Below the Surface lies Microsoft’s impending doom

“Early data shows that the PC market has not experienced a ‘pop’ from Windows 8,” Horace Dediu writes for Asymco. “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.”

“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,” Dediu writes. “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?”

Dediu writes, “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.. 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.”

Read more in the full article here.

MacDailyNews Take: Not anywhere near enough. 🙂

Apple commoditized Microsoft’s main product (software). OS X costs $19.99. Pages, Numbers, and Keynote cost $9.99 each.

This is how Apple is killing Microsoft: They’re starving them to death.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

Related articles:
Interest in Microsoft’s Surface tablet plummeted 53% after product details, price revealed – December 14, 2012
Beleaguered Microsoft’s Surface tablet flops – December 12, 2012
MKM Partners cuts Microsoft price target, estimates on lower than expected Surface, Windows 8 sales – December 5, 2012
Why Microsoft’s Surface tablet is doomed – December 5, 2012
App developers shun Microsoft’s Surface tablet – December 4, 2012
Microsoft Surface Pro to offer only half the battery life of Apple’s latest iPad with Retina display – November 30, 2012
Microsoft’s Surface Pro iPad killer to start at $899 – November 29, 2012
Microsoft’s Surface tablet flops, orders reportedly cut in half – November 29, 2012
TechCrunch’s Siegler reviews Microsoft Surface RT: ‘It’s time for a drop test – right into the garbage can’ – November 19, 2012
Slate reviews Microsoft’s Surface tablet: Too slow, mercilessly buggy; why is it so bad? – November 6, 2012
InfoWorld reviews Microsoft Surface RT: A disappointment; you’re better off with Apple’s iPad – October 31, 2012
Gizmodo reviews Microsoft Surface RT: Do not buy; inferior to Apple’s iPad; the worst of both worlds – October 25, 2012
The Verge reviews Microsoft Surface RT tablet: ‘The whole thing is honestly perplexing; who is this for?’ – October 24, 2012
ZDNet’s Kingsley-Hughes: Microsoft’s Windows 8 is an awful, horrible, painful design disaster – June 8, 2012
Analyst meets with big computer maker, finds ‘general lack of enthusiasm’ for Windows 8 – June 8, 2012
Dvorak: Windows 8 an unmitigated disaster; unusable and annoying; it makes your teeth itch – June 3, 2012
The Guardian: Microsoft’s Windows 8 is confusing as hell; an appalling user experience – March 5, 2012
More good news for Apple: Microsoft previews Windows 8 (with video) – June 1, 2011


  1. Right from the outset, Apple has aggressively priced the iPad so that rivals only had one of two alternatives.

    Sell something very cheap, but not make money on it, or produce a high spec device and try to get people to pay that much.

    When you factor in the high development costs, whichever option a rival chooses, they’re likely to lose money.

    1. Stock price no longer reflects the value, health, or power of a company, and that’s particularly true of Apple. Trying to equate the two is why people get so frustrated with AAPL’s performance.

  2. We might be witnessing the death spiral of Microsoft. I never thought I would witness such a spectacular train wreck. I can only hope that Google’s train derails soon and brings Samsung along in the caboose.

    Now, Apple needs to figure out a way to appeal to the masses but keep us oldies who have been with them all along happy too – a tough road.

  3. I still believe this IS NOT co-incidence. I really think Steve Jobs and his top staff thought up all the moves they have made and the potential countermoves of Microsoft and Google. They are now just letting it play out.

    When you are leading the pack and the opponents have to quickly respond to your moves…sometimes there is not a lot of thinking involved.

    1. spot on.

      Jobs’ exile from Apple did him a lot of good. He learned how to play the long game. When he returned, he had a game plan. All Cook & Co. had to do was execute it.

      … and no, I am not slighting the enormous efforts and excellent work that the whole team at Apple has done in the past 15 years. I am, however, no convinced in any way that Tim Cook is a “genius” by any definition, nor the architect of Apple’s current success, nor has his compensation been commeasurate with his batting average. Feel free to disagree, but it’s pretty clear that investors and analysts aren’t fawning over Cook’s every step either.

  4. “How many Surface units could Microsoft possibly sell to maintain its revenues.”

    The answer: Not enough!
    Warren Buffett figured this out over a decade ago & didn’t invest in MS.

  5. The Surface is a compromised device sporting a crap OS.

    M$ had already planted the seeds of caution over the years amongst users by always releasing buggy / useless OS upgrades that cried out for the first aid kit as soon as it was let loose.

    When you then bring out W8 and go completely into unchartered territory (for M$ that is) they have found that they have stretched the point too far – M$ have simply become untrustworthy of their own fan base who find they would rather stick to Win7 and wait for Win9 to fix Win8!

    They are simply becoming pointless.

    1. And this is the reason nearly all tech support companies push you towards the Microsoft train wreck – because they make a killing supporting such a bloated piece of spaghetti code.
      Microsoft deserve all the punishment they receive and then some.
      It is incredible Microsoft has gotten away with possibly the biggest con in corporate history. Selling products at a massively marked up price and then not supporting it (and if you are lucky to receive support it usually means a reinstall).
      The only way I can finish this rant is to stick my middle finger up and say, fuck you Microsoft.

  6. While the article accurately portrays the short term game, Microsoft has enough cash to play for a win in the long term. Sure, Windows 8 has a problem with its dual personality of desktop and touch, but if the next Windows 9 can come up with a winner of an interface, then market for tablets is not so fixed that MS can’t make a strong comeback. Basically in the smartphone market, buyers outside the fanboy sphere have no loyalty to either Apple or Android. I have plenty of friends who are non-techies who transferred over to Android from Apple. Fanboys think that the apps locks people in, but the surveys indicate that 50% of people don’t buy apps. Apple seems to take about 3-4 iterations in its products to get to a level of refinement where further iterations don’t bring much to the table, e.g. iPhone 4 and iPad 3. Microsoft has enough resources to hang in there for a few iterations of its Surface to make it a strong competitor.

    The unspoken factors in all this predictions of Apple vs Microsoft are the finely balanced frailties of (1) Steve Balmer’s buffoonery and (2) Apple’s blind arrogance. With the stock market hayride Apple has had, people forget that its inherent arrogance is not dissimilar to Bill Gates’ arrogance at the height of Microsoft reign, when the Microsoft name was feared. What was that, 8-10 years ago when Microsoft was king of the mountain? Give Apple less than 8-10 years, and its arrogance can bring it down.

    – arrogance at glueing in all components so these can’t be upgraded.
    – arrogance at refusing to offer a built-to-order option for non-shiny, anti-glare screens.
    – arrogance at cutting out OSX software features that Apple wants, not what users want, e.g. SAVE AS, and the arrogance of bringing it back in Mountain Lion, but on Apple’s terms, not restoring the original function.
    – arrogance of not offering a basic file system for iPad that many users need. Why not keep it away from the main area for dumbos, but at least there for users who need to get some filing done for serious work.
    – the dumbing down of key professional software e.g. Final Cut

    Give it 8-10 years, my friends. Arrogance has to run its course, and there is no company, nation or civilisation throughout history that has succeeded in beating arrogance. Arrogance must lead to a fall. Give it 8-10 years, that’s 2020-2022.

    1. May I suggest a “word a day” calendar so you can correctly learn and use the word “arrogance” as well as other useful words.

      Nothing you mentioned is “arrogance” while you may or may not have a point when you frame it wrong, it just looks bad and not credible.

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