Is Microsoft becoming a hardware vendor?

Is Microsoft becoming a hardware vendor?

Summary: At least for the foreseeable future, Microsoft will be building the software, services and the hardware that will make the first Surface coffee tables and kiosks tick. Does this signal that Microsoft is looking to be not just a software company, but a hardware one, as well?

TOPICS: Microsoft, Hardware

Microsoft for years has been building keyboards, mice and joysticks. More recently, it started building Xbox gaming consoles. Then Zune MP3 players. Now, with the company's official unveiling of Surface, a k a Milan/PlayTable, Microsoft is mamufacturing large-screen, multitouch, gesture-recognizing computing devices.

Does all this mean that software vendor Microsoft is looking to hardware as a slow-but-steady growth engine for the company?

After all -- at least for the foreseeable future -- Microsoft is building the software, services and the hardware that will make the first Surface coffee tables and kiosks tick. Company officials said that they ultimatly might encourage and allow hardware makers build some Surface systems, but there are no timetables or firm plans for non-Microsoft-built Surfaces.

(The official statement, regarding why Microsoft is providing the end-to-end Surface systems, courtesy of Kyle Warnick, Senior Marketing Communications Manager: "At this time, we're following a strategy similar to the Xbox model. We want to insure interactions that consumers will have (with these Surface devices) will be consistent.")

I asked Matt Rosoff, an analyst with Directions on Microsoft, whether he thinks we might see a more hardware-centric Microsoft in the future. Rosoff pooh-poohed my theory.

MJF: "Is it wise for MS to become more and more of a hardware maker? Isn't it kind of like a digital/Web based publisher suddenly saying: "Let's do print!" It seems like there are a whole new set of fixed costs/risks if you make hardware and not just software and services?"

Rosoff: "Actually, I don't think Microsoft is becoming a hardware maker. In general, they make hardware where they feel they need to in order to drive an important technology. This goes way back to keyboards and mice--Microsoft got into the business because it was necessary for the GUI to take off. They stayed in the business because they found it was profitable.

"That's not always the case--recall their quick exit from the 802.11 wireless router market, for instance. With Xbox, they had to make the hardware because it's so heavily subsidized. With Zune, they had to make the hardware because they saw that customers preferred convenience and experience over choice (of stores and devices)."

MJF: "Is the 'end-to-end' hardware-software-services solution -- like an iPod or an XBox -- an anomaly? Or something you're expecting to see more of from Microsoft and others?" Rosoff: "Fundamentally, Surface isn't the table--it's a new (and pretty impressive) UI. They probably felt they had to make the first Surface hardware to seed the market. I'm guessing they're subsidizing the cost of the hardware first, but if demand takes off, they'll open it to OEMs and that will create price competition, eventualy getting the price down to where this could become a consumer category. I'm also guessing that they want to have tight control over initial application development to ensure a high-quality bug-free experience, but once they feel more confidence in the stability of the platform, they'll open it up to application developers.

"If they don't open the platform, I personally think Surface will be an interesting footnote, but little more. To get the unit numbers up to where this is an interesting business for Microsoft, they have to create a partner ecosystem."

What do you say, readers? Do you agree with Rosoff? Or do you expect to see "closed" hardware-software-services platforms, like Surface computers, Xboxes, Macs, etc., become the rule rather than the exception?

Topics: Microsoft, Hardware


Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • Hey, Microsoft *does* get it

    One thing I've always admired about Apple is their recognition of the importance of the user experience. Starting with Windows XP, and developing evolutionarily with Vista, Microsoft is really beginning to "get" the whole user experience thing. Unfortunately, the break down often occurs in components that are out of Microsoft's control. There's nothing worse than booting a brand new computer and being greeted with an error message. Rarely is this message Microsoft's fault. Nine times out of ten, it is doe to a poorly implemented third-party application or driver. By maintaining tighter control of the process, Microsoft can deliver a more consistent experience, and consistency is key.

