Tuesday, April 10, 2007

Too sexy

In response to this post.

From the post:
"That’s a pity really, because even though [Paul Graham] says eventually Microsoft may encounter problems (who would have thunk?), [he] effectively concedes that Microsoft is going to make a lot more money in future. And some people are going to get rich competing with, and taking a chunk out of Microsoft’s revenues - although apparently not Graham’s start-ups because it’s unfashionable to even try."

Microsoft's flagship product is the Windows OS, but supposedly they don't profit from its sales [Edit: this is incorrect, it's actually Windows and Office that keep MS from major losses]. They keep developing new versions of Windows in order to maintain their share of the market - those customers will then pay exorbitant prices for other products (e.g., MS Office) which sustain the company.

The problem is that the OS market has been commoditized and Microsoft Windows is an inferior product. Sun open sourcing Solaris is an indicator of OS commoditization and is Windows OS objectively better than other OSes? Assuming Microsoft continues down the path of producing OSes that barely meet status quo, it's only a matter of time before they lose their grip on the desktop market. Of course, maybe they'll surprise us all and build an awesome Minix-based OS.

If MS loses the desktop wars, they will end up where they started, writing third-party applications for Apple. And there's always web application development.

It's not only that web applications are sexy, it's that the OS wars require a large amount of resources (people and/or money) to win. How many Windows users choose Wordperfect over Word? How many Apple users choose Powerpoint over Keynote? It seems pretty futile for a third-party developer, especially a startup, to attempt to beat first-party applications.


Anonymous Anonymous said...

Actually, Microsoft makes a TON of money selling Windows licenses; Windows and Office are the two cash cows that keep the company going. It's other divisions like the xbox group that are non-profitable.

12:28 PM  
Blogger Matt said...


Thanks, I could've sworn I read that Windows is a loss since OS development is cost-heavy.

Sorry for the error, added a note in the post. Resuls from googling suggests that Windows and Office are the only things making MS money.

That doesn't change the points made in the post, it just makes the commodization of OSes even more of a threat to Microsoft.

12:53 PM  
Anonymous Anonymous said...

Windows and Office are astronomically profitable because even when their development costs get bloated, the unit sale costs (i.e. stamping out CDs and putting them in boxes) are tiny, and the number of boxes they move is immense.

Apple competes by going after a boutique market. They don't show any signs of ever wanting more than about 10% of the market, and their business model (make all your own hardware and don't produce any downmarket models) is not expandable past their core market.

Linux, Open Office, and Firefox compete by being free. Microsoft has no real way to drive them out of business, because these organizations aren't really in business.

If anyone ever succeeds in displacing Microsoft in their core markets, it will be systems like these with a fundamentally disruptive business model.

The likely way this can happen is with something that's only sort of a PC. For example, ultracheap devices like the OLPC computer. Quanta (the manufacturer) is looking to spin off a commercial version for a couple of hundred bucks. At that price, there's no way they'll be spending $50 to license a Microsoft OS -- they have to use Linux. If devices like this -- or devices based on cellphones -- gain a toehold on the low end computer market, MS will never displace them, because their systems are just too big and expensive.

This is how Microsoft and Intel wrested control of the computer market away from IBM -- IBM still controls mainframes, but mainframes are irrelevant when most computing devices are so much smaller, simpler, and cheaper.

11:58 PM  

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