Microsoft to Apple: Forget the Post-PC World, It’s Time for PC+

A few years ago, Apple’s (Nasdaq: AAPL  ) Steve Jobs was credited with popularizing the term "Post-PC." With it, he embodied Apple’s fundamental view that mobile devices are an entirely different category of devices than traditional PCs, including Macs.

Current CEO Tim Cook echoed this sentiment lately when he said, "In my view, the tablet and the PC are different." On the other side, Microsoft (Nasdaq: MSFT  ) firmly believes that a tablet is a PC, simply in a different form factor.

Two can play
Each tech giant has now drawn a line in the sand with how each approaches its software strategy. For Apple, Macs run OS X, while its mobile gadgets share iOS. For Microsoft, traditional PCS and tablets will share Windows 8, while smartphones will run Windows Phone. I illustrated this back when Windows 8 was first unveiled late last year.

These operating system groupings are indicative of the companies’ broader beliefs in how computing will evolve in the coming years. It also won’t come as a surprise that each company focuses on where it sees the majority of its dollars come from.

Profit is where the heart is
Microsoft’s Windows & Windows Live division is one of its bigger cash cows. While the segment was only responsible for 27% of sales last quarter, it was 46% of operating income. If you include Microsoft’s business division, which includes Office and ties into Windows for obvious reasons, those figures jump to 60% of sales and 105% of operating income.

That’s right, 105%. That leads me straight to my next point. Other divisions actually hold Microsoft back. The entertainment and devices division, or EDD, which includes Windows Phone and Xbox, generated an operating loss of $229 million last quarter. The segment frequently switch-hits between black and red ink. It had six quarters of positive operating income before the most recent one, but the cumulative net result since the beginning fiscal 2005 is an operating loss of $616 million.

The online services division is even worse -- it also operates at a loss and has done so for quite some time. It lost $479 million last quarter, and its cumulative operating deficit since fiscal 2005 is a whopping $10.3 billion (with a "b").

The point is that the Windows and business divisions carry the company, while Windows Phone does little to contribute to the bottom line, if at all.

In contrast, iPhones and iPads comprised 75% of revenue last quarter, and that’s before you include iPod Touches that also run iOS, which Apple doesn’t break out specifically. We know that iPod Touches are over half of all iPod units sold, so iOS directly drives over three quarters of sales. Apple doesn’t disclose operating income by segment, which partly relates to its organizational structure, so we can only look at its revenue breakdown.

The numbers make it pretty obvious why Microsoft continues to focus primarily on its flagship Windows, while Apple has shifted its attention to its mobile iOS instead, determining how each approaches the next wave of technology.

Has Apple been wrong all along?
Instead of "Post-PC," Microsoft instead thinks we’re entering what it calls the "PC+" era. COO Kevin Turner recently said, "We believe that Apple has it wrong. They've talked about it being the post-PC era, they talk about the tablet and PC being different, the reality in our world is that we think that's completely incorrect."

PC+ loosely refers to the idea of one operating system for PCs and tablets with expanded touch optimization, where one device serves up traditional desktops as well as touch interfaces. "We actually believe Windows 8 is the new era for the PC plus," Turner continues, "We believe with a single push of a button you can move seamlessly in and out of both worlds. We believe you can have touch, a pen, a mouse, and a keyboard."

The Intel (Nasdaq: INTC  ) friendly version of Windows 8 will lead this push, supporting legacy x86 applications and the traditional desktop mode, while Windows RT for ARM Holdings (Nasdaq: ARMH  ) based chips will be primarily touch-based Metro. In a way, Microsoft is hedging its bets and going with both to see what sticks.

Bill Gates is so excited about Surface that he thinks Apple will eventually have to follow in the software giant’s footsteps -- although Gates acknowledges that the market hasn’t yet shown that it wants these types of devices.

Time will tell
We won’t know until Windows 8 is launched this year whether or not consumers will vote for it with their wallets. We do know that the iPad is selling like mad. Until then, which approach do you think will work? Chime in in the comments section below.

Apple's swift disruption of some of Microsoft's core markets isn't even complete, yet, so the Mac maker still has plenty of room to run. Sign up for this brand-new premium Apple research service to read more about all of the company's opportunities, as well as the risks it faces in the coming years. You'll also get a brief rundown on CEO Tim Cook, and while he's well-compensated, you'll see why he's worth every penny. Microsoft is one of the Dow's dividend-paying stocks, but it's not one of these three that dividend investors need. Grab this free report to find out why these companies might be worth a look.