    If Microsoft made a PC, I'd buy it.
    • Same here

      I think MS should invest in controlling the Premium and Ultimate experiences for their Windows products. That means making "some" PCs at a premium and with some cool iLife kinda package, I'll by it too.
    • But Apple doesn't...

      Much as people say that Apple is the king of good user experiences, I only have to disagree. May be I'm just so entrenched in the MS/*nix experience, but in my opinion there are just a few major things that Apple adamantly refuses to incorporate properly that completely kill their OS.

      1) Lack of a start menu. Someone just shoot me. If I want to open a program, I should not have to go to HD and then Applications and hope that the program installed there. And don't tell me about Apple Icon --> Apps. At least 1/2 the applications don't actually install with a shortcut there.

      2) Crap/lacking support for right click. The applications just aren't made for it. There are a few commans that are commonly used given the context, and they should be accessible with a simple right click. None of this crowding of the UI or going through a bazillion menus.

      3) The close button. Oh dear. Don't get me started. If I press the little x, it probably means I want to close the application. As in the entire thing. As in not just the particular picture in Photoshop. And not minimize it to dock. I want to close it. I shouldn't have to go to File--> Quit.

      4) The centralized file menu. Once again, someone just shoot me. Explain why oh why oh why if I have a tiny window in the middle of my screen in focus, does it need the entire menu ribbon at the top of my entire monitor? Why don't you just make a per-app ribbon? Actually, may be I don't feel like clicking on a program and then dragging the mouse all the way to the top of the monitor, may be I don't know which window's in focus. May be I want quick access to numerous file menus. Who knows?

      Point being, while it may be that Apple UI looks prettier and less threatening than the Windows/*nix UIs, it is sure as hell a pain in the ass to use. There are just a few major visuals-driven things that permeate throughout the entire system that make it impossible to use. Case-in-point: let the engineers to the general layout design and then let them argue with the visual designers argue with them about which parts may be changed to look prettier without destroying any claim to functionality the product may have.
      • Just a FYI

        Have you used OS X? What you're complaining about in regards to Apple GUI sounds like OS9 (which wasn't that great IMO)
        In response to your points.
        #1 you can set the finder icon on your dock to open a new window right in Applications.
        #2 Right click does work for the most part in OS X (just like Windows & *nix).
        #3 I agree, that is a strange one. I'm used to it now but it took some getting used to. Apple should have adjustable settings for program management in the System Preferences. (Maybe add a quit program button to the window, in black?)
        #4 The ribbon is just another preference thing. I prefer it myself, also you see which program is running in the upper left.

        It just a different interface for doing mostly the same things.
        Many people don't like retraining themselves to the different style. That's fine, use what works for you.
    • yeah totally

      i agree
  • MS WILL build hardware, where it makes sense.

    Do I see MS becoming a PC maker? No way. Do I see them moving strongly into consumer electronics? Absolutely.

    The way I see it is that PCs are, well PCs and there is more than enough people building them and the pricing is extremely competitive. No room really for more more manufactures. But "devices" are an entirely different story and that market has only been scratched on the surface.

    Because devices are a new market (or potencial market) I see Microsoft doing the development work, building out limited units, and then opening it to other OEMs over time.
    • Are you sure?

      >>> Do I see MS becoming a PC maker? No way. >>>

      Since it's introduction, I've seen the XBox as a Trojan Horse. It's basically a crippled "PC", or was until someone hacked it to run Linux (despite MS moves to the contrary).

      The only reason MS wouldn't or doesn't create it's own computer (at the moment) is that pesky Sherman Anti-trust Act. If a software monopoly got them in trouble, how would a combined software & hardware lock-in be any better?

      MS dumped it's PlaysForSure partners/victims when they couldn't gain MS another monopoly position. Can the computer OEMs be far behind?

      Some (like Zealot) disingenuously blast Apple for "forcing" you to buy OSX (on Apple's own hardware). Would MS be any different (ie, buy an MS "PC" with anything but Windows (ie Linux) pre-installed)?

      • Yes, I am..

