If OEMs aren't committed to Windows, where are they to go?

If OEMs aren't committed to Windows, where are they to go?

Summary: Microsoft understands that building its own line of Surface tablets is going to upset the OEMs, but it's doing it anyway because there's not much the OEMs can do about it.


Microsoft's 10-K annual report filing with the SEC suggests that the company is worried that building its own Surface tablet will affect their OEM partners commitment to the Windows platform.

ZDNet's Zack Whittaker digs out the meatiest part of the filing (emphasis added):

We derive substantial revenue from licenses of Windows operating systems on personal computers. The proliferation of alternative devices and form factors, in particular mobile devices such as smartphones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform. [...]

Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform.

It’s clear that by taking the step of developing its own tablet Microsoft doesn't trust the fate of Windows 8 to the OEMs.

While Microsoft would like us all to feel that tablets are a slam-dunk guaranteed success, plenty of OEMs have already been dealt a bloody nose by thinking they could take on the iPad with Android tablets.

Losing money is one way to make OEMs and ODMs nervous, and my contacts within some of the world's largest OEMs are telling me that they're far from convinced that Windows 8, or Windows RT -- otherwise known as Windows 8 on ARM -- will be any more successful against the iPad than Android was.

Nervous hardware makers mean that they are less likely to take chances with Windows 8 and Windows RT tablets. While Microsoft would like to see a whole slew of tablets hitting the market, incorporating fancy high-end features and fittings, the OEMs are more likely to come out with conservative designs that err on the side of caution and put price above premium features.

The success of Windows 8 and Windows RT is tied to the success of tablets because of the heavy emphasis on touch. Unless touch gets significant traction quickly, there's a significant possibility that the new Metro user interface found in Windows 8, along with other trappings such as the Windows application store, could be in danger of being axed from the next incarnation of Windows.

This is why Microsoft -- in conjunction with an unnamed OEM -- has taken it upon itself to build its own line of tablets.

Another thing that Microsoft is doing with will no doubt annoy the OEMs is that the Redmond giant is working hard to decouple Windows 8 sales from flatlined PC sales by pushing Windows 8 upgrades hard to existing PCs. The power that the OEMs once had seems to be dwindling, and that leaves Microsoft in a position where is has to pick up the slack and start selling.

First, it plans to offer cheap $39.99 upgrades to Windows 8 Pro to pretty much everyone from launch through to January 31st, 2013. It doesn't matter whether your PC is running Windows XP, Windows Vista, or Windows 7, you can take advantage of this deal. While the deal isn't as good as Apple's $20 upgrade, it's still a very good one indeed.

Rumors are also circulating that Microsoft is getting ready to drop the retail versions of Windows 8 and offer only OEM "system builder" and upgrade versions that would dramatically simplify the buying options available. It's also been rumored that this switch will be accompanied by a price reduction. Considering that a full version of Windows 7 Home Premium has a $199 price tag and the upgrade alone costing $119, this price drop is long overdue.

The way that Microsoft has taken a scalpel to Windows prices suggests that the company is less concerned about the effect that this will have on its bottom line and more concerned about the long-term effect that Windows 8 failing, similar to the way Vista did, would have on the company. Microsoft's priority, it seems, is to get Windows 8 installed on as many machines as quickly as possible, even if this means cutting the OEMs out of the loop.

But so what if the OEMs are upset? Where exactly are they going to go to find an operating system to replace Windows?

Dell is once again dabbling with Linux, having just released two new high-end mobile workstations with Red Hat Enterprise along with an Ubuntu-powered developer notebook later this year. Beyond this, there's not an awful lot of love for Linux as far as the OEMs are concerned, and no real plan to take the free and open source platform mainstream.

There's also no real demand for Linux on desktop or portable systems from either enterprise users or consumers. While Gabe Newell, co-founder and managing director of the video game development and online distribution company Valve, has plans to make Linux more attractive to gamers by releasing a few games for the platform, but it's hard to see that having any real, long-term effect.

Microsoft understands that it may upset its OEM hardware partners, and while the steps the company is taking may indeed affect OEM commitment to the platform, there's not an awful lot the OEMs can do about it. It seems that they are more reliant on Microsoft than Microsoft is on them.

Image Gallery: Microsoft Surface tablet

Image source: Microsoft.

Topics: Windows, Hardware, Linux, Microsoft, Open Source, Operating Systems

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  • My choice

    The success of Windows, Intel microprocessors and the Internet is due largely to an interoperable architecture. That formula is still good, so rather than risking a split between cooperating partners ... I would have gone with a strengthening of the bond.

