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June 05, 2007

Microsoft Should Do More Hardware

Categories Microsoft 

Microsoft should ship more hardware! There I said it. I’m not saying Microsoft should become an all out hardware company, but its made great such contributions with the XBOX, Zune and now Surface that I wish they would do more products top-to-bottom. Microsoft’s typical strategy is to create software platforms, but the actual products are sold by hardware companies. This has a lot of advantages for Microsoft, and it creates opportunity for the hardware companies, which is good for the industry as a whole. But the strategy also has some downsides especially in the early stages of a new device or market.

One of the biggest problems I see with Microsoft creating the platform and hardware companies actually selling the products to customers is marketing. The separation minimizes Microsoft’s role in the innovation and makes the products appear a bit like Frankenstein, which creates all sorts of marketing challenges. For instance, when a big company puts its name on a new technology or a new device, people get really excited. I think this is part of the reason Apple enjoys such amazing press about their product announcement, and why Surface is receiving such a positive reaction. However, this can’t really happen when Microsoft creates the platform but the product is sold by another company.

The marketing problems are compounded by the fact that when Microsoft releases a new technology through its hardware partners, a swell of products from different companies appears, often with a lot of redundancy. This makes the products seem like commodities (i.e. the products are interchangeable with not much difference between them, and their prices should be determined mostly by the cost of the components), instead of unique and innovative. Customers are left to focus not on the benefits of the technology, but instead on the subtle differences, who to buy it from and how much to spend. Also, how can a commodity have cachet? And how can a product be successfully marketed if it's identical, or nearly identical, to the competition?

Lastly by separating the software and the hardware, Microsoft may be indicating a lack of commitment, confidence, and responsibility in the product. When it comes to supporting the product, the customer may have to call Microsoft or the hardware manufacturer, depending on the problem. Often the hardware manufacturer offers some support for Microsoft's software used on the device which further indicates a lack of responsibility.

Also, separating the hardware and the software may actually make it more difficult to create new markets for products. The "technology product as commodity" effect caused by multiple manufacturers selling similar products, makes it difficult for the hardware manufacturers to market and charge a premium for their devices. When Microsoft creates a new platform and invites hardware companies to create the products, Microsoft is essentially welcoming them into not just an unproven market, but also a very tough competition. So it's not surprising that many bigger companies don't jump at the opportunity, but instead let smaller guys, who sometimes do a lousy job (further stifling the technology and bungling the market), test the waters. This might explain why Dell has taken so long to enter the tablet market, and why media center PCs have been a bit slow out of the gate

So what am I proposing? Well, not that Microsoft makes computers, although that's essentially what they've done with Surface. Instead I'd like to see Microsoft help establish new markets or boost slow markets by introducing their own products. This simplifies the marketing of the product, and gives the products cohesion and clarity. After the market is established, Microsoft can open up the technology to other hardware manufacturers. Microsoft could then scale back their own hardware presence and rely on the revenue from licensing their technology to a widened market. Also, once the market is better established it will be better suited for competition and improvements by a range of hardware manufacturers.

Well those are my observations as an armchair analyst. I’m sure there are about a billion business reasons why Microsoft’s current strategy is best, and make my concerns about marketing and customer perceptions seem trivial.

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