For example, among PCs, there’s the Mac at the high end, Windows-based PCs occupy the mid-range, and Google Chromebooks have staked out the bottom of the barrel. Does anyone else see a problem with Microsoft’s strategy to play at both ends?
What’s After Down?
There’s a reason that Apple stakes out the high end of a market segment with Mac, iPhone, and iPad. With higher margins, there’s more profit, and it’s easier to discount here and there than it is to cut prices and hope for the best.
Microsoft has been running commercials pitting the new Surface Pro 3 against the MacBook and the iPad Air (and Siri and anything else it can compare of value).
The problem with that strategy is simple. It contradicts another Microsoft marketing effort to match Chromebooks with incredibly inexpensive Windows-based PC notebooks.
Chromebooks are the poster child of cheap; mostly plastic, often priced between $200 and $400, which is usually less than the average Windows notebook.
Microsoft and the company’s manufacturing partners are countering the growing Chromebook threat at the low end by selling Windows notebooks for as low as $250. Does anybody make any money by selling notebooks at the cost of manufacturing?
Then what is Microsoft trying to do? Chromebooks make some money for Google through online storage, advertising, data collection, etc. Microsoft allows Windows to be installed on cheap and small notebooks for next to nothing, and hopes to make up the loss the same way.
So far, this is a race to the bottom where there is no history of anyone actually winning. Google makes most of its money– revenue and profits– from search advertising on desktops and notebooks. Microsoft makes most of its money– revenue and profits– from Windows and Office.
The business model whereby hardware is sold for nearly the cost of manufacturing has yet to prove itself viable.
Even Samsung, stuck between the makers of cheap smartphones and tablets at the low end of the product spectrum, and Apple’s premium iPhone and iPad at the high end, has trouble making a profit because the company’s products are being squeezed from both end. There’s no profit at the low end, and Apple takes most of the notebook, smartphone, and tablet profits at the high end.
Microsoft is in a race. To me, it’s a race to the bottom where profits are almost non-existent. To others, the race is to the cloud; where devices– notebooks, smartphones, tablets– are inexpensive commodities, but profits come from the use of applications tied to the cloud.
That model hasn’t worked out well for Google (so far). Samsung’s model which attempts to compete at both ends isn’t working out as well as Apple’s model.