        MS wouldn't get involved in making PCs for a number of reasons, but he two biggest are that there is very little money in it, and that would put them into direct competion with their customers. (OEMs) Do understand how much income MS makes from selling Windows to them.
        • Well if MS is making a BIG profit

          selling to OEMs, would it not a make a bigger killing "selling" to itself at cost? (since it would appear most Windows sales come as pre-installs rather than separate, store-bought boxed versions)

          IF MS could build the boxes and make the same (even slim) profit OEMs make on just the hardware, MS would save (profit from) the difference it charges OEMs for each Windows install.

          OEM computer price = hardware + Windows (at whatever rate MS charges them)

          MS computer = hardware + ... $0, unless it overcharges itself for each Windows license :-)

          MS is presently losing money on each XBox (give away the razor, charge for the blades) but since they're selling at a fraction of the price of a "comparable PC", it could probably break even (or profit) with a "comparable price" increase.

          Maybe Dell is ripe for the picking. MS would have the hardware manufacturing and sales infrastructures covered.

          • re: Well if MS is making a BIG profit


            "IF MS could build the boxes and make the same (even slim) profit OEMs make on just the hardware, MS would save (profit from) the difference it charges OEMs for each Windows install."

            Presuming for a moment that MS sold its own PC systems, they would *lose* the money (or simply not make the money) they receive from selling Windows and other MS software to OEMs. And I think you answered that yourself, as seen below:

            "OEM computer price = hardware + Windows (at whatever rate MS charges them)

            MS computer = hardware + ... $0, unless it overcharges itself for each Windows license "

            If MS made any profit at all from their own PC systems, it would be no better than what they get from the OEMs in the existing sales setup, and very likely somewhat less. They would be, proverbially speaking, shooting themselves in the foot.

            Does Apple Inc. make much profit from OS X being installed on every Mac sold? I don't know. Maybe. It's likely that *some* money is made from every copy of OS X that is sold with each Mac. It's certain they make more profit than other OEMs do on the hardware alone--I've seen estimates of 50% of the price of each machine sold. Could be more, could be less. Again, we simply don't know.

            But I'm rather certain that Apple makes a big profit from each separate retail OS X package sold, as well as from each major update (rollup, service pack, or whatever you want to call it) that they've issued, from OS X 10.0 through 10.4. Each major update has cost each Mac user who needed (or wanted) it US$130 or so, whether it was purchased in a brick-and-mortar store or downloaded from the online Apple Store. What's the break point from the development costs for each update? We don't know, and Apple isn't going to say. But once that break point is reached, each update sold is pure profit for Apple, minus the cost of packaging and/or media for those updates that are purchased at a physical Apple store or reseller.
            M.R. Kennedy
  • MS isn't going to do anything... risk the OEM contracts that are it's primary source of revenue. If MS starts manufacturing its own PCs, it becomes a competitor to Dell, HP, etc, who then have much less incentive to stay loyal to MS.

    Won't happen.
    John L. Ries
  • Life is so rough for you

    Im sorry to hear that OS X was so hard for you to use. You should go back to pen
    and paper.
  • Forget all the hoopla

    About Windows vs Mac vs Linux or
    Microsoft Office vs Open Office.
    The real story is todays predatory
    money-is-the-only-reason-for-living (of
    which Microsoft is leader, if not king)
    mentality subscribed to by the majority,
    the dog-eat-dog screw you it's all for
    me crowd and sponsored by our
    i'll-vote-myself-a-raise and take all
    the "lobby" (bribe) money I want and
    spend-your-money-any-way-I-want congress
    and enforced by our
    you'll-do-what-I-damn-well-say or
    president and all approved by our
    bought-and-paid-for (by the
    corporations) legal system.
    Microsoft, as well as any other
    corporation, will stop at nothing to
    pilfer, extort, or do anything they want
    to the public. The only question
    concerning what they will or will not do
    is.... how much money is in it?
    This is what our competitive
    capitalistic systen has diminished to...
    all capital and no competition, and our
    government? Forget it! Only thing it
    supports is itself and comrades.

    Sadly cynical but accurate nevertheless.
    Ole Man