    By choosing a fractured approach I think that Ballmer has indeed chosen the most dangerous course. It would seem he sees the inevitability of 4 silos: MSFT, GOOG, APPL and AMZN.

    I find such a future distasteful from any viewpoint.
    I would be in favour of Government legislation to enforce interoperability ... rather than measures like ACTA which simply preserve the status quo for global corporations.
    Unfortunately I think it is too late ...
    • Amazon wont be there

      They can't keep up their business model of making no money on tablets so that they can make money off you other ways, their userbase just isnt big enough.

      It will come down to Google, MS, and Apple in around 10-20 years i reckon, unless one of them balls up spectacuarly, with Amazon probably being acquired by one of them.
      • I agree, but not for that reason.

        The razor blade model has worked well for the game consoles for years. The margins on e-books are huge. And I think they take a 30% cut of app revenue.

        Where Amazon falls down is with how they deal with their development community. They don't provide a lot of incentive for a developer to target their device for apps. Sure, the volume of devices is there. But when they treat the submitted apps in the store as their own property to sell at whatever price point they want, and do not compensate the developer for for these promotions (Amazon doesn't take a loss on Free App of the Day), then there is no real advantage to being a developer for them other than exposure and marketing.

        Amazon is one of the few app stores out there where being the featured app of the day is generally bad for the developer from an economic standpoint.
        • Games sell consoles (not the other way around).

          And games have large enough margins to make the consoles profitable. It's the same with e-books but Amazon makes their money through their Prime subscriptions. They can keep their tablet going off of general sales alone.
          M Wagner
      • Look at it another way.

        Traditional Windows OEMs will not risk their own money on unproven products (like Windows tablets) - further there are too many of them to get their costs of Windows tablets down. On the other hand, Microsoft can afford to gamble and buy a boatload of Surface tablets and they can ride-out a loss of profits while they are building a market for the Surface.
        M Wagner
        • And yet...

          ...most of the OEMs either have or are taking a chance on Android tablets, which at the time they started had no better track record than Windows Tablets have.
          • Android is free for HW devs

            Big difference. And it still gives them 3rd party devs. But of course even there google is doing their own hardware. So if I was a HW company I still wouldn't trust them any more than I had to. This is hard for hardware companies today. To show superior differentiation to the broad consumer market vs. the platform vendors themselves who now make their own hardware seems very hard. I see some companies concentrating of multiple niche markets with special configurations,DEEPLY partnering with a large retailer (as they are threatened by app stores and platform direct sales) and the larger consumer electronics companies rolling their own Linux, OS extensions, services and 3rd party app/dev relations team (as is done with games).
      • I think that is highly speculative.

        Amazon has the experience and business model to support their $199 tablet. they might not always be Android though.

        Speculating ten to twenty years out is really pushing it. If Windows RT, is successful, I wouldn't be surprised to see Android OEMs "jump-ship" so they can make Windows RT tablets instead.

        It would be good to see Android, iOS + MacOSX, and Windows competing head-to-head but I don't see it happening. Maybe Android survives, maybe not.
        M Wagner
    • Interoperability as we know it is long gone

      Ability to mix and match parts from different manufacturers is long gone. There is very little you can change and upgrade in a laptop. There is little choice in what chipset OEMs can use in their designs.

      I am not convinced that inteoperability has anthying to do with inability of OEMs to create anything but many unremarkable "conservative designs" the users have to put up with. Apple can solder memory to the motherboard, request special CPU packaging from Intel, use proprietary SSD modules in their laptops notebooks and still take a lot of money out of consumers' pockets.
      • Mix and Match, gone?

        I must humbly disagree with part of your comment. Have you built a desktop suystem yourself lately? There several dozen motherboard designs and form factors alone before you add various cpu's, ram, power supplies, Hard drives, graphics cards and much more.
        Laptops are not and should not be included in the context of mix and match as those systems are not designed to be modified. They are engineered from pre-set specifications and the component manufacturers build those subsystems to meet the specs the oem requirements. You do not just 'pull' a laptop board out and throw in a different one! The replacement must be the same model and sku.
        • Have Cake and Eat It

          Desktop PCs will be with us a long time, but even in that arena, a lot of average folks are not building their own boxes anymore. Why? Because pre-packaged systems are cheap and guaranteed to work. I am geek enough to build my own box but I don't do it very often anymore. By the time you get the various parts, often from different suppliers, then go through the process of assembling, finding one of the components is bad, getting it replaced, installing the OS (which you have to buy separately of course) and getting everything working, it's quite a lot of time and effort. Unless you really need to pick out particular components, it's just not worth it. And when it comes to anything portable, there is no option to build your own from components. And then again, if you are a part of an enterprise, you are buying PCs from a major vendor on contract and can't mix and match parts there either. So Earthling2 is right. You can't effectively build your own for maximum interoperability and mix/match except as a few machines for a small group or just yourself, even if you aren't talking portable devices.
          • Have Cake and Eat it

            Yes, many times it even costs more to build your own box. But I will continue to do so because I want complete control over what is in my box, including the OS and software.

