Windows 8 “No Compromise” Must Include Microsoft’s Business Model

As Horace Dediu of asymco.com insightfully points out in a recent Critical Path podcast, while we find ourselves distracted by the Windows 8 feature set, an even bigger question is how is Microsoft is going to be able to maintain it’s traditional business model of high revenue per seat in the enterprise market and high license revenue per machine in the PC market, in this new world of tablets and smartphones where prices are so compressed?

In the table below I suggest how that may be possible in which “no compromises” may also mean continuing with their current business strategy that goes along with their current business model.

I’m not an expert in business, but I am a consumer, and I’m curious to know, what’s the formal business term for the following marketing strategy?

Offer a ton of artificial choices, make the customer guess, and game it so they guess wrong and you get to charge them even more when they adjust.

We all know this business strategy — just look at your cell phone provider.  They ask you to guess how many minutes you’ll be needing per month.  If you undershoot that estimate they win, if you overshoot that estimate you get charged heavily on the overage.  If you hit the mark, you’re in the minority.  It’s the same game with insurance, or your cable TV channel “package” selections (gaming it so that everyone’s typical interests will span multiple packages), etc.

And the complex offerings can be gamed further.  For example, on AT&T, if I lower my minutes to just above what I use on average, then I can no longer “enjoy” the many other extras I currently get such as A-List Calling and Unlimited Family Texting which are only available with the larger minutes packages. So, they’ve got you coming and going, and in an complex set of ways that’s meant to be baffling so that you just give in.

Microsoft can continue to do the same.  So consider the following (playfully imagined) scenario which might allow Microsoft to retain their “high revenue per seat/device” business model in spite of having to substantially lower the initial mobile device license to $5-$15.

I used product references familiar to us all to help make the point…

Windows 8 Metro Slate Starter Edition

  • ARM-based tablet made by many manufacturers
  • Metro-only apps (no Flash) (but the Windows 8 name is still associated with it!)
  • 10-hour battery, lightweight, touch only
  • Microsoft gets 30% cut of Metro-only apps in the store

Windows 8 Metro Slate Home Premium

  • x-86-based tablet made by many manufacturers
  • Metro and legacy Windows 8 Home Premium included (upgradeable for a fee)
  • 6-hour battery, little heavier, touch/stylus/wireless mouse capable
  • Microsoft gets 30% cut of Metro apps, and a license fee for Windows 8

Windows 8 Metro Slate Professional

  • x86-based tablet made by many manufacturers
  • Metro and legacy Windows 8 Professional included
  • 6-hour battery (replaceable), fan, touch/stylus/wireless mouse capable
  • Enterprise / networking functionality
  • Microsoft gets 30% cut of Metro apps, and a license fee for Windows 8

Windows 8 Metro Slate Ultimate Media Edition

  • x86-based tablet with AMD/nVidia high-powered gaming graphics
  • Xbox 360 inside!  Stream to TV via external Xbox
  • 5-hour user-replaceable battery, two fans
  • All input types, including Kinect
  • Microsoft gets 30% cut of Metro apps, and a license fee for legacy Windows 8

You get the idea.  Make the customer guess.  If they overshoot Microsoft wins, if they undershoot Microsoft still wins with upgrades.  If they guess correctly, Microsoft still makes money when customers must buy new Metro apps and Microsoft gets a 30% cut.

And when you offer too many choices, you can usually get the customer to shoot for the high side, and they’ll choose the full Windows 8 legacy capability “just in case.”  Win!

So, “no compromises” may also refer to how Microsoft will continue with it’s usual business strategy of offering an array of artificial choices to get the customer to guess, and they will guess to Microsoft’s financial benefit.

P.S. How are Windows 8 tablet customers going to install software they’ve already purchased for Windows on their tablets?  Mixing things up and making a big mess represents nothing but business opportunities for all!  That’s what we all know as Microsoft’s “ecosystem” — the world of people and services needed to help us navigate the mess.

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One thought on “Windows 8 “No Compromise” Must Include Microsoft’s Business Model

  1. You are so interesting! I do not believe I’ve truly read anything
    like that before. So wonderful to find another person with
    some original thoughts on this subject. Really..
    thank you for starting this up. This website is something
    that is required on the web, someone with a little originality!

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