Anders Brownworth

Technology and Disruption

Microsoft's Tablet Problem

Typical PCs retail around $400 and Microsoft gets roughly $35 for the OS. Above that, they probably average $80 for Office. The OS in the tablet market is not a billed item. In the case of Apple, it is subsidized mostly by the hardware and app purchase and in Google's case, by apps and advertising. There isn't room for Microsoft's OS purchase model in the tablet market. Therefore, the only cash-cows remaining for Microsoft are apps - particularly gaming and productivity. Microsoft as of yet hasn't transitioned their Xbox and Office user bases to the tablet. Where a user used to be $50 or so per year in value to Microsoft, they are now essentially worth nothing. So how do they sustain their core business? If they make inroads, at best they can hope for is in the range of $5 per user per year. That means they need to have an order of magnitude more customers than they do now!

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