Fool contributor Evan Niuowns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft and Intel. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Intel, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (24) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2012, at 11:54 PM, akilahkt wrote:

    What people forget is that Microsoft started way behind Apple in the the early personal computing world, running DOS against Apple's graphical wonder, the Mac. Microsoft was late to the browser market, and now dominates it. Although Apple did not invent the tablet or smartphone, it re-invented it, and Microsoft may seem late coming to this arena -- but in the past Microsoft has done fine even entering late in the game.

    More fundamental is the business model. Apple sells hardware and software, and makes a big mark-up on both. Microsoft sells software, and fuels a very competitive hardware market; on the PC side the margins are thin on hardware, which is great for the consumer. Apple won't license to other hardware manufacturers, and ultimately will not be able to match prices for comparable products. So if Windows 8 is at least as good as iOS (and it is, I've downloaded and tried the preview version), then price will shift consumers away from Apple's high margin products to an ultra competitive Windows tablet.

    Apple has done well and made slick products, but there is a democratization of hardware permitted by Windows 8 and Android that will prove fundamentally challenging to Apple.

  • Report this Comment On July 13, 2012, at 1:41 AM, techy46 wrote:

    Windows 8 and WP8 will do to smart phones and tablets what Windows 7 has done to PCs. The only question is where will Android end up?

  • Report this Comment On July 13, 2012, at 2:12 AM, OKNY wrote:

    Are you employed by Microsoft? Your take on computing history and your marketing prognostications all sound MS contrived. You may be right about the future since no one knows for sure what's up the road, but remember Apple's vision was not to rule the digital world but to make products that people can enjoy and know that they own something special--that it was imagined and produced with quality and inspiration placed far ahead of profits and sales. Apple's marketing model continues to defy the mediocre formula that prevails in most industries. As an advertising person, my take on "PC+" is that it's a tired retread lacking any tangible promise of something new, different, exciting, or better. More toothless crud from the fossil factory.

  • Report this Comment On July 13, 2012, at 5:11 AM, H3D wrote:

    The biggest flaw in your arguement stems from your failure to understand that iOS and MacOS are, and always have been the same operating system.

    That OS is used with two different user interface styles, one for touch and one for pointer, and for marketing reasons these are given distinct names.

    In other words, Apple has had for 5 years, the situation that Microsoft is struggling to create with Windows 8.

    Furthermore the touch interfaced Windows 8 is widely considered to be a big step back from Windows Phone 7.

    Does the X-box also run Windows? Apple TV runs iOS/MacOS

    Microsoft talk the talk. They've been doing that for years.

    But well need to see them walk the walk before believing that they are capable of becoming relevant again.

    Till then they remain a large and highly profitable declining cash cow. Milking a captive, but declining, customer base.

    That Microsoft have created a situation where none of the current Smartphones running their all new Windows Phone 7, will support their soon to be released Windows 8, makes it unlikely that MS had learned to walk the walk.

    It means that they have no phone based products on sale that aren't walking scrap.

    It means that the existing phones are unbuyable, other than out of ignorance.

    And it means that the existing customers and partners know that they count for nothing.

    It has been said that MS needed this disjoint to move forward and that it was a difficult but strong decision.

    That ignores that the all new Windows Phone 7 is hardly any age itself.

    Two total incompatibilities in two successive versions, in close succession is not strength.

    It's either deliberately exploiting suckers.

    Or abject incompetence.

  • Report this Comment On July 13, 2012, at 5:31 AM, H3D wrote:

    So what will the next step be?

    Windows 8 on phones clearly doesn't cut the mustard but WP7 is widely liked. And the two are device incompatible.

    Will we get Windows Phone XP, a convergence product with no significant new features but which takes years to create?

    Yes, Windows XP was an excellent release, which is why so much of MIcroSoft's user base will still be using it in another 10 years.

    But what's it got functionally that Windows 2000 didn't have?

    A new user interface skin. Pure dressing.

    An improved C memory allocator. Actually a bug fix.

