Microsoft’s post-PC trouble: capturing the profits of bygone days

By , Dec 18, 2012

Before PC demand dwindled, software giant Microsoft was happy with licensing its Windows software to computer makers. Now that we are taking the first steps into the post-PC era, the Redmond firm still wants its profit. But how do you charge a $50 per-tablet royalty fee when the device itself costs $199?

Enter the $499 Surface, says one independent analyst. While Google’s Nexus 7 and Amazon’s Kindle Fire both sell for $199, the Surface carries the much higher price tag because Microsoft stubbornly refuses to give up the 30 percent profit margin it’s accustomed to receiving for Windows and Office software licenses…

While the company blames inadequate retailing for its single-digit market share, well-known Apple watcher Horace Dediu says it’s all about capturing the profits of bygone days.

Dediu explains:

The price isn’t significantly below what Apple charges because Microsoft wants to capture a comparable (30%+) margin. On a $500 product that amounts to $150. After subtracting hardware operating and distribution costs, we can get pretty close to the $120 [Microsoft] currently obtains from a PC.

As CNET notes, the effort to transfer profit from flagging PCs to the rise of tablets also explains why a software firm like Microsoft wants to sell hardware.

“It’s all about the margins and how hardware makers might be tempted to cut corners”, the publication writes.

A PC manufacturer that tried to recoup money spent paying the ‘Microsoft tax?’

Unbelievable.

iPad mini keynote (iPad vs PC sales)

No matter how much Microsoft wants to retain the past, that era is gone.

Windows is quickly giving way to the freely-available Android. Expensive Office suites are overshadowed by Google’s free Internet-based alternatives and inexpensive iOS apps.

Instead, in the post-PC era, tablet shoppers aren’t going to pay $500 for a tablet and then hundreds more for the software. As well, tablets are becoming more complex, driven by components such as in-cell displays and other technology permitting lighter, smaller devices.

By demanding the same level of profit it once gained via the PC from tablets, Microsoft is its own worst enemy. Nonetheless, the Windows maker put the Surface on its own list of 2012 milestones.

Apple should be able to relax and let the Surface join a growing list of “iPad killers” which shot themselves in the foot.

Must Microsoft lower the Surface price in order to challenge Apple?

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  • seyss

    fail

  • http://www.facebook.com/profile.php?id=1384316579 Byron C Mayes

    I’m no Microsoft fan, but it’s not really fair to compare the 10.6″ (widescreen) Surface with the $199, 7″ Nexus 7 and Kindle Fire. Those devices do not compete head to head with the 9.7″ iPad, only with each other (and the iPad mini). The Surface is meant to go against the full-sized iPad and the $499 Nexus 10, and is priced accordingly.

  • http://twitter.com/Jack_maredit Jackson Grong

    A fail every month. Wow

  • http://twitter.com/Rirath Rirath

    “But how do you a $50 per-tablet royalty fee when the device itself costs $199?”

    I don’t know, but I think you missed a word. Mistakes happen, but I sincerely wish proof-reading wasn’t dead these days. Some friendly suggestions: If you can’t have a full-time editor, do a peer-review. If you can’t do that, and reading it yourself isn’t working, have something read it out loud to you.

    • http://www.idownloadblog.com/author/dujkan Christian Zibreg

      fixed, thanks

  • http://www.facebook.com/BikenNo.9 Biken Dangol

    Bing as a milestone. In your dream Microsoft, that search engine is very unusual retard engine that doesn’t even shows the correct search. I’m not the android or google lover but google is the best..
    …. PS even though most of android device sucks.

    • Kurt

      ios sucks. third party apps are great though

  • http://twitter.com/mdridwan Mohammad Ridwan

    Microsoft is digging their own grave