Should Microsoft Get Out Of The Hardware Market?

Software giant Microsoft made headlines this week after its last quarter revenue was released. While they were up by just over 10 percent to $19.9 billion, the result was tempered by a $900 million write down for what it said was ‘inventory adjustments’ for the Surface RT, which is business-speak for saying the device is a lemon.

Comment: By Mike Wheeler

 

Software giant Microsoft made headlines this week after its last quarter revenue was released. While they were up by just over 10 percent to $19.9 billion, the result was tempered by a $900 million write down for what it said was ‘inventory adjustments’ for the Surface RT, which is business-speak for saying the device is a lemon. They’ve followed that up by slashing the prices of its RT line by up to 30 percent, which begs the question; should Microsoft get out of the hardware business altogether?

 

Before answering that, we need to take a step back. If you look at its Wikipedia entry, it starts off by saying “Microsoft is an American multinational software (our emphasis) corporation headquartered in Redmond Virginia ..” although it does go on to say … “that develops, manufactures, licenses and supports and wide range of products and services  (our emphasis) that related to computing.” Remember the ‘soft’ in ‘Microsoft’ stands for software, which was what co-founders Bill Gates and Paul Allen originally put the company together to produce. That was its core business for its first eight years. In 1983 it developed its first piece of hardware, the Microsoft Mouse and they set up a subsidiary called Microsoft Hardware.

 

Looking back on the company’s forays into the hardware market, it has had its fair share of failures, but there have been successes, too. In the failure department is the Zune MP3, which had the unfortunate timing of being released just as the iPod was making waves. Then there were the awful Kin phones that were dead before they even made a dent in the market.  Already beaten to the market by rival Apple, Microsoft attempted to hijack the release if the iPad by releasing its Slate PC, but issues with the Windows 7 operating system meant it was a no-go before it even got started.

 

Where Microsoft has been successful is in the gaming department with its Xbox and Xbox 360 consoles, as well as the peripheral Kinect. Whether the Xbox One will prove as popular is yet to be seen, yet the seeds of discontent have already been sewn with the One with some complaining about the rules and regulations regarding lending and reselling games and the ‘always-on’ Internet connection. To be fair, the company almost immediately addressed those issues, but that still didn’t stop it being booed at a recent gaming convention.

 

But even its core business – software – has taken some hits. Who can forget the disaster that was Windows Vista, or the criticism of some of elements of the recently released Windows 8.

 

The problem is a business needs to grow, and in order to grow it must seek new avenues of revenue, and it makes sense that hardware doesn’t work without software so why not marry the two? Apple have done it, so why shouldn’t Microsoft? Maybe because in the case of Apple, designing hardware is its strength – it just reeks of the cool factor. Microsoft less so. The Redmond compound is home to a group of people who like doing things with ‘0s’ and ‘1s’ while the Cupertino outfit have people like Jonathan Ive who design functional gear that also fits nicely into almost any environment.

 

Microsoft’s biggest problem is perception – it is a software company that dabbles in hardware, and if you take out the gaming console business, it doesn’t do it very well. The Surface and Surface Pro seem to be holding their own in the market place, and maybe the RT was just an idea gone bad as opposed to a bad idea from the get-go. Whether Microsoft is set on making its mark in the hardware market is yet to be seen, but the problem with the company is not its share price but the comparative market capitalisation value versus that of Google and Apple. In short, they have stayed fixed while the other two have grown to a greater extent, which suggests that maybe Microsoft should stick to what they know best – software.