Coffeehouse Thread

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Ballmer confirms shift to devices and services

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  • Bass

    You do realize that it costs money for Microsoft to produce Windows (mostly/entirely fixed costs), and if they crowd out OEMs, they will get less licensing fees from OEMs. But Windows still costs the same fixed cost to make. So it really balances itself out.

    Little secret, circuit boards and chips are also mostly fixed costs. Which are represented in R&D and the capital costs of producing the fab. Once it is set up, the fabs companies like Samsung have can print out components by the truckload, and the raw materials are a small fraction compared to the finished price they are sold for by Samsung. But like the Microsoft example above, the more components a company like Samsung uses themselves, the more they can at high margins to other OEMs..

    Basically I think this is a non issue.

  • DeathBy​VisualStudio

    , PaoloM wrote

    *snip*

    Common sense has little place in the business world.

    It's a fairly well known fact that Microsoft was under a consent decree that prohibited such things and, while the consent decree is expired now, these practices are still in place. For example, how would you count a Windows license "gifted" from the WinDiv to the hardware guys building the Surface? The hardware guys are simply adding to the BOM the cost of the license and drive it down to the customer. Not doing that would raise allegations of dumping and potentially antitrust issues again (i.e. using a product - Windows - to drive sales of another product - Surface) just like Windows and IE years ago.

    While they may have to add Windows to the BOM they can also afford to make zero profit on the device and reap both the "profit" from selling a Windows license and the market share they capture from the OEM (and hopefully Apple). It'll be interesting to see if we start seeing advertising coming out of Microsoft where they do direct comparisons with OEM products they "compete" with. That means it's game on and Microsoft is looking to duplicate Apple's success in the hardware area in addition to (in place of??) selling licenses. If that's the direction it ends up going then Microsoft certainly has an advantage here and I'm sure there will be plenty of lawsuits brought on by such a move.

    If we all believed in unicorns and fairies the world would be a better place.
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  • JoshRoss

    If I were an OEM, I would be more worried about being taken to court on trade dress issues, than I would be about unfair competition from Microsoft.

    Plus Microsoft would pickup the court bill for any OS licensing issues. I would like to see Google to offer that to their OEMs.

    -Josh

  • PaoloM

    , DeathBy​VisualStudio wrote

    *snip*

    While they may have to add Windows to the BOM they can also afford to make zero profit on the device and reap both the "profit" from selling a Windows license and the market share they capture from the OEM (and hopefully Apple). It'll be interesting to see if we start seeing advertising coming out of Microsoft where they do direct comparisons with OEM products they "compete" with. That means it's game on and Microsoft is looking to duplicate Apple's success in the hardware area in addition to (in place of??) selling licenses. If that's the direction it ends up going then Microsoft certainly has an advantage here and I'm sure there will be plenty of lawsuits brought on by such a move.

    And Samsung would simply reap the profit of selling RAM, display and other components to Microsoft. That profit would probably compensate for the Windows license that they have to pay for, so in the end it would be a wash.

    That is, if Samsung manages to produce !crap for once.

  • RobGreenly

    Evidence, please.

    The evidence is in the price.

  • PaoloM

    , RobGreenly wrote

    *snip*The evidence is in the price.

    Price of what?

  • Bass

    @RobGreenly:

    To look at it another way, if customer X looks at a tablet.. one from Samsung (assume Windows) and one from Microsoft, Microsoft gets $Y license fee where Y > 0 when the customer buys Samsung, but gets $0 when the customer buys it from Microsoft. So Microsoft loses a licensing fee when someone buys a Microsoft tablet. That's lost revenue. That's not good, is it?

    This (perfectly) balances out the fact that Microsoft doesn't pay Microsoft for licensing Windows, because Microsoft is not paying Microsoft therefore Microsoft is not making Microsoft licensing revenue. If Microsoft paid Microsoft $100 per license, then Microsoft would make Microsoft licensing revenue at the expense of having to pay Microsoft for the right to license software from Microsoft.

    Get it?

  • PaoloM

    Look, it doesn't have to be difficult, right?

    Let's do a little exercise: let's pretend for a second that a tablet is made by software (OS + drivers) and hardware (CPU, RAM, SSD, display). It's simplistic, but close enough.

