Microsoft 10-K warns of ‘substantial’ Apple threat

“In a recent internal memo, Microsoft CEO Steve Ballmer discussed the various threats to the company, including the surging Apple,” Joseph Weisenthal reports for paidContent.

Weisenthal reports, “In its just-filed 10-K, Microsoft introduces a new risk factor that wasn’t there last year: ‘A competing vertically-integrated model, in which a single firm controls both the software and hardware elements of a product, has been successful with certain consumer products such as personal computers, mobile phones and digital music players. We also offer vertically-integrated hardware and software products; however, efforts to compete with the vertically integrated model may increase our cost of sales and reduce operating margins.’

Weisenthal writes, “There’s obviously just one company they could be talking about there.”

Full article here.

MacDailyNews Note: Microsoft’s 10-K also states, in part, “Apple takes an integrated approach to the PC experience and has made inroads in share, particularly in the U.S. and in the consumer segment…. Windows Mobile software and services faces substantial competition from Apple, Nokia, Openwave Systems, Palm, QUALCOMM, Research In Motion, and Symbian.”

Microsoft’s 10-K form is here.

[Thanks to MacDailyNews Reader “John H.” for the heads up.]

49 Comments

  1. Yeah, of COURSE a vertically-integrated model decreases Microsoft’s margins, because in order it build the whole package Microsoft has to be in the hardware business. Hardware traditionally has low margins.

    But why does hardware have low margins? Only partly because of high build costs. For many products, especially PCs, one of the most significant of those build costs is the “Microsoft tax.” Apple has been able to build products at lower costs than those with Microsoft Inside because it has avoided that tax.

  2. PC hardware is also low margin because the hardware is a commodity, as the OS is the differentiator. MS has high margins, and Macs have high margins because you are paying Apple for the OS. The “Apple Tax”.

  3. Don’t get too excited, this is standard boilerplate in a 10K. You have to state all potential risks, so as investors can’t sue you later for not citing these potential risks. The result is that companies cite every possible risk they can think of.

  4. Microsoft 10-K warns of ‘substantial’ Apple threat

    Nice headline, MDN.

    OMFG, are you kidding me? Crapple isn’t even a gnat on an elephant’s ass. Nobody is threatened by a bunch of hippies using a 30-year old OS running on expensive, proprietary toys that don’t work in the enterprise. There’s hardly any software for MAC. Their online music store doesn’t even use points and their digital music players can’t even play industry standard .WMA files. MAC is propped up by a bunch of cultist MAC sheep who don’t know better. Besides, MAC is only good at marketing. Ask anybody in IT.

    Your potential. Our passion.™

  5. All Microsoft needs is a charismatic CEO that understands the world of technology as it is evolving.

    This has to be someone young. Someone strong enough to stare into the face of the Entertainment/Legal/Government complex and say, “F.YOU.”

    Someone smart enough to see the old proprietary methods (that Apple seems to be embracing now) just won’t work any more.

    It wouldn’t hurt for this person to look, dress, walk, and talk a bit like a 21st century version of Jim Morrison.

  6. Sum Jung Gai…

    Microsoft tax indeed. What do you think Apple spends on developing Mac OS X? I wonder what the cost per Mac is for that?

    If MS extorts… uh… charges $50 per box, then I get the feeling the DOSBox™ stuffers are getting away cheap.

  7. You know, if Microsoft would simply adopt stricter standards for the companies it sells its licenses to, it could reduce a lot of the problems (not all, because the current OS itself sucks).

    People are on this blog all the time talking about how it might be feasible for Apple to license OS X to a few select companies if they met certain strict specifications (no piece of crap $300 PCs).

    But in order to keep pace, Microsoft would also have to keep that same cheap hardware from running their OS. And they aren’t about to cut their own throats, because the ONLY compelling reason in 2008 for a customer to consider a PC is that one can be had for peanuts (never mind that it’ll end up costing more in the long run).

    The bottom line is that if you have $1,300 or more to spend on a PC, you’d be a freakin’ idiot not to buy a Mac and install XP on it if you felt it was actually necessary.

    Microsoft must realize that it can’t have the best user experience in mind so long as it has no real hardware standards other than minimum specs.

    The common thought is that a fully integrated experience has to depend on one company building the software and the hardware. While I agree that’s the best case scenario, strict standards combined with great communication could approximate such an experience.

    All Microsoft has to do now is start completely over on the OS and adopt these new higher standards — and that’s why I’m glad I own Apple shares and not Microsoft. Because it’s never going to happen.

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