and say that although software “granularity” has existed in the PC world there have been (and still are) major discovery barriers for the average person. This is where the Apple app store has made huge strides with a centralized, curated and searchable source of all applications with price points at a fraction of PC software.

      Another under-appreciated revolution in the iOS world: I think this is the first time in the history of computing that normal people (like my mom) feel comfortable and confident in installing software on their computing devices.

    • Davel

      You make very good points. I have noticed for years that upgrading Office is a waste of time. 90% of office workers make a simple spreadsheet with few if any calculations. Same with Word. Most documents are memos or maybe a five page document with a table of contents, bullet points and page numbering. These features were available 20 years ago. The tablet has allowed people to realize just how useless most of he features they pay for really are.

      Also as pointed out Apple makes money on hardware not software and so has little incentive to maximize software revenues for functionality.

      • narg

        I’ve tried to be “productive” on a tablet spreadsheet. Not gonna happen. And, no it’s not 90% of office workers. Maybe at your company, not at many others. You’re workforce must really suck.

    • Rudy Sloup

      I disagree with you, the reason software became large was because that is the natural progression, small apps were only the by product of a new developer environment but if you look at apps on phones they are now starting to get bigger, more feature full. And at the same time more of what apple or anyone used to make money on as an app purchase is being given away free or assimilated into the OS and become free. Anytime a market breaks out there are changes and people all sit around

      • jawbroken

        For how many years are we supposed to baselessly excuse Microsoft from doing anything interesting because of commentator’s claims of antitrust tying their hands?

      • you make no sense, when the original iphone launched it was so revolutionary that the world stopped for a second there. RIM tought they were bluffing, Microsoft didn’t believe them…

        Phones went back power-wise because they needed to, and hence, Apple jump-started two whole categories.

      • The galaxy note is a device that is neither good at being a phone or a tablet. It is a compromise. Most people don’t want a huge brick in their pocket — this is why the phone is not their best seller. Most people who want to do tablet computing will buy a tablet instead of a small substitute for a tablet.

    • calahas

      Not at all an analysis.

      “thousands of smaller software development companies” – Nothing can be further from the market truth than this statement.

      The market favored massive device expansion (a computer at every desk and every home) due to the getting together of a hardware manufacturer, an OS writer and a CPU manufacturer. MAC got thoroughly beaten by PC because PC was powered by Intel with its own defects (like low battery issues on hardware etc) and the OS writer made sure that PC clones and the IBM PC too supported an app system that was always backwards-compatible. Further the cost of maintaining a PC over time (TCO) was cheaper than that of a MAC. Simply put, Atari, Commodore CPC 600, the MAC, the Sun workstations, the DEC workstations etc could not match a PC’s low or medium cost, high utility and backwards compatibility and of course expanding app system. This created about 6 million or even more ISVs, software partners, hardware OEMs for an aggregate client-server ecosystem of the size of $600 billion atleast of which the Microsoft commission was $60-$70 billion (their annual revenue even today) and the Intel commission was $40-$50 billion (their annual revenue even today). Remember there are atleast 8 million C, C++, C# programmers even today in the Microsoft ecosystem. That will never be matched by Apple. Google and Amazon have a chance. While IBM has its own large ecosystem and Oracle has a much smaller ecosystem. The real competitor in the past, the present and the future to Microsoft was always Java in the enterprise world. And iPads do not support Java. Java presented a low/medium cost, high utility and backwards-compatible ecosystem alternative to Windows/.NET which is why Google/Amazon/other Linux based Clouds/IBM/Oracle are the real competitors to Microsoft. Surface does not make or break Microsoft. Azure does. Watch the Azure space even more as it gets hotter.

      What changed was the saturation of the app system on the PC and the saturation of the PC itself but only on the consumer PC market. PC was getting replaced with new PC in 3-to-6 year cycles but market wanted high battery time and more mobility too especially on the low-end consumer PC segment. The Apple juggernaut started in 2007 with the iPhone and then the iPad in 2010 but it still remains to be seen if it can withstand the low-cost, high utility and not-yet backwards compatible nature of guess what – Android. The real competitor to Windows in the mobility world is Android. Android stole Windows identity and prevented Microsoft from introducing a credible 2nd place, late-to-market, low-cost/medium-cost, high utility and backwards-compatible and importantly highly mobile phone/tablet solution based ecosystem to the market.