    And compatibility for users coming from 95, 98 and ME

    Otherwise XP was 2000. As the real names Windows NT 5 and Windows NT 5.1 make clear.

    And even then, they needed two versions of product (XP Pro and XP Home were quite different code) until the convergence with Vista.

    So will we need a Windows Phone Vista after Windows Phone XP, before the recombining of the incompatible Windows Phone 7 and Windows 8 for phone, is complete.

  • Report this Comment On July 14, 2012, at 12:28 PM, KevinRemde wrote:

    "For Microsoft, traditional PCS and tablets will share Windows 8, while smartphones will run Windows Phone."

    One thing your article fails to point out is that the big change in Windows Phone 8 will be the fact that Microsoft is using the same core operating system that is in Windows 8.

  • Report this Comment On July 14, 2012, at 1:07 PM, tgnytg wrote:

    Microsoft is a decade and a half past being an innovative company, and Steve Ballmer has been completely ineffective since he was handed the gift wrapped CEO post by his old college pal Bill.

    Ticker 1/1/2000 7/13/2012

    MSFT $44.94 $29.39

    AAPL $25.70 $604.97

    Now, which company is innovating and turning a profit on their products (iPod, iPhone, iPad) and which is trying, but failing to catch up 3 years after their rival (Zune, Windows Phone, Microsoft 2nd gen. Surface, etc.)?

    Did anyone here get a Zune tattoo??

    As for me, I will keep my money on AAPL.

    You folks just keep sipping the Windows Kool-Aid brewed from a stagnant share price, meanwhile I'll be retiring in style on my Apple gains.

  • Report this Comment On July 14, 2012, at 1:42 PM, kaz324 wrote:

    The market is all one. the same need is being addressed. vanilla or chocolate. Defining by your technology is good for the companies to know there strength. But apple has invaded the business world of MSFT. And Msft has failed in the consumer world of Mac. So Far!

  • Report this Comment On July 14, 2012, at 1:45 PM, kaz324 wrote:

    Innovator vs copycat

  • Report this Comment On July 14, 2012, at 2:11 PM, DylanTheRobot wrote:

    Microsoft no longer has the top browser, google chrome is taking that spot.

    Strategically they are steps behind apple and with this they think that they have caught up and know where the next turn is, and they will be wrong. Remember the Zune?

    If they could make all the divisions you listed lose less money they'd finally be doing something right.

  • Report this Comment On July 14, 2012, at 2:16 PM, Goddessofmusic wrote:

    Apple has proven itself to be the winner in just about everything they do, and if they stay anywhere close to Steve Jobs' vision they will continue to be. Just this morning I found myself thanking him once again for how he changed my world from one of tedium to one of enjoyment. His vision of what we needed before we knew we needed it transformed everything he touched. We are an Apple family, looking forward eagerly to whatever they come up with next. $$ Apple all the way.

  • Report this Comment On July 14, 2012, at 2:27 PM, hudsondusters wrote:

    Your life was tedious pre iOS but now you enjoy it?

  • Report this Comment On July 14, 2012, at 2:53 PM, felixtsai wrote:

    Watching my five year old nephew try to touch my laptop screen to make things move tells me that Windows 8 is the right move.

    It's really not post-pc or PC+ but complete convergence. The iPad showed the potential of tablets. Why don't I want a laptop that I can flip the screen over and play Angry Birds on? Or read a kindle book on the plane? Why wouldn't I want a tablet that I can hook a keyboard and mouse to and work on my excel spreadsheets or make powerpoint slides.

    MS and Apple are both heading there, just at different rates and different strategies. Having been a very happy windows phone user the last two years (I had an iphone and still have an ipad) I can say, MS has figured out their design problems. It's a beautifully designed product. MS may be jumping the gun with Windows 8 but the long term strategy is right and I would be shocked if Apple is not planning a convergence itself.

  • Report this Comment On July 14, 2012, at 3:06 PM, thorw wrote:

    tgnytg why do you think Balmer isn't doing what Bill wants, which is more actually the case. The tablets and products that were previously worked were kiled by Gates.

    The tablet that Apple is moving towards was envisioned and demo'ed by Steve in the late '80s before being punted from Apple, by bean counters that took profit margin over innovation.

    In the MSFT history, there's neem little innovation and rather compiling of products by others, such as networking from 3com, database from Sybase, etc.

