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I think Gruber makes a lot of great points here and I agree with most of what he says. However, I think he's missing one important point.

Microsoft doesn't think "it is sitting pretty because Best Buy has a 17-inch Dell for $650." I can assure you that internal talks at Microsoft include very worried discussions about how they're going to deal with Apple's quickly growing market share.

Microsoft's response to "Macs are better" is "PCs are cheaper", not because they think more PCs will sell because of these ads, per se, but because they want computers to be cheaper. They want to frame the buying decision in terms of price so they can drive prices down further. Oddly enough, this kind of worked. Apple lowered their prices.

As Joel Spolsky says, "Smart companies try to commoditize their products' complements... Microsoft's goal was to commoditize the PC market." (http://www.joelonsoftware.com/articles/StrategyLetterV.html)

Microsoft does not think that it's OK to be inferior to Apple as long as they're cheaper. They just really really want computers to be cheaper. They always have. That's how they've made billions of dollars over the years. They tie the success of their software business directly to falling prices in the computer hardware industry. If they see any hint of that trend reversing (rising prices in hardware), they're going to fight it tooth and nail.

I think what they really need to understand is that the race to the bottom in the computer hardware market is generally over. We've arrived at (or near) the bottom. People can afford just about as many computers as they could possibly want now. If they want to further commoditize the personal computer, they should be doing what Google is doing and writing a stripped-down OS that runs on much weaker hardware but relies on the web for processing power. Insisting on machines that are both cheaper and more powerful than the PCs of yesteryear has reached the point of diminishing returns.

They want it to be cheaper insomuch as it causes people to buy more computers. However they don't want them to be so cheap that the OEM price becomes significant where people can buy a $100 Linux PC or a $300 Windows PC with the same specs.

the race to the bottom in the computer hardware market is generally over. We've arrived at (or near) the bottom

And the computer at the bottom are netbooks and smartphones, markets that MS is not strong in.

> And the computer at the bottom are netbooks and smartphones, markets that MS is not strong in.

Was that a serious comment?

From http://en.wikipedia.org/wiki/Netbook

> As of January 2009, over 90% of netbooks are estimated to ship with Windows XP[52]

Margins for them are MUCH worse, that is why they missed their earning targets this quarter.

Also, count me as a person who bought a netbook that shipped with XP and immediately installed Linux on it - the company no longer offered the model I wanted with Linux. So as always Microsoft is pushing Windows on people whether they want it or not and then turning around and screaming MARKET SHARE MARKET SHARE!

MS had to substantially cut their licensing per unit in order to get onto netbooks, which is one reason they are now suffering despite this "success".

That may be bad for their bottom line, but it has no bearing on market share.

I disagree: if a company's bottom line is weak, its ability to compete is weakened and a reduction in market share is likely to follow if this continues.

Well, I'm no economist, but lowering prices isn't always a bad thing. And I definitely think it was wise for MS to adapt their pricing to the netbook market. It is definitely not in Microsoft's long-term financial to give Linux a toehold on the retail desktop market.

I think a better comment would have been:

One market Microsoft is weak and being forced out (phones), another is very low margin, and dragging down Microsoft's overall revenue and profits (netbooks).

Yes it was. MS didn't want XP to be on these machines, they wanted Vista, but the low specs of Netbooks forced them to keep XP on or concede the market to others. It's one market where other OSs - Linux, Android, OSx/iPhone (when apple launch a tablet or whatever) have a good chance. And a later, more consumer-friendly design.

Though I didn't know MS's share was over 90%. It will be interesting to see what Windows 7 brings to this.

As for windows mobile - the less said about that the better.

Good point. I think Microsoft have failed to spot that the computer market is going the same way as the car market. You can buy a car very cheaply if you just need to get from A to B. But people who have more money choose to buy BMWs or Mercedes. It's an aspirational purchase.

Excellent points about commoditisation. I don't think Microsoft wants Macs to be cheaper (though they still probably see increases in windows sales to mac users if there is more money left over) but they do want this to be a price argument because right now that's where they win.

I think Microsoft should do two things:

1. Push Windows 7 as superior. In my experience and that of others who have used it, so far it really is. (NB: The people that have used it were not die-hard fans either way, so naturally there will be Mac fans who disagree but this isn't the point).

2. Offer a Mac-Only version of Windows at a cheaper price to get more windows installs on mac (price of Windows OS for someone using it as a second OS is quite prohibitive).

I think the main problem for MS is that while Apple makes a premium product, and is oriented around consistently turning out products that deserve their reputation, MS is not. Lose the perception that running Windows is Inevitable, and they don't have to turn out good products just once in a while, but almost every time.