      Apple further has a lock on the important Telecom Carriers around the world and USA. While Microsoft suffers from lack of hardware distribution experience, lack of OEM interest due to presence of cheaper and equally valuable Android devices from Samsung primarily and secondarily from Google/Amazon and other tertiary OEMs. Telecom Carriers have promoted Android as an alternative to iOS. And they will now promote WP* and BB* as 3rd and 4th low-market-share alternatives to iOS and Android especially as tools in price negotiations. But WP* and Win* have already lost their chances to win significant market share in low/mid/high end smartphones and low/mid end tablets. They still have a chance though in high end tablets due to Windows lock on productivity.

      Microsoft still did not deploy its ultimate partner ecosystem to sell Surface. Possibly to not antagonize its OEM partners and ISV partners. But expect Microsoft to use its partner ecosystem to slowly disrupt iPad in the smb/enterprise markets. But I think the iPad/Galaxy/Amazon/Google tablets will win the consumer segments handily where Win tablets will not have much of a share. But this also implies that the future price of an iPad * version will drop further on further hardware commoditization.

      Will Apple be able to sell $399 iPads if Google introduces a $49 or $99 tablet which is easy-to-use, highly mobile, has access to content ecosystem, has warranty from Google, high battery time, is backwards-compatible and has increasing CPU/GPU frequency and has increasing RAM/NVRAM and peripheral device support?

      I assume Google will ultimately get 80% or 90% of the low/mid/high end tablet market while iOS will be a distant second in the not too distant future, say by 2018. Microsoft will be a niche productivity tablet player with 5% of overall tablet marketshare while writing expensive consumer software for Android. Expect Telecom Carrier relationships not to save Apple’s iOS due to increasing commoditization. They money is in the Cloud and Apple is nowhere to be seen there.

      • Kizedek

        I think you are missing the whole picture.

        There may well be legions of MS programmers out there still, and for some time to come. But they are often in thrall to certain companies or industries creating proprietary software compatible with certain large legacy software systems that have been out there for years. Or, they are hobbyists that can’t break into the mainstream because the economics have never been right on that side. They may be .net, C# or what have you, but they aren’t adding anything new.

        What is new is that the *data* can be the focus, as it ought to be. You don’t need to use the same of tools and methods to interact with your data as before. You CAN have new takes on specialized tasks on a mobile device that take advantage of the APIs from Apple and which some innovative new developer dreams up.

        The line between consumer and enterprise is being blurred, precisely because the “enterprise programmer” is no longer required. Data is data, and if standards, open file formats and network protocols are adhered to, then Apple devices perform just as well or better in that space. People are realizing that. And most new startups and SAAS services are iOS first, while still tapping into existing legacy structures and systems… or helping move those structures and systems to the cloud as need be.

        What is also new is the cottage industry of new up and coming programmers, primarily using iOS, that is something of a renaissance in software. It is entirely viable for all kinds of programmers, whether hobbyists, high-school students, or professional software houses, to put a little time into something new and exciting and push the boundaries because they can make some real money out of it.

        Now, as for PC’s having a lower TCO than Macs, I don’t know what planet you have been living on, for *every* study shows otherwise; and almost anyone you ask, at work or at home, will attest to spending less time supporting and maintaining their Mac (not to mention they last longer). IT departments and companies have been known to primarily consider the smaller up front cost of PCs: despite the extra man-hours, the extra and hidden costs of maintenance, the down times, the security issues, and especially the onerous and regular licensing required of MS products for every little thing like network connections (*tax*). The TCO of PCs is documented to be far higher than Macs in every way, every time.

