Microsoft's Entire Windows Strategy Is Based on This Premise

Microsoft's (NASDAQ: MSFT  ) recent overhaul to Windows 8, Windows 8.1, isn't getting the sort of response Microsoft hoped for. On Thursday, Microsoft's communications chief, Frank Shaw, took to Twitter to slam New York Times reviewer David Pogue, who had criticized Microsoft for its continued use of a hybrid operating system. Unlike Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOGL  ) , Microsoft uses one operating system for both traditional PCs and tablets. Pogue believes Microsoft would be better served splitting the two systems up -- and Shaw disagrees.

The belief underlying Microsoft's strategy
Fundamentally, Microsoft's entire Windows strategy can be traced back to one belief -- there's value in having one operating system across both PCs and mobile devices. Shaw told Business Insider that Microsoft believes that offering a hybrid operating system is a "value proposition that will be proved over time."

Certainly, that "over time" qualifier is necessary -- so far, the market has rejected Microsoft's ideas. Sales of traditional PCs have slumped following the release of Windows 8; some consumers may have been turned off by the most radical change to Windows in nearly two decades.

Meanwhile, sales of Microsoft's Surface tablet have been underwhelming. In many ways, the device is emblematic of Microsoft's entire Windows strategy -- it's a tablet, but when combined with Microsoft's proprietary keyboard cover, it can act as a laptop. The Surface Pro, with its x86 processor, is even more of a hybrid, as it can run any piece of software written for a standard Windows PC.

Merging mobile with PC is not without numerous trade-offs
But that PC software compatibility is not without its trade-offs. Namely, the Surface Pro is expensive, starting at $799 -- its follow-up, the Surface Pro 2, will start at $899 and, when fully equipped, can cost almost $2,000.

There's also the fact that it's much thicker and heavier than Apple's full-size iPad, which will probably get even lighter and thinner when Apple refreshes the device at its event Oct. 22. The battery life also leaves a lot to be desired -- in an attempt to rectify this, Microsoft is offering a cover with a built-in battery. Although some analysts have speculated that Apple could follow Microsoft's lead eventually, Apple management has been firm in keeping its mobile efforts separate from its traditional PCs.

Apple's CEO, Tim Cook, called Microsoft's efforts at merging mobile with PC the equivalent of a "toaster-refrigerator," explaining that, in theory, virtually any two devices could be combined -- but it often doesn't make sense to do so.

But Apple isn't the company standing in the way
Microsoft's Steve Ballmer hinted at his company's hybrid strategy back in 2010, telling the D8 conference that in the real world, not everyone can afford to own a bunch of different devices. Maybe in Silicon Valley, engineers pulling in six figures can buy Apple's iPhone, iPad, and Mac, but the average consumer needs one device that can do it all.

Ballmer's point is not without merit. Even if one gets the cheapest models available, buying both an iPad and a MacBook would cost over $1,300. Given that the average PC historically retails for around $500 to $600, buying both devices could be a significant cost hurdle for many consumers.

But not if you'll settle for devices running Google's Android. With Google giving its operating system away for free, there are Android devices available at nearly every price point. Hewlett-Packard's Slate 7 retails for just $139 -- less than half of what Apple charges for the iPad Mini.

And tablets running Google's operating system could get even cheaper. In September, Intel's CEO said he expects sub-$100 tablets to appear on the market in the coming months. (Admittedly, he didn't clarify what operating system they'd be running, but based on how cheap Android tablets have been, he's probably referring to devices powered by Google's operating system.)

Combining a $100-$200 tablet running Google's operating system (a device optimized for mobile) with a standard, $500 laptop (a device optimized for traditional PC work) could provide a far better experience than using one of Microsoft's hybrid devices alone, and at about the same price.

Is hybrid the way to go?
Microsoft's bet on a hybrid strategy could work out -- in the long run. But it's definitely off to a rough start. Sales of traditional PCs have been poor all year, while Windows tablets remain in the minority. From last October through July, Microsoft sold an estimated 1.7 million Surface tablets, compared with the 14.6 million iPads Apple sold in just its most recent quarter.

Yet, ultimately, Google's Android could be the real threat. Microsoft's hybrid alternative could be a better value than Apple's multi-faceted, multi-device ecosystem, but ever-cheaper devices running Google's Android call into question the potential savings of buying just one, dedicated device.

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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 October 19, 2013, at 3:38 PM, kellenbmiller wrote:

    ff

  • Report this Comment On October 19, 2013, at 3:48 PM, kellenbmiller wrote:

    The main reason the hybrid system is not selling so fast is that you have momentum from Google and Apple while pc's decline. But the reason Google's OS is selling is because its free. Apple has been doing better because it has gotten noticed from all its phone sells Google also it is because of phones. Microsoft has entered the phones market. And since most people that buy phones have them they have change over to the Windows phone version. Windows success has always been that it could deliver multiple OS enhancements. They might have backed themselves into a corner by not using Androids apps and versions within it own OS. They should cannibalize not try to be so different know one cares. Google copied Apples OS app layout and gestures. Msft could do the same. I like windows phone but it needs the magic of being more like a chameleon while quickly getting back to its Live Metro style OS. It needs to that before Google does that. Again.

  • Report this Comment On October 19, 2013, at 6:15 PM, mtwcebu wrote:

    The problem with the tablet/laptop hybrid is the technology has not caught up to the concept. Tablet CPU's are not powerful enough to run all desktop software and desktop/notebook CPU's require a form factor to big for a tablet. This will change in the next few years.