    Currently the number 1 browser is Chrome and the number 1 OS in powering Internet services is Ubuntu. So the market is far from settled on the new direction, but surely the race is on to own both the edge devices and the content services that they will consume, and better yet be defaulted to consume from.

  • Report this Comment On July 14, 2012, at 3:29 PM, Shitaki wrote:

    I don't hold stock in either company. I own Macs and Dells, I use both at work. I am impressed with Windows 8. I like the fact that it works on laptops and a pad. I have been looking for convergence of the laptop and pad markets because it seems natural. The laptop was a way to make your work mobile. I can do that and I can actually use my pad to access work left by my laptop, but I want a more powerful pad. Microsoft looks like it is going to give it to me. The sad thing is that Apple has the ability to do this. They have the ability to take their OS and make it portable. They have handwriting recognition from the Newton. If they combined the two, that would be ideal but in that arena MS is beating them to the punch.

  • Report this Comment On July 14, 2012, at 6:03 PM, SunnyOES wrote:

    In a few words.

    Apple Innovates. Microsoft Imitates.

    Sometimes successfully -i.e. Windows

    Mostly failure- The Kin (Smartphone), the Zune (iPod imitator)

    What makes Apple better is the user experience by having control of hardware and software.

    In my opinion, only the hardcore Windows users will want A Surface. I can't see iPad users abandoning their iPads for a Surface.

    Only time will feel-let's re-visit this 18 months from now!!

    That said and but there are many hardcore

  • Report this Comment On July 15, 2012, at 11:05 AM, FoolSolo wrote:

    This article didn't get into the effect of Cloud computing. We're on the verge of a new era, where large-scale computing and high capacity storage will be on Cloud, not on a personal computing device. Gartner estimates by 2015 half of the Global 1000 companies will be storing customer data on the cloud.

    A lot of people use PCs at home primarily for email, photos, music, and games. Most of these things you can do today without a powerful computer. In business the desktop is increasingly becoming virtual (VDI) so the end-user device can be anything, even a light-weight Wyse terminal. Many companies are already realizing they can use office apps in the cloud, i.e. Microsoft's own Office365 or Google Apps for Business or OpenOffice.

    The Microsoft monopoly on the desktop is eroding, and Mr. Softee is losing the battle on virtually every consumer front - In browsers, I.E. is losing major share to Chrome, Media Center and Windows Media was never a factor, Windows Phone; never a factor either and if Nokia goes bankrupt or adopts Android then Microsoft may have to buy them out. Now Microsoft is losing a lot of its Office revenue because they are still mired in monopolistic pricing and license deals, so corporate clients to fleeing to competitors.

    Microsoft is aware of it, they already priced Win 8 lower than any previous Windows version. But they just don't get it. Ballmer doesn't get it. Time for a change.

  • Report this Comment On July 16, 2012, at 2:11 PM, orizg967 wrote:

    On July 14, 2012, at 1:07 PM, tgnytg wrote:

    Microsoft is a decade and a half past being an innovative company, and Steve Ballmer has been completely ineffective since he was handed the gift wrapped CEO post by his old college pal Bill.

    Ticker 1/1/2000 7/13/2012

    MSFT $44.94 $29.39

    AAPL $25.70 $604.97

    * * *

    You may want to do your diligence and be informed before saying something you don't know.

    MSFT beats Apple by over 10,000 percent since 1989.

    http://seekingalpha.com/article/643021-will-microsoft-crush-...

  • Report this Comment On July 20, 2012, at 11:30 AM, lowellmk wrote:

    I've held MSFT for many years and am in technology. I've seen Microsoft drop form $120 a share as a direct result of their poor decisions regarding the antitrust fight. I have personally seen them take the decision to ignore all markets under $1B. That is how they missed the browser and search markets. I have seen the launch products and pull the plug so fast your head will spin. I personally watched Ballmer demo a Windows Mobile Smart Phone (the first such phone of its kind) and they could not market the device.

    When I see MSFT having an academic argument about “not Post PC but PC+” and when I see remarks about Ballmer beating his chest and prancing across a stage (yet again) about competing against Apple – I see a lost lamb with no direction and no sense of purpose.