      • calahas

        ” they are hobbyists that can’t break into the mainstream because the economics have never been right on that side. ”

        Oracle software systems still generate $40 billion in software revenue every year on average and the number of job positions that Oracle software writing generates dwarfs that of Google App Engine even today some 4 years after the introduction of Google App Engine. Same with SAP or IBM software. HP and DELL have to be ignored since they have been and will be hardware providers and the white-box movement will more likely swallow them faster in the coming years. But to say that low/mid/high end SMB/enterprise programmers are outside the mainstream and that economics is not on their side is nothing but a fallacy. If this is the case, you can bet IBM or Oracle or Microsoft will not meet their quarterly or yearly financial numbers and their stocks will have collapsed to zero by now with the companies being in bankruptcy.

        There has actually been more innovation in the enterprise software and hardware frameworks in the last decade in America than on the consumer side. To say that none of that exists is plain ignorance.

        Simply put, show me answers to these 3 questions to start with:

        1 – How many standards and standards essential patents did Apple or Samsung file for and bring into a networking standards body like IETF?

        2 – How many technical standards has Apple proposed for newer storage technologies and implemented and patented so far – say – working with a storage organization like SNIA or T11 ANSI?

        3 – How many technical standards and standards essential patents has Apple or Samsung filed for in wireless communication area and brought to organizations like 3GPP? Or ITU or ETSI?

        4 – How many technical standards and standards essential patents has Apple brough to in file system area and brought to organizations like ANSI?

        The only companies among all the current consumer hardware device makers that did painstaking research into some of these technologies but makes modest money from royalties on these patents is Nokia but they cannot match the systems abilities of Apple as in the laser-like focus that Apple had and has on its content ecosystem, display hardware technologies and form-factor device interconnectedness. Atleast there is no peer yet to Apple in their advantageous attributes. But that does not mean that only Apple has innovated in any thing in the last decade. Innovation does not equal monetization. Apple has proved to be good at monetization of their strengths. Nokia for instance not so much. Even Samsung not as much as Apple has monetized.

        To answer this graph – “The line between consumer and enterprise is being blurred, precisely because the “enterprise programmer” is no longer required. Data is data, and if standards, open file formats and network protocols are adhered to, then Apple devices perform just as well or better in that space.”

        Impossible. The technology market from 1948 (the creation of the UNIVAC computer) to the advent of the mainframe S390 in 1965 to the advent of the IBM PC in 1981 to the advent of the Internet in 1995 to the advent of the Apple touch phone in 2007 has always been multi-varied and multi-attributive. To say, lines have blurred and markets have collapsed is to go against 100 years of technology evolution starting with the radio and the Hollerith tabulating machine down to the smartphone or tablet. Who are we to disprove human technological industry evolution?

        To answer this graph – “The TCO of PCs is documented to be far higher than Macs in every way, every time.”
        Right now, on the consumer side, Linux based software solutions will cost you the cheapest. The TCO of owning a Linux based or Linux-derived OS based hardware device comes way and much below that of owning an Apple device system – including for the same feature set, same sort of warranties, same sort of hardware failures (even MTBF) and same sort of OS (Linux vs FreeBSD/Mach) complexities and app developement frameworks and software licensing or the lack of it for app development and OS development. This used to be the main reason that Microsoft/hardware OEM combinators were unable to provide an alternative to Apple iOS too until recently. Since Linux derivatives cost you cheaper overall.
        And right now, on the SMB side, Linux or Linux-based server or cloud solutions will give you cheaper overall cost for similar attributes as above and including server administration costs, professional certification costs, server hardware MTBF costs and ultimately server staff pay. Next comes Microsoft or Vmware. And there is no Apple here. The same extends to using client PCs in the enterprise too. But where Microsoft scores over Linux is in bundling, that is, secondary price discrimination. Microsoft can afford to give discounts if a SMB shop wants Office and CRM Dynamics on top of Server 2008 as well as Win7 licenses. Bulk is where they will help the SMB customer.
        And on the enterprise side, only IBM, HP, DELL, Microsoft and Oracle and similar companies will really help in maintaining costs at such large organizations. Apple or Samsung are neither enterprise hardware or software makers or providers as in creating solutions to meet such requirements. For such companies, the enterprise is an afterthought. And always. Since they then will have to start to bundle solutions. Which will involve price discrimination and hence possible volume discounting. Which is against their business model.
        Finally to compare Microsoft to Apple is ridiculous. Simply because they have entirely different business models to date. And Microsoft Surface will not change the situation much for Microsoft. Microsoft has a better and successful chance of becoming a Cloud company. They have little chance of becoming a successful hardware company and consumer systems company like Apple has become or Samsung has become.
        If analysts club all of these companies together and talk about them, then it implies they did not really study their products, which is actually unfortunate. Since engineering is complicated and since each company has in fact specialized in different areas. To give credit where it is due.