When you add Linux snapping at their heels with a free desktop, I think they've got real problems. Especially when Shuttleworth is calling on Linux developers to make something prettier than OSX. They won't necessarily succeed, (although I hope we do), but simply playing in the space greatly complicates Microsoft's issues.

Yeah I think Windows 7 is a chance for MS to push premium and take down the "big bad company" image a notch (as they've done with ASP.NET MVC by interacting with the community and including well known developer figures in the project).

I'm not sure Linux will ever pose a serious threat to the "home-user" market - even developers I know tend to agree that Linux has never taken user-interaction seriously. It might be prettier these days but that isn't the concern, it's genuine "getting things working" and "using this day by day" that is the problem. Most Linux users live by the terminal but home users moved to the GUI a long time ago and aren't going back.

Linux will continue to steadily grow among home users if Windows 7 doesn't provide better security than Vista. People do get tired of reformatting their (or their relatives') machines every 4-6 months to get rid of all the sticky malware that managed to get past their antivirus, even though said antivirus has been eating large chunks of their memory and CPU time.

Vista doesn't have nearly the security problems of the XP and before systems. Things like not running as root and integrity levels changed the security landscape. In addition, I believe that in between XP and Vista they rewrote much of the internal code to be more secure.

you're right that it is a huge chance for them. going by history I see no indication that they won't completely blow this chance while declaring victory. microsoft has become myopic.

I have to pick one nit with your comment ... Linux developers miss the point if they think making "something prettier" is the answer.

OS X success is not about "pretty", not in a fonts, colors, and visual design kind of way. I'd warrant Vista is much "prettier" in that regard.

What is "pretty" about OS X is the capital D design of the overall user experience. Achieving this requires deep integration of goals between developers, ui experts, product managers, and yes, visual designers.

Otherwise it will only be like, shall we say, lipstick on a pig (a very tasty and fine pig, or good pet pig if you aren't into the swine flesh, at that).

Yes, I agree. I was using "pretty" as a catch all phrase for the je ne sais quoi that makes an OS a pleasure to use. Just piling on the eye candy is never going to get there.

On point 1, are you arguing Microsoft should say that Win 7 is superior to Mac OS X, or to previous versions of Windows?

The first argument would be terribly hard for them to win, but the second they might be able to credibly argue. I don't think there are many who dispute that Win 7 is better than Vista, the only issue is if it's better than XP. That likely depends partially on the hardware you run it on.

Regardless of whether Mr. Gruber is right or not, I think there is a very slight bit of irony if he is indeed correct.

Microsoft has been pushing the xbox to game studios like crazy. In effect, that move alone might help in their decline; if individuals who would otherwise play games on Windows have no real need to play games on Windows (they have a console), they have no need for Windows, either!

So, perhaps MS' game division is culling the OS division.

I agree, there are some nuggets in here. But I think it's more written for people who want to see why Microsoft is declining than for people who want to see if Microsoft is declining. It doesn't seriously entertain alternative explanations for Microsoft's revenue dip and Apple's >$1,000-market surge, and in turn, I have a hard time seriously entertaining Gruber's thesis.

Perhaps you have your own theory to explain this shift? Instead of sniping at Gruber, for trying to explain a very real shift in the market, if there's a better explanation, then link to it or share it.

Rare is the market event with a single possible explanation. If this is not obvious, here are some examples:


Microsoft's Revenue Drop

* PC buyers care about their computers less than Apple buyers, so in a global economic downturn, they cut back on new computer purchases moreso than Apple buyers

* PC buyers are waiting on Windows 7 (mentioned in passing by Gruber)

* PC buyers feel higher levels of satisfaction with their computers than in previous years, and feel an unusually low need to upgrade

* PC buyers have consolidated their personal inventory, perhaps owning only a single laptop (maybe work issued) as opposed to a laptop and a desktop

* Microsoft is not attracting first-time computer buyers as much as in previous years

* PC buyers are switching to Apple


Apple's Growth in >$1,000 Sales

* There are fewer PC competitors in the market

* PC buyers feel that equal or greater value is achieved in the <$1,000 market

* The >$1,000 market has contracted around Apple

* Apple is attracting more first time computer buyers than in previous years

* PC buyers are switching to Apple


I don't know how probably true these explanations are, before or after reading Gruber's article.

I like Gruber's assessment. It draws some simple conclusions which illustrate that Apple is not the "little ol' computer company" it was derided for 10-15 years ago. It also illustrates how Apple's might could actually pose a real threat of extinction to companies just like MS in the coming years/decades.

I've also assessed things Apple/MS in a post of my own. I don't think it's become public realization yet, but Microsoft is scared. Apple poses a serious threat, and they have recent experience in starting the long and dreadful decline in the browser space to help them get a taste of the backlash that's coming.


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