Microsoft reveals cunning Windows plan below surface

@ 2012/12/19
Looking under the bonnet of Microsoft's licences has revealed something of the outfit's future plans.

While many of us questioned what Vole was playing at when it came to the Surface's pricing, an Asymco analyst has worked out that the beast is priced so that Microsoft can pull in PC revenues in a post-PC world.

But it also means that Microsoft has to cut out the hardware partners and start selling the tablet itself.

Asymco analyst Horace Dediu, claims that the software profit margins that Microsoft pulled in from selling PCs is now "captured in hardware."

This explains why the Surface tablet comes with a $499 price tag.

Dediu thinks that Windows revenues for PC have held steady for the last three years, at around $52, while Office have increased slightly to $67.

But Vole knows that pricing systems software at $50 and a suite of apps at $67 for a tablet that costs $200 to the end-user is too much.

OEMs are hard pressed to complete against Android tablets that incur zero operating system costs, and IT buyers would balk at paying almost $70 for tablet software that they can get on other platforms either for free, or for under $10.

Office suites costing $70 are unheard of on post-PC tablets and startphones.

However by pricing the Surface at $499 Dediu thinks that Microsoft is making the same profit that Apple does with the iPad, about 30 per cent, or $150 per tablet. This figure is similar to the $120 that Microsoft gets from a PC kited out with Windows and Office.

Dediu believes this magic number shows why Microsoft has a lack of appetite for "partnerships."

Getting out his slide rule, Dediu said that OEMs normally compete on hardware would have to deal with zero margins after license fees. They would be encouraged to cut corners and shave costs, compromising the experience and causing the platform to suffer.

This means that the only way that Microsoft can continue to pull in PC revenues in a post-PC world is to cut out the hardware partners and flog the tablet itself.

It is not quite that simple though. It all depends on Microsoft selling enough Surface tablets to keep its revenues up.

It also needs Microsoft to stay stubborn about the price and users to actually pay up.

Hardware OEMs could revolt against the move, which effectively cuts them out of business and turn to Android.

It is also questionable that Vole has enough market pull in the consumer segment to pull a stunt like this off. After all, its entire tablet range is pricer than most tablets on the market.

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