      • Kizedek

        Somehow, you managed to leave the “Or” out of your quote. Obviously, I would consider the Oracle programmers to fall under my main categorization of PC programmers that immediately preceded the sentence you failed to quote correctly… as in, these would be in thrall to certain companies or industries and creating something that supports or is compatible with certain large legacy software systems.

        You talk about TCO (the ‘T’ stands for “total” BTW), and have now shifted to speaking of something that few people use and for very good reasons. Few consumers own a pure Linux system (which you can BTW boot on a Mac if you want a machine that lasts). And one reason that few consumers go Linux is because TCO not only includes money, but time as well — Linux is going to require a learning curve, some training, some help and some finding of solutions and software that don’t themselves take further time and learning.

      • calahas

        @ Kizedek,


        “Obviously, I would consider the Oracle programmers to fall under the main categorization of PC programmers that immediately preceded the sentence you failed to quote correctly.”

        Technically, Oracle database programmers for either of their Server or ERP products fall into the category of what is known as Client-Server programmers. And a hardware Client can be a fixed device like a workstation or desktop or laptop machine or a mobile device like a 15″ or 10″ tablet or even a 4″ smartphone. The last parts – smartphones – do not yet look like active Enterprise clients. But that use case will get resolved as time passes. And a software Client can be a PC OS platform or a workstation OS like SunOS or even a mobile OS platform like iOS. So saying that Oracle programmers will become irrelevant in the new tech world order is misleading. Someone after all has to support and perform all of the Server-side database processing, distributed computing including parallelism accounting for the complicated middleware that pervades the Server Cloud. Since Apple has ignored and given up on the Server world.

        “I don’t say that lines have blurred. It is the thrust of many articles on sites such as this one.”
        The one company that really understands the Consumer client-server computing paradigm well is actually..Google. And it appears Amazon is also on track. If you look at their job postings, you will know which of their product divisions are hiring and why. The problem with a sample company like Apple or Samsung is that they do not the understand the scale complexities of the Server computing part of the Consumer Cloud. And that explains why Google Maps succeeds and Apple Maps fails. It is the lack of specialization in Internet-style distributed computing. But one may notice deeper that even Google App Engine has not succeeded yet. Though it starts to bring in revenue for them. It is way behind Amazon AWS or Microsoft Azure or IBM SmartCloud but is ramping up fast on new feature introductions in the PAAS Cloud space. So the articles on this site or others are not factually correct on the technology side.

        “Few consumers own a pure Linux system (which you can BTW boot on a Mac if you want a machine that lasts).”

        PC OEMs were prevented by Microsoft from distributing SunOS for PC clones in 1993/1994. A sample distribution like RHL or Ubuntu Linux could not get distributed due to the same reason. PC OEMs preferred to commoditize the PC hardware costs rather than offer a new alternative OS platform due to OEM relationship with Microsoft. Training costs and relearning costs are media speak for inability to get widespread distribution. Surprisingly Microsoft is facing the same issue now for WP* phone platform though it is equally good or even better than PC Linux OS ever was. But if a company does not understand TTM (time-to-market) and if the market determines that they are a failure if they pursue profitshare strategy, then they really are a market failure. This is not 1989 when Win 3.0 finally succeeded on the PC. Choices are plenty now and unless Microsoft understands the new market paradigm, they would be wise to stop investing away shareholder wealth on lossy products.

