Microsoft Surface – The thin ice.

 

 

 

 

 

  • Microsoft has a commanding position in the market for PC software but it cannot really afford to antagonise its partners.
  • By making its own hardware, Microsoft risks doing exactly that but the slow take off of Windows 8 appears to be forcing its hand.
  • I have long held the view that the main reason for Microsoft to make the Surface is to demonstrate to hardware makers and to consumers exactly what Windows 8 is all about and what if offers.  
  • This is why the circulation of the device has been limited to Microsoft’s own retail stores and through its website.
  • However now it seems that the frustration of the slow take off of Windows 8 has gotten the better of Microsoft and it is trying to jump start the market on its own.
  • This is why I believe it has decided to expand its distribution channels to Best Buy and Staples earlier than expected.
  • Making the device more widely available should help shipments as well as stimulate interest in Windows 8, but it’s a very fine line between jump starting a market and competing with one’s partners.
  • Despite public protestations, the PC industry is not happy with Microsoft moving to do its own hardware.
  • This is because no one can be dependent on the software of a competitor and so Microsoft, despite its power, should always remain neutral in the hardware space.
  • For now, volumes are low enough for it not to matter much but that could change.
  • January should see the Windows Surface Pro arrive which is a fully fledged tablet that can perform exactly as a laptop.
  • If that proves to be what the market is looking for and demand rises strongly then Microsoft faces the problem of competing against its partners.
  • But for partners, where else are they going to go?
  • The short-lived fad that was the netbook clearly showed that a Linux based OS gets no real interest from users.
  • Android? Impossible to compete with Apple at one end and with Amazon at the other.
  • Chrome? One is in the same boat as with Microsoft. Google is racked with engineering disease and is showing every intention of continuing to make hardware.
  • Hence, Microsoft is unlikely to lose any partners over the Surface but it is always better to have a good relationship with your partners.
  • Furthermore, a large slice of Microsoft’s market is showing every sign of vanishing into iOS and Android while the rest is sluggish and uninterested in Windows 8.
  • Microsoft needs all its pals around it to make the Windows 8 ecosystem fulfil its great potential.
  • Execution remains the key risk as it has been for the last 16 years of unmitigated failure in the mobile arena.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.