    What concerns me as a stockholder is that MSFT, with a few exceptions (i.e. Xbox and Xbox Live) can’t produce compelling consumer products that are profitable. Tablet Computing, a concept that I believe was introduced by MSFT many years ago has languished, died and has been resurrected by MSFT. And after all of these years and billions, what do they have in the way of market share? What is their path to market domination?

    This is critical because, Microsoft operates on a razor/razor blade mode. Without device adoption (phone, tablet, etc.), there is no revenue stream. And more alarming is the fast progression/adoption of Apple products. One can get the equivalent of Office for about $25 and these apps run on the iPad and iPhone….no additional charge. Oh, there are no upgrade charges either.

    One last concern is Windows 8. It’s such a dramatic and disruptive change, there is a big chance that it might flop – giving more impetus to abandon the Windows platform. As a stock holder, this concerns me deeply.

    Unless and until Microsoft makes major management changes and becomes a leader rather than a follower, I imagine their stock will languish in the mid-$20s or low $30s until people just get tired of seeing paltry dividends and no growth.

    I’d love to see Ballmer and the top tier retire and break the company into an operating system, applications and an entertainment companies. Ironically, if the antitrust ruling required this years ago, Microsoft (and the market) would probably be much better off.

  • Report this Comment On July 20, 2012, at 5:17 PM, Rexgom wrote:

    I have taught my 86 year old mother in law to use an iPad to send emails and surf the web. She just told us tonight she has been using it to watch TV.

    She had never used a computer in her life, she was very nervous but appears to have taken to it well. It took about 4 evenings.

    I just would not have bothered with a windows based machine.

    I use windows 7 and office 2010 at work and I know how often I feel like throwing my computer out the window!

  • Report this Comment On July 21, 2012, at 2:46 PM, JustOneT wrote:

    I'm no technology expert but Microsoft has a rather spotty history when it comes to OS releases. Seems that fewer than every other release is widely accepted. With that in mind, my money is on "no joy" for WIN8.

    Support for legacy hardware is a huge burden. Like a ramshackle farmhouse, the WINOS is a combination of add-ons that have long outgrown the original foundation. The growth burden just gets bigger with every cycle.

    The current revenues and profits for MSFT are holdovers from corporate and government IT purchasing policies that are changing. Without some major MSFT corporate revival the changes will continue to erode the old "monopoly"

    Finally, Microsoft is in a challenging pickle. Mobile means cloud but the cloud model erodes, even faster, the endless cash-cow cycle of selling "new" versions of the OS and application software. Fear of the cloud subscription model may just be too big a mental hurdle for the Redmond crowd to embrace. Time will tell.

  • Report this Comment On July 23, 2012, at 1:36 PM, miteycasey wrote:

    Microsoft does not know the definition of creative destruction. They need to throw everything old under the bus and create new prodcution that everyone wants to use.

  • Report this Comment On July 23, 2012, at 11:24 PM, dvlasman wrote:

    You are missing one thing in your chart... Windows Phone 8 is the same kernel as the desktop, laptop, and tablet OS. I think these devices all linked together with Skydrive is going to make a compelling case for people who use multiple devices. Apple has been allowed a huge head start and set the bar high, but I really like the Windows 8 preview that I'm running on my home computer, and my Windows Phone 7.5 does everything I want it to do... with an interface that I think is better then both iOS and Andriod. Haters can hate, but the Microsoft Windows 8 product line is going to be tough to beat.

  • Report this Comment On July 24, 2012, at 12:45 AM, winklerf wrote:

    Rexgom:

    I'm pretty sure that the supply of elderly that haven't used a computer before is in diminishing supply, thus not relevant. Any tool that is useful to even a marginally sophisticated user is next to useless to a slow beginner and vice-versa. The world is moving toward more sophisticated users where a limited tool like the iPad as it currently exists will be less desirable. You might want to consider the fate of the original Apple computers before you make grand pronouncements about Windows.

    JustOneT:

    Your understanding of Windows legacy is less than accurate. Every new version of Windows cuts off some legacy capability. They just make sure that pretty much everything from the last 10 years or so works well and worry far less about the older stuff. Windows 7 actually uses an emulation mode for compatibility with Windows XP for installation of applications, which it is far from 100% compatible with. They are just making sure their customers don't have to start from scratch when there are major OS updates.

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