      • Kizedek

        After some thousands of words from you, let’s recap:

        James King: “The economics of software development has been flipped on its head. Now the huge profit pool in software is shared amongst thousands of smaller software development companies and individual coders instead of a handful of monolithic companies.”

        You: “”thousands of smaller software development companies” – Nothing can be further from the market truth than this statement.”

        Then you proceeded to give a whole history of software development for like the last 50 years. And some irrelevant and misinformed stuff about TCO.

        Me: “I think you are missing the picture…”

        You: Thousands more words about the history of software development. And some more irrelevant and misinformed stuff about TCO.

        Me: I think you’ll find I didn’t say what you thought I said.

        You: Thousands more words about the history of software development. And some more irrelevant and misinformed stuff about TCO. Plus, now some stuff about server-client software development.

        Now, my final thoughts and post on the matter:
        James King made a statement about the economics of software development in the PostPC era. You haven’t refuted it.

        His statement was in line with things Horace has said, such as in this very article, when he said:

        “The question is whether Microsoft will be successful in shifting to this new computing model? Microsoft’s problem is not that it has difficulty offering an operating system for tablets. The problem is that the economics of both systems and application software on tablets is destructive to its margins.”

        Compounding this problem, as we know, is that the tablet market represents the leading/only area of growth in PCs.

        This is not only a problem for MS, it is also a problem for companies like Oracle. Tablets are the new low-end PC, and products like netbooks have been eclipsed. The PC market is not growing, the tablet market is.

        No-one, certainly not I, said that “Oracle programmers will become irrelevant in the new tech world order”. It is just that this is not where *it* is at, certainly economically.

        It would seem that all this server-side stuff, which you are at great pains to explain, is what is being commoditized. And it is the client side that is exploding with new development and a new breed of programmer. In fact, just as you mis-characterized TCO, I think you are getting the Client-Server picture wrong, too, when you characterize Google as being the one that really understands it:

        Indeed, it has been raised in the comments on this article, that Google is very much server-side oriented with their services, not client-oriented. They want a dumber, thin client, with most processing being done on their servers, because that suits their purposes of controlling all data. It doesn’t make it the right way, or the best way, or the only way forward. What it does do is make everything you do very dependent on your continuous connection.

        Apple, on the other hand, puts the power in the hands of the user by making the client device and software more powerful and local — each device or computer is your “hub” AS you are using it. Then it synchs with the cloud, so that you have your data where and when you need it.

        Thus, with Apple’s take, there is ample opportunity for “thousands of smaller software development companies and individual coders” to develop tons of great client software that millions of people (like me) are paying a little money for. Thus, “the economics has been flipped on its head.” And yet, we are still talking about connecting to the same legacy server-side or network “systems” and software as before (remember I acknowledged that); and connecting to them just as well as, or better, than anyone else with any other type of client device or client app.

        Take SalesForce for example, MSExchange, Google Apps, OpenSource systems that can be hosted in the cloud, or any number of large company databases: all of these can be and are accessed by fantastic iOS client apps that people are paying money for. Where connection licenses are required by large incumbent, proprietary software companies such as Oracle or SalesForce, then these companies are being pressured to change their business models and economics and their style of development from one large, monolithic piece of software that gets bloated, into something that better reflects what we see now from new cloud-based startups and services.

        Yes, times, they are a-changing.

      • I’m sorry to say that I sort of stopped reading at this:

        “Further the cost of maintaining a PC over time (TCO) was cheaper than that of a MAC.”

        This was always demonstrably false. TCO was the one area where the Mac always won compared to the Windows PC. Up-front costs were where Apple lost.

      • dajhilton

        Right. Escalating TCO was the sole reason – not functionality – that I switched to Mac, finally, this year.

      • BoydWaters

        1990’s I was the Mac Guy for a biotech company with about 2500 employees. PC TCO was more than 3x Mac. A bad time for the PCs as we migrated from DOS/WordPerfect to Windows 3.1/Office to Windows 95 & replaced our older Unix-based servers with early Windows NT. That was rather expensive.

  • ronin48

    Great analysis.

    It would seem that at best Apple can only stop the loss of PC “tax” revenue by capturing new tablet buyers.

