Microsoft May Find Sales, Profits Scarce in Hardware Business

 
 
By Don Reisinger  |  Posted 2012-06-20
 
 
 

Microsoft's Surface Tablet Plans Carry Plenty of Risk: 10 Reasons Why


Microsoft€™s Surface tablet has been the talk of the tech town lately. The device is the first tablet to come from Microsoft, and is the company€™s first attempt of this generation to try and set the pace for hardware quality and design in the Windows 8 ecosystem. Microsoft has even gone as far as saying that the tablet could be a real bridge device that can replace not only tablets, but Ultrabooks and notebooks, as well. 

However, Microsoft has taken a very big risk with the Surface. The company has not historically gotten involved in hardware in the Windows ecosystem for fear of alienating its long-established hardware OEM partners. That boundary has been grows now and it remains to see whether or not there will be any negative repercussions to its relationship with OEMs. 

Beyond vendor relationships, how might Microsoft€™s Surface impact the way in which the company is viewed in the marketplace? Simply put, the Surface is a risky move for Microsoft. 

Here are the reasons why. 

1. A failure will turn vendors away 

The biggest issue with having its own tablet is that Microsoft runs the risk of failure. Such a failure could then turn vendors away from delivering their own Windows 8-based devices. After all, if the Surface tablet, which has already received a huge amount of media attention, can€™t succeed, what makes anyone think that those from other vendors might buck that trend?

 2. A failure will turn off consumers buying other Windows 8 tablets 

Meanwhile, Microsoft runs the risk of turning consumers away in the event its tablet fails. When consumers find out that their friends are unhappy with a product or see stories saying that the Surface isn€™t selling well, it tells them the device isn€™t worth buying. What€™s worse, it€™ll tell them that maybe they shouldn€™t even consider other Windows 8-based tablets because they deliver about the same experience. Consumer concern is a major issue for Microsoft. 

3. It€™s inextricably tied to Windows 8 

By putting its name on a tablet, Microsoft has inextricably tied its Surface to Windows 8. When the company was hands-off in hardware, it could make customers think that a particular experience on a device was poor because of the third-party vendor. Now, though, it€™s controlling all facets of the Windows 8 Surface experience. So, if the tablet falls, so too could Windows 8. 

4. Vendors might not like it 

Microsoft has been able to attract so many vendors over the years because of its willingness to stay agnostic. Microsoft doesn€™t care which company wins out in the Windows marketplace; it just cares that its operating system is in as many places as possible. By now competing against vendors, Microsoft could hurt its relationships with third-parties and potentially harm overall Windows 8 adoption. Most companies don€™t like paying a competitor. And with Surface now in the mix, they would do just that. 

Microsoft May Find Sales, Profits Scarce in Hardware Business


 

5. It turns Microsoft into a possible litigation target 

The last thing Microsoft needs right now is to be a hardware company. By getting into hardware, Microsoft opens itself up to a world of possible hurt, including the prospect of being targeted in patent cases. Countless companies right now are being targeted in lawsuits related to smartphones and patents. Microsoft has largely stayed above the fray, targeting Android vendors instead. But with its own hardware, it might put a big target on its back. 

6. Microsoft is locked in to future updates 

If the Surface tablet gains any significant traction in the market, Microsoft will need to continue to improve upon the device to ensure that it stays competitive with other offerings. That€™s a problem. Microsoft has now expanded its requirement to update products when Windows 8 launches. As history has shown, the company has its work cut out for it with software updates, alone. Now, the software giant will need to worry about continuing to improve its hardware, as well. Will Windows updates suffer because of that? 

7. The Apple battle has taken a twist 

Although Microsoft and Apple don€™t necessarily like each other, the companies haven€™t really been major competitors. The only space where they€™ve been taking each other on has been in software€”Microsoft€™s playground. Now, though, Microsoft has opened a new front in that battle directly in iPhone maker€™s wheelhouse: hardware. And as history has shown, Apple doesn€™t take too kindly to other companies entering the space and trying to take it down. 

8. Timing is everything 

In the tablet market, timing is everything. The only issue is, Microsoft doesn€™t appear to understand that. The company is launching a tablet years after it should have kicked things off. It€™s also unveiled the device months before it can launch, allowing customers to forget about it over the summer. Microsoft seems to have forgotten the importance of timing. 

9. Investors are concerned 

As a public company, Microsoft has a responsibility to shareholders to continue to provide value. Market analysts and shareholders will no doubt keep a close eye on Surface. If all goes well, they€™ll stick with the company. If things do not go well, however, look for investors to become extremely concerned and possibly start to sell off the stock. From an investment perspective, there is a lot riding on Surface€™s future. 

10. Costs can skyrocket 

The big difference between hardware and software is that the latter typically delivers quite high margins after developers release several iterations of the product. Windows is no different. The hardware space, however, is filled with products that generate a very small profit on each unit sold. And unfortunately, hidden costs can crop up all over the place. Microsoft better watch out. 

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