This post continues from my previous post: The Importance of Zune to Microsoft Corp.
The problem with entering into Hardware business is twofold:
- Microsoft (MSFT) does not understand hardware design as well as Apple Computer Inc. (AAPL) Does.
- The operations and financials of a hardware business are very different from a Software business. E.g. there is no inventory carrying cost in the software business.
One sign of Microsoft's lack of expertise in the hardware integration business is that XBox although popular with gamers is a money losing venture for Microsoft.
However, in a connected world that is more and more becoming accessed via devices, Microsoft's reliance on Windows OS (which is itself under attack by Open Source and Ad based business models) is obviously a mid to long term risk.
Microsoft on its part is trying to adapt to the Device Driven Consumers. According to this Knowledge@ Wharton article:
Microsoft's biggest challenge is changing the company's culture away from extending Windows into every market to thinking more in terms of providing a compelling consumer experience that can make it successful in new markets. ...Ozzie is changing how Microsoft thinks about developing products and markets. Among the signs Microsoft is changing:
- It's increasingly focused on hardware and software integration with efforts like Zune;
- It doesn't try to fit full-blown Windows into every device. For instance, the Xbox doesn't use Windows software;
- It's increasingly focused on web services through initiatives like Windows Live.
While that's progress, Microsoft faces substantial challenges. For instance, "hardware is a different business, economically and culturally, than software," says Werbach. "Apple has thrived because it's a very design-oriented company, and good design is one way to succeed in hardware. Microsoft isn't a design-oriented company."