    Plus, tablet revenues likely bear hidden costs like R&D, shipping, inventory, distribution, and marketing that are absent or nearly absent with Office/Windows sales.

  • Tatil_S

    “The answer is Surface where the software margin is captured in hardware.”

    Horace, if so, why is MS doing a half hearted effort in selling it with such a limited number of sale points? Do you think this Surface is just a pipe cleaner with a bigger effort designed to push out its partners completely in ARM based large screen Windows devices later?

    • Making and selling devices in large volumes is hard. Microsoft does not have a “natural” channel without its OEM partners. We have to appreciate that just being Microsoft does not mean they can place the product in a million points of sale overnight. Nor can they ensure supply or demand which their partners have spent decades and billions to build. Where there seems to be a debate is to what degree is the Surface a “North Star” product or what used to be called a “reference design” for others to follow. On one hand it might seem to be from the limited distribution and words to that effect from management. On the other there are claims that the license costs for the same software is $85 per unit which makes it impossible for an OEM to compete, not only with Android and iOS but with Microsoft itself. There is also chatter and public statements from PC vendors indicating disdain with the platform. Why would Microsoft create a “North Star” and create disincentives for those who might follow it?

      • Tatil_S

        Your assessment regarding MS wanting to capture hardware margins to make up for the falling software revenue makes a lot of sense and I would not expect volumes rivaling Apple or Samsung so soon, but MS has experience with supply chains and distribution through Xbox. As it can put Xbox’es at many retailers around the world, I don’t understand why it is so timid with Surface. Selling them at Best Buy or Media Markt is not exactly rocket science. Best Buy would love to sell a gadget where Amazon is not undercutting it on price. MS was more proactive in selling Zune at many more US retail stores. As things stand, MS is doing just enough to turn off its partners in WinRT products, but not enough to gain much foothold in the tablet market.

      • Carpenter

        One would presume that a new hybrid-tablet device with this kind of price point is difficult to sell. To me it seems bit similar to Chromebook in that sense. New device/OS that might be hard to understand for the consumer. It might even be more difficult because Chromebook probably has more natural consumer demand than Surface.

      • Tatil_S

        > “Chromebook probably has more natural consumer demand than Surface.”

        Is that a joke? Do customers walk into a Best Buy and say “I’d like to buy a laptop, without a touch screen to make sure it is not all that intuitive or fun, without any more storage than a Nexus 7 to make sure I cannot fit all my photos or music on it and I want to make sure it cannot run any Windows, Mac, Linux, Android or iPad apps. Oh, while you are at it, make sure it is more expensive than Nexus 7. Hurry up son, I don’t have all day.”

      • Carpenter

        This reminds me of funny discussion I had with my friend few days ago. I was complaining that in my country chromebooks are not sold I was speculating why it was like that. My fried was shocked, he made those same points and added a small display to the complaint list too. I replied that it was exactly what I was looking for except maybe with 32GB flash and 15.6 display.

        Then I added that those would be for my youngest kids and oldest relatives. My friend sighed with relief and said “Yeah, I know what you mean, I got to buy a laptop for my parents this Christmas and that kind of device would make sense”. His parents only use the device for banking stuff and Email.

        Now you ask, if I really think that this kind of market is big enough to justify even making the device available in my far away country, Am I crazy, stupid or joking? Well, that’s how much I think there is natural consumer demand for the current generation Surface. Please note that with “consumer demands” I here refer to demand excluding business use.

      • Your anecdotal example above does not explain your assessment that chromebook probably has more natural consumer demand than Surface.

      • obarthelemy

        Chromebook is mostly targeted at corps and edu right now, not consumers. I’m thinking they won’t until/if Google pulls off the ChromeOS+Android convergence they’ve talked about.

      • Well, the Xbox channel is not the same as that for a tablet. Xbox took a long time to reach high volumes and did so with a set of “killer apps” in the form of games and enormous promotional effort. On Xbox, Bill Gates was prepared to spend billions and he did. Perhaps that’s still to come with the Surface. Perhaps this is “toe in the water” for them and they’re getting a sense of the effort. Perhaps it’s a beta product.

