

Why Surface is Not a Microsoft Business - cek
http://ceklog.kindel.com/2012/10/21/revisiting-the-mullet-why-surface-is-not-a-ms-business/

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pedalpete
Good article, but I think it takes a short-view of the future of Microsoft.

Microsoft can't continue charging the OS prices they charged in the past.
Android on tablets and the potential for Chrome to take a big bite out of
their bread and butter business in the next 10 years is a huge risk. I believe
Microsoft recognizes the threat, and is throwing everything they've got at
maintaining their market dominance in the OS race in order to just be in the
race in the future.

Also, I'm not sure I agree that there is no profit in the surface. Though the
author could be correct that the $499 version without the cover could have low
or 0 margin, I doubt many people are going to by the coverless version. I
suspect that was a marketing decision so they can have a $499 tablet, but
realistically, 95% of consumers are going to by a cover, and if the keyboard
cover is a great product, it makes sense that would be the default purchase.

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wlesieutre
Surface might make less money than an OEM license for RT would have, but
there's no way another company could drive the tablet sales that Surface will.

With the increased adoption, their cut from Windows Store software sales
should make up for some initial shortfalls.

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aik
What about profits from the app store and accessories?

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cek
Apple's App Store generates something near 2% of Apple's profits.[1] The
number of apps that are 'for pay' in app stores is going down.

I worked on the Windows Phone 7 app marketplace. The economics of running such
a service are not cheap, especially as you take certification more seriously
(which Windows 8 is doing).

All of these contribute to the fact that even if MS ever makes any profit off
of the Windows 8 Store, it will be minuscule compared to the overall business.

[1] [http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-
apples...](http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples-gross-
profit/)

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cageface
_The $499 price means Microsoft will not make any real margin on the Surface._

So Apple is making a killing selling the iPad for $499 but Microsoft is making
_no_ margin on the Surface RT at the same price? Is Apple's supply chain
really that much more efficient? If Microsoft can't even make money at price
parity with Apple what chance do they have in this market?

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virmundi
I don't know the particulars of the MS supply chain vs Apple. However, I would
assume that Apple's chain is rather tight with few loose/weak links. They've
been in the game for more years than Microsoft. MS never really made hardware
devices like this. The Zune was never popular enough to have the supply chain
around it that Apple had with the iPod family.

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Mythbusters
Of course xbox has been made with such a model but I'd agree that it never has
that price pressure that surface has.

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sopooneo
"It is not a “Microsoft business” (Microsoft businesses generate $5B+ a year
in PROFIT). The Windows business makes $11.4B in PROFIT every year."

Isn't Windows a subset of Microsoft's business? If so, how can a part of the
business generate more profit than the whole business?

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goldenchrome
I think he's defining a "Microsoft business" as a Microsoft-run operation that
makes 5B+ profit a year. The Windows business is therefore a "Microsoft
business" because it makes 11.4B profit.

