Microsoft has admitted what was rather obvious since it announced it will be releasing the Microsoft Surface tablets: these devices may undermine support from original equipment manufacturers (OEMs).
Immediately after the software giant announced the Microsoft Surface line of tablets, observers have been pointing to the fact that the Windows operating system-maker has just positioned itself as a direct competitor to OEMs.
Nonetheless, this is the first time Microsoft has admitted on paper that Surface may sour its relationship with companies that make devices that run on the Windows OS.
The acknowledgement comes from Microsoft in its annual report called its FORM 10-K to the US SEC.
The report is a goldmine for tidbits about what’s going on in Microsoft; its current year and the near-future foreseeable to the company.
In the report, at the part where the company admits how the market can push the company to have lower revenue or operating margins, Microsoft said that:
“We derive substantial revenue from licenses of Windows operating systems on personal computers. The proliferation of alternative devices and form factors, in particular mobile devices such as smartphones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users may increasingly turn to these devices to perform functions that would have been performed by personal computers in the past. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform.” [Emphasis ours]
This is a direct admission from Microsoft that it anticipates less support from OEMs because of the Microsoft Surface tablets.
Other admissions from the company on its Form 10-K report includes how the company may face a hard time competing with companies who have mastered the vertically-integrated model. It doesn’t mention Apple, but the Cupertino, California-based iPad-maker comes to mind based on the description by Microsoft.
“A competing vertically-integrated model, in which a single firm controls the software and hardware elements of a product and related services, has been successful with some consumer products such as personal computers, mobile phones, gaming consoles, and digital music players. These competitors also earn revenue from services that are integrated with the hardware and software platform. We also offer vertically-integrated hardware and software products and services; however, our competitors have been in the market longer and in some cases have established significantly large user bases. Efforts to compete with the vertically integrated model will increase our cost of revenue and reduce our operating margins.” [Emphasis ours]
Microsoft is also very much aware that its Windows Phone Marketplace and other web fronts to sell software and other apps for their ecosystem needs to step up.
“Competing platforms have applications marketplaces (sometimes referred to as “stores”) with scale and significant installed bases on mobile devices. These applications leverage free and user-paid services that over time result in disincentives for users to switch to competing platforms. In order to compete, we must successfully enlist developers to write applications for our marketplace and ensure that these applications have high quality, customer appeal and value. Efforts to compete with these application marketplaces may increase our cost of revenue and lower our operating margins.” [Emphasis ours]
Meanwhile, the company has also revealed in the report that the Microsoft Surface tablets will be released on October 26, the same time Windows 8 is released.
To quoted, the company said of the Microsoft Surface tablets release: “The next version of our operating system, Windows 8, will be generally available on October 26, 2012. At that time, we will begin selling the Surface, a series of Microsoft-designed and manufactured hardware devices.”
Images from Microsoft