    Now, let's see how much is Samsung's cost in arbitrary units:

    • OS: 3AU
    • Drivers: 2AU
    • CPU: 2AU
    • RAM: 0AU (they make it)
    • SSD: 2AU
    • Display: 0AU (they make it)
    • Total: 9AU

    And Microsoft's cost:

    • OS: 0AU (they make it)
    • Drivers: 2AU
    • CPU: 2AU
    • RAM: 1AU
    • SSD: 2AU
    • Display; 3AU
    • Total: 10AU

    Now, we can discuss how much is a AU and the relative weight of them, but it should be evident that both companies buy some components and build in house some others. Plus, let's keep in mind that the OS for Microsoft's tablet is not free for the HW division, as it has to be "bought" from WinDiv. In the end it all balances out at the corporate level, but the cost/revenue allocation is not a simple writeoff.

     

  • RobGreenly

    Price of what?

    The price of a Microsoft Surface compared to the price of a Samsung Surface, of course.

  • RobGreenly

    To look at it another way, if customer X looks at a tablet.. one from Samsung (assume Windows) and one from Microsoft, Microsoft gets $Y license fee where Y > 0 when the customer buys Samsung, but gets $0 when the customer buys it from Microsoft. So Microsoft loses a licensing fee when someone buys a Microsoft tablet. That's lost revenue. That's not good, is it?

    Hi, I distinctly remember hearing from Paul Thurrott about how MS licensing works. One time, Microsoft announced licensing sales as X # of copies of Windows sold. Then people were saying, that's not necessarily how many were out there. Then we found that an OEM  pays Microsoft to put the OS on a device, not when the device is sold.

     

  • PaoloM

    , RobGreenly wrote

    *snip*The price of a Microsoft Surface compared to the price of a Samsung Surface, of course.

    Oh right. So, what exactly IS that difference? How much does the Surface Pro cost?

  • PaoloM

    , RobGreenly wrote

    *snip*Hi, I distinctly remember hearing from Paul Thurrott about how MS licensing works. One time, Microsoft announced licensing sales as X # of copies of Windows sold. Then people were saying, that's not necessarily how many were out there. Then we found that an OEM  pays Microsoft to put the OS on a device, not when the device is sold.

    That is correct. Microsoft says that X licenses were sold, not how many are "out there" (what does that mean, anyways?). Once a OEM pays Microsoft, it's a sale. If the OEM doesn't sell the device, it's their problem.

  • RobGreenly

    Oh right. So, what exactly IS that difference? How much does the Surface Pro cost?

    Since the Surface RT prices were just announced and is comparable to the iPad, I would assume that the Surface Pro would be comparable to an Ultrabook.We've heard the Dells of the world saying how thin the margin in hardware is, and also why they're trying to get rid of their hardware business. So for the OEMs, you have to think that whatever profit they make, $55-$100 would have to to to Microsoft, whereas, Microsoft would have to pay themselves a much lower licensing fee. And it wouldn't surprise me if MS sell the Sufaces at a loss. Because they can afford it, and MS makes money back if they sell a lot of units

  • PaoloM

    @RobGreenly:

    So for Microsoft you have to think that whatever profit they make, $55-$100 would have to go to Samsung, whereas, Samsung would have to pay themselves a much lower licensing fee. And it wouldn't surprise me if Samsung sell the Slates at a loss. Because they can afford it, and Samsung makes money back if they sell a lot of units

    See how easy it is?

  • RobGreenly

    So for Microsoft you have to think that whatever profit they make, $55-$100 would have to go to Samsung, whereas, Samsung would have to pay themselves a much lower licensing fee. And it wouldn't surprise me if Samsung sell the Slates at a loss. Because they can afford it, and Samsung makes money back if they sell a lot of units

    See how easy it is?

    PaoloM, you have a point in that Samsung does profit from a Surface sale, too. But we all know that MS's licensing profits comes from replicating software, which can be done infinitely. Whereas, Samsung's profits is physical-based, so it not as scalable. So, Samsung can never compete with Microsoft.

  • ScanIAm

    , RobGreenly wrote

    *snip*PaoloM, you have a point in that Samsung does profit from a Surface sale, too. But we all know that MS's licensing profits comes from replicating software, which can be done infinitely. Whereas, Samsung's profits is physical-based, so it not as scalable. So, Samsung can never compete with Microsoft.

    And we all know that Samsung only sells Microsoft products...

  • kettch

    @RobGreenly: But Samsung charges Microsoft more for Samsung components than Samsung charges Samsung for Samsung components. End result: It's a wash.

  • Bass

    @RobGreenly:

    Yup. The economics of IP are of fixed costs to marginal income leads to strange effects (including producing some absurdly wealthy and absurdly poor people). But that's a more abstract debate that I'm sure you'll see a lot of in the future.

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