Microsoft 10K warns of iPhone, Mac threats as iPhone nears 1.1% share
A Microsoft filing with the US government reveals a newfound worry that the Windows developer's traditional stance of selling software alone won't work against an increasingly profitable Apple — a concern that may magnify as iPhone 3G pushes Apple's cellular market share past one percent worldwide.
"A competing vertically-integrated model, in which a single firm controls both the software and hardware elements of a product, has been successful with certain consumer products such as personal computers, mobile phones and digital music players," Microsoft says in the filing.
The Redmond, Washington-based company notes that it already has some vertically-integrated products, including its Xbox 360 game console and Zune line of portable media players, but that jumping any deeper into that business model may "increase [its] cost of sales" and "reduce operating margins."
As a company involved in developing PCs only through software, Microsoft has typically had relatively little manufacturing overhead, with most of the cost behind software such as Office or Windows centering around research and development rather than the cost of goods. Both software platforms continue to form the backbone of the firm's business even as it expands into hardware.
While suggestive of a potential major shift in Microsoft's strategy, company CEO Steve Ballmer has already made clear in a leaked internal memo not just that Apple is a threat but also that Microsoft intends to fight back primarily by working more closely with third-party PC builders to create a more Mac-like union between hardware and software. A similar effort is also planned for Windows Mobile to improve its standing against the iPhone.
It's that last effort in the mobile arena that Microsoft may need to focus on the most, based on a new report by Strategy Analytics.
The research group notes that Apple's plummet in market share to 0.2 percent during the spring, when a premature sellout of original iPhones led the electronics company to sell just 700,000 devices, is a temporary blip that is already certain to change during the summer quarter. Taking advantage of a healthy cellphone market which appears to be avoiding economic gloom elsewhere, Apple's launch of iPhone 3G for a wider range of countries should push it to 1.1 percent worldwide market share in summer sales.
The figure is still just a fraction of what the top five phone manufacturers have claimed in the spring but would stand in sharp contrast to the relatively sluggish changes in market share for those companies over the spring. LG, Nokia, and Sony Ericsson all grew at considerably smaller rates, while Motorola and Samsung — both of whom depend on Windows Mobile for smartphones — slipped during the three-month period.
When shortages weren't a factor in Apple's first-generation iPhone sales, the company was already cited as the third-largest smartphone vendor and was only outsold by Nokia and BlackBerry maker Research in Motion, neither of which uses a Microsoft operating system for their handsets.
115 Comments
And so the terminal illness begins in for the giant.
This is an outstanding piece of 'detective work' by whoever dug up the story, since it is most likely in the boilerplate section of the 10K on potential business risks that no one reads (and lists every bit of proforma CYA chaff that you could possibly imagine).
Nice work, guys!
PS: Oh well, I just glanced at the 10K..... it was up front in the 10K in the discussion on business segments and competition, and not in the boilerplate portion....
This is going to be fun.
The day that Microsoft-controlled PC's are "more Mac-like" is the day that pigs learn to fly.
The day that Microsoft-controlled PC's are "more Mac-like" is the day that pigs learn to fly.
"More" Mac-like is easy, actually being Mac-like is tough, but getting with hardware vendors to optimize the OS and the experience is a step in the right direction. I have to hand it to MS for at least understanding that aspect of it, but will hold judgement until I actually see what they come up with.