      • obarthelemy

        Isn’t Office a Killer App ?

      • obarthelemy

        I have no clue what a “north star” is, and the Surface is most definitely not a reference design: those are not really sold to the general public. I think the phrase you’re looking for is Hero Product.

      • No, that’s not the phrase I’m looking for. The words I used are the words I was looking for. A Hero product is a product that operators will co-spend significant amounts in marketing. The North Star term comes from an ex-Microsoft executive:

  • It’s not mobility in general that is disruptive for the PC is the particular form of mobility created by apple.

    I think it has been deliberate. Before iPad launch pundits spoke of a price for the ipad of 1000$, someone dared to say that apple could sell them for a very low price at 700-800$.

    Apple choose 500$ as we know and choose 10$ for their office like apps.

    This was done with the oem model in mind and no oem has been able to compete at that price, the only competition can come from an integrator.

    Google and amazon are trying, rim has already failed, microsoft is now starting now.

    The business model from microsoft is confused, they try to use both the apple’s model to obtain the same margin from hardware sales and the oem model since they do try to sell the o.s. alone with partnership.

    Also the product is confused.

    You cannot use it only as a tablet, you have to make something with a keyboard and a mouse in any case, there is no way you can get a pure tablet experience, something is left to mouse (or inferior and difficult experience with touch) by the o.s., so the experience is uglier than other tablet by design, no matter what.

    You cannot also use it all efficiently with keyboard and mouse, you are constrained to use a touch designed interface for some task, no matter what, so the experience is uglier than previous window releases.

  • markrogo

    Horace, your quantifying of this specifically is interesting. I took a look at this on my Forbes blog a couple weeks ago in a two-parter:

    It might be of some interest to your readers here.

  • stefn

    The iPad Mini could take this a whole ‘nuther step as folks wake up to comprehend they don’t need a desktop computer. Or at most they need one per home. Me? I look at my new iPod Touch with awe. Having worked in publishing on computers long before the Mac arrived, these MiniMacs will always seem magical. And dirt cheap.

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  • SoBobJon

    Dude that loosk like its gonna be pretty cool. Wow.

  • If hardware + system & application software are all becoming commoditized. If design is easily copied and not a sustainable advantage. Where are the areas that companies can build sustainable advantages? I have some ideas, but I’d like to hear what other people think.

    • obarthelemy

      But they aren’t.

      Hardware varies wildly in format and capabilities, with screen and materials as the bigger differentiators. The PC world, except at the lunatic fringe, never had hang-ups about aluminium vs steel, while the tablet market agonizes about aluminium vs plastics. And 4/3 vs 16/9. and µUSB, µSD, MHL, OTG, NFC, GPS, camera and webcam, even RAM size… Apple’s standard connectors are one of iDevices’ bigger draws. Samsung’s pen-enabled line is having wild success in its not-so-small niche. Because the hardware is all-in-one, you don’t get to pick and choose parts and features like on a Desktop; the OEM must get the mix right from the get-go.

      There are also significant differences between iOS (safe, expensive, dumbed down), Android (open, free, flexible but can get complicated), and WinRT (ground breaking desktop personality w/ multi user, multitasking, multi windows, Office, but lacking as a tablet OS with no apps, bad notifications, a weird split personnality).

      Ditto for Apps: because they have to become lighter to fit on tablets, they have to carefully pick and choose which features they implement, and design new UIs. This leads to more different apps, not the bunch of Office clones that at one point tried to thrive on the PC.

      Right now, I’m wondering if my next small tablet should be a Note 3 (rumored to be 6.3″) to replace both my Note 1 and my Nook Color. And if my next large tablet should be a Nexus 10, a 13″ Arnova FamilyPad (or the rumored higher-specced Archos 13xs), or whatever Samsung announces early next year. What has me hesitating is the hardware tradeoffs: SD or not, screen size and quality, CPU/RAM…

      If you’re thinking about ecosystem and services as differentiators: don’t. Apart from the 3 big blocks (iOS, Android, Win8), any attempt to differentiate within a block (HTC Sense online stuff, Samsung store…) has failed. It’s already a pain to interface one ecosystem with the other, customers don’t want to have issues within one ecosystem.

