When I travel all day (like yesterday) I sometimes miss some pretty cool things that come out. I am finally caught up on most of it. The most interesting analysis I saw had to do with the math underlying Microsoft’s tablet. Or rather, the margins and sales projections behind their thinking.
John Gruber at Daring Fireball raises this point about Mister Softee’s decision to manufacture their own tablet:
The only hard decision they made was the big one: to turn against their OEM hardware partners.
The reason underlying for that decision comes from Horace Dediu of Asymco:
Now let’s think about a post-PC future exemplified by the iPad. Apple sells the iPad with a nearly 33% margin but at a higher average price than Microsoft’s software bundle. Apple gives away the software (and apps are very cheap) but it still gains $195 in operating profit per iPad sold.
Fine, you say, but Microsoft make up for it in volume. Well, that’s a problem. The tablet volumes are expanding very quickly and are on track to overtake traditional PCs while traditional PCs are likely to be disrupted and decline.
So Microsoft faces a dilemma. Their business model of expensive software on cheap hardware is not sustainable. The future is nearly free software integrated into moderately priced hardware.
Anyone with an interest in technology or tech investing are strongly advised to go read both pieces . . .
Daring Fireball: Surface: Between a Rock and a Hardware Place