            But it looks like it might be bye-bye to some favourite (or necessary) prepackaged programs like TurboTax.

            I'm a linux or BSD user right now, but don't pitch Android at me. Android, as implemented on retail devices has too many proprietary elements.
          • Have Cake and Eat it

            I haven't yet paid more for building my own machine as oppose to buying one off the shelf.
          • Workstation

            I recently bought a workstations from Lenovo because it was cheaper than building an equivalent desktop myself. With that said I got it without and OS (I'm lucky I can get withdows through MSDNAA), installed more ram myself, and upgraded the hard drive with one of my old 2 terabyte drives.

            More me it was cheapest to go with a hybrid prebuilt desktop/DIY method. With the motherboard, processor, and quadro GPU that I got with my workstation it would have cost me more to build it completely. The added 3 years warranty with Lenovo was also a big bonus when compared to warranties for specific parts.
            Sam Wagner
          • RE: Have Cake and eat it

            You have to be careful what you pay for, as not all hardware manufacturers deliver the same quality of product. Prime example: eMachines. They have a $2-300 price tag, and last less than a decade at best.
            Richard Estes
      • That is because Apple sells SEX!

        Apple products are sexy ... from their smooth, sleek, finish to their environmentally-friendly, minimalist packaging. And they ship to your doorstep within 48 hours of the time they leave their plant in China. Consumers are ALWAYS willing to pay a premium for something that is sexy.
        M Wagner
        • If that weren't your only reason, I might agree with you

          But Apple goes far beyond the 'sexy' aspect that you give them; Apple sells a quality product that tends to work right and last longer than the current lines of low-profit generic Windows PCs. In fact, Apple's computers make better Windows PCs than nearly every other brand on the market even going beyond to build full workstation-quality machines as capable and more reliable than machines costing twice as much in some cases.

          Yes, I do agree that Apple makes some of the best-looking products; but looks will only take a product so far. If it doesn't have the guts to back it up, then people will stop buying it and that certainly hasn't happened to Apple in the last 15 years.
          • Apple products DO NOT last longer than PCs, and, if they do,

            it's because people don't use them as much as people use their PCs. PCs are used a lot more than Macs, because, people have far more uses for them. Macs are nice, but, they're the complementary ornamental devices, which sit on a tabletop or desktop, mostly for decoration. I have a dishwasher which I've used twice, it's five years old, and it still looks new and I'm sure will work as new if I do decide to put it to work. Likewise with Macs, where most people won't be using them as much, and, when most people also have a PC around, they'll be putting that PC to do the heavy lifting, while the Mac will just get a few admiring looks. ;)

            Furthermore (and I've said this to you before), Macs will not outlast PCs when most of them will get outdated within 1 or 2 or 3 years, when the Mac/Apple faithful, will feel obligated to "upgrade" their machines to the latest and greatest from Apple. I still have my XP Pentium 4, from 2002, still working as if it was new, and, though it's loaded up with software and a whole bunch of files, it's still a workhorse which I can't seem able to part with it. Can you say the same for any Mac? Macs are even made obsolete by Apple, when they create new iterations of the OS which the older Macs can't handle. In addition, there are not too many Mac faithful that want to be caught dead with a Mac that is older than 3 years, especially when the newer Macs a few generations newer. PC users? Well, they don't feel the need to keep up with then newer generations of WinTel, like the AppleJoneses do with Apple anything.

            Also, when the internal components of Macs vs PCs are basically the same, from the same providers of the technology, then, there is no reason to believe that, Macs will outlast PCs.
          • More Apple Kool-aid

            A proprietary world can offer more stability and that's what makes Apple products appear more quality. Foxconn makes the Apple hardware.

            I still have socket A boards from Asus sitting in a closet that still work. I have an Intel P4 board that still works.

            Funny that Windows 7 works better on a Mac Book than OSX.
          • If only you you understood the business.

            No, Foxconn does NOT "make" Apple products, they only assemble them; Apple engineers and designs every one of their products.

            And you know, it IS funny that Windows works on Macs, isn't it? Doesn't that just grind your gravel that you gave the lie to your own hate?