      Tablet and Phone markets will remain mostly about the hardware and OS for quite some time. Features, design, ease of use…

      • Kizedek

        Yes, there are significant differences between iOS, Android and WinRT. However, as usual, you cast iOS in as negative a light as possible with respect to the others. Your terms are quite loaded and connotative.

        In what way is iOS “expensive”? The end user doesn’t see any cost for a license or upgrade as they would for a desktop OS. It’s free.

        “Dumbed down”? How about intuitive and consistent?

        Android “open”? That has been debated multiple times on this site and others, and the term doesn’t really hold any practical meaning when it comes to things that Google would like to control. It’s more of a rallying cry among some subset of idealists. If it has any practical meaning, it is more that Android stores are “open” to all manner of unregulated and uncurated apps, so the consumer must be wary lest he gets more than he bargained for. If you are referring to the modular nature of the Android business model and the integrated nature of the iOS business model, then you should say so.

        And “flexible” has also been discussed at length: Android is so flexible, that any OEM or carrier can do just about what they like with it… the converse being that they *don’t have to do anything* with it; therefore, the consumer more often than not starts with an old version of Android, and is more often than not stuck with it. Pretty soon, “Android” looks less like a cohesive platform whose value appreciates with time, and more like a conglomeration of specs which anyone may or may not comply with as they like. If this particular aspect of flexible is what one focuses on in a working definition of “open” then it should be termed “open-ended”.

        The trouble with your terms and judgements, is that they are little more than that. You seem to always consider these to be worthy features in the case of Android, and detrimental handicaps in the case of iOS. Your Android buzzwords (Open and Flexible) may very well be what draws many people to the purchase of an Android device in the first place (precisely because it is a buzzword). But those buzzwords don’t seem to be providing any real stickiness.

        On the other hand, people are evidently purchasing iOS devices *despite* the negative buzzwords bandied about, and despite the efforts of people like yourself who spread FUD. Such purchasers are under no illusions when it comes to the apparent “non-openness” and the apparent “non-flexibility” of iOS — how could they be? Yet, iOS users seem to be more than pleasantly surprised by their experience, and the stickiness and retention rates are phenomenal.

  • narg

    PC shipments still dwarf others, so I’m amiss as to why they call the end of the PC? Sure it slowed down, that’s called market saturation, not the end.

    • We did not stop using stones after the stone age ended. Don’t confuse the end of an era with the end of usage. Eras are defined by growth.

    • rational2

      Sure large number of PCs will be sold, but they won’t spark as much innovation and creativity as mobile devices do. PCs are now commodities and so are PC operating systems and applications.

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  • mjw149

    This was was a great, succinct and very clear breakdown. And, to pull it back a bit, the reason that Windows/Office is losing value is not merely the economics of $1 apps on mobile devices – that’s an outcome, not a driver. The real driver is that the cloud/media services that those devices are built around, namely, Google/Amazon/itunes, has more value for consumers than the OS functions or the productivity software. It’s a different era and MS has made crazy profits on their software because it costs basically nothing to maintain – BECAUSE there is less value there. Google made a globally successful OS in two years and perfected it in like 4. Amazon did it in less time, and now Valve is poised to do it again. Not because they have great OSs, but because they have great consumer cloud services. THAT’s where the value is.

    MS is approaching this wrong. Damn the stock price, they need to sell cheap tablets and phones and consoles and hope that drives spending to their cloud (largely xbox and bing right now). They are weak there, but they have no choice. Windows and office are obsolete in a very real sense – regardless of their talent and plans, they have no place in the mobile world. Using the brands isn’t wise, since whatever they develop into won’t even really be Windows and Office. They need real leadership right now, not a caretaker of obsolete profits.

  • Dihydrogen

    The Microsoft tax is also one of the reasons why a $80 Chinese tablet can somehow have a capacitive multitouch 1000:1 contrast IPS display but a $500 laptop has a bottom of the barrel TN kind.