    That said, hybrids are phenomenally successful on the opposite end, the phone/tablet hybrid commonly called the phablet. I am a phablet convert (Huawei Ascend Mate) and I love the form factor. One device has replaced two and it has become my main device. I use it more than my laptop. Sales of this form factor show it's popularity.

    Ultimately I think Canonical has the right idea. A phone or phablet that also has a full OS and can be paired (preferably wireless) to a monitor, keyboard, and mouse to become your desktop. The tech is not there for this yet but it will be in the next 5 years and I bet a dollar this is where we are going. Your phone will become your PC. One small portable device to rule them all.

  • Report this Comment On October 19, 2013, at 7:16 PM, JKLauderdale wrote:

    You forgot about a third, very important platform. The new XBox One will also be able to run the cloud-stored desktop and tiles. This means that whenever you log into ANY Windows 8 device you have a familiar layout customized to your liking.

    As I recall, many people hated XP when it first came out. The same was said about Vista's UI look and now about Win8. Those that don't want to take advantage of the shared desktop feature, improved speed of archiving, searches and boot time can stay with XP/Win7. Personally, I'm loving the singular layout shared between my tab-book, phone and PC.

    *And no, I will NOT be buying an XB1. There's nothing out on either the PS4 or XB1 that screams "BUY ME!!!"

  • Report this Comment On October 19, 2013, at 9:38 PM, NoWindows8LockIn wrote:

    I have said it numerous times. Microsoft knows exactly what it is trying to do. They are not trying to satisfy the customer. They are trying to hook the customer. There is a difference. Let me explain with analogy:

    Let's say you take your family and friends to summer campground where guy who owns the ranch is offering free nachos. And they are just huge nachos with all the fixings. You taste them, and they are ultra-salty. You think, "Good grief..these nachos are salty..." Everyone else thinks so too. A buzz starts, people start telling the cook to add less salt, but he refuses, babbling some mumbo-jumbo about...

    "value proposition that will be proved over time."

    You say, "Dude!!??? Are you dense? These are the saltiest nachos I have ever tasted. Ninety-percent of campers agree with me. Just reduce the salt overload already...geez!"

    The cook refuses.

    Finally, people grudgingly eat the nachos, then head down to a natural spring to have a drink to get rid of all that salt in their mouths. And when they get there, they see a huge sign that reads,

    "By order of EPA, all natural springs are closed due to contamination. Drinking potentially-deadly and forbidden."

    "WHAT!!!! We've been drinking water at this spring for years. WTF???!!!"

    You march back up the hill, to the campground store, and, BAM! There it is:

    Coke: $5/can. Water $7/bottle.

    Microsoft has the plan of milking customers to no end with Windows 8. The problem is that, much of their strategy would be illegal if they tried it with desktop applications. Yes, illegal. But if they create entirely "new" platform, then they can get away with it. BUT, people aren't stupid. No lamb willingly climbs up on the slaughtering table. Microsoft knows this. They knew that if they gave a real choice between desktop and Tile World, many people would ignore tile world.

    So they are trying to force it.

  • Report this Comment On October 19, 2013, at 10:15 PM, nohelmet wrote:

    Frank - the market has spoken, why don't you get it?

  • Report this Comment On October 19, 2013, at 10:16 PM, normcf wrote:

    Devices wear out, break and get lost, especially by children. Even though it might be cheaper in the short run to buy a single device, when rough treatment is considered, it may be better to have a sacrificial $100 tablet in addition to a laptop. Also, having two cheap devices in a household allows two people to work concurrently. And, people that can really afford only one device probably cannot afford an expensive one. Finally, people don't always look very far ahead. They buy a cheap device first then only think about a second device if they find the first one inadequate. If microsoft can convince people that only windows can do what they need, then getting them to spend more for the single combined OS device may be doable, but that is going to be a hard sell, especially for consumers.

  • Report this Comment On October 20, 2013, at 1:49 AM, symbolset wrote:

    Microsoft's premise is "prevent defense". As long as they control the OS platform apps run on they can prevent contenders in apps by making the OS incompatible with competitor apps. They have actually been convicted in court of this. Their mode is prevention of progress.

    With the shift to mobile they have lost that platform leverage. They don't own the mobile OS that is most of new sales. We are moving to mobile, and they don't own that. They are still in the mode where they won't offer their Office apps on competing mobile platforms where they must compete on level ground because that takes away from their desktop dominance.

    The thing is now that we're moving to mobile we know about their mode, and we don't want to include them in our new world where things move fast and the benefits are clear. Once we come clear of their dominance we don't want to go back into it again. It didn't work out last time.

  • Report this Comment On October 20, 2013, at 8:08 PM, flybywire54 wrote:

    Comparing a 7"+ android tablet at less then $150 to a surface2 11"+ tablet is unfair . The surface 2 enables anyone to do real work on the go , the android tablet does not. Different market , the android is only for entertainment . And anyway the hardware configuration to run windows phone and possibly windows rt is not greater then the one needed to run Android. It is just a matter on how low is Microsoft willing to go on selling license for RT and WP .

    Now talking about windows 8 Microsoft deserve some credit for bringing touchscreen to the desktop and laptop . Whether you are a stockbroker , a computer programmer , working at an information center or simply someone that needs to access information fast on a database , a web page or an email client , touch screen really increases productivity . It is very likely that in many instances companies will move to touch screen and windows 8 in a not distant future . Expect touch screen monitors price to go down drastically .

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