Microsoft doesn’t make computers.
Microsoft makes its money selling OS licenses to computer builders (pro and hobbyist). They are in the license business.
Microsoft is under the mistaken belief that they make computers and sell them to customers.
Dell is a computer builder. Dell buys licenses from Microsoft. Dell is not Microsoft’s “partner”. Dell is Microsoft’s customer. Microsoft is a parts supplier.
By convincing Dell that they are “partners” they can insist that Dell shape their products according to Microsoft’s needs.
Unfortunately, while convincing Dell that they were together in bringing computers to market MS convinced itself that this means they make computers and sell them to end users.
This is based on two outmoded schools of thought:
1. The operating system IS the computer.
2. End users and customers are the same thing.
The operating system IS NOT the computer.
It’s a part. It’s an important part, but just a part. The Operating System the machine-level instruction set that makes the inside parts of your computer aware of each other and sets up the rules of how they interact. The operating system literally operates the system. Modern operating system packages also include application programming interfaces (APIs), kernel extensions (“Drivers”), user interfaces (both command line and graphical), and bundled applications (Programs and Utilities).
This has led many barely-technical types to think that these front-facing parts are the operating system, proving once again that a little knowledge is a dangerous thing. Forums all over the internet are filled with those who believe that a simple shell-appearance change or new versions of bundles apps is akin to a whole new OS, and a new OS is akin to a whole new computer.
The mindset is: The physical object is simply the “hardware” and the OS is the “computer”.
Microsoft should know better. An operating system is a set of instructions for a computer, not the computer itself.
End users and customers are NOT the same thing.
When you buy a tangible object, you buy that object and you use that object. Software is different. Software isn’t sold. It’s licensed. In this sales situation the item sold (the license) is separate from the item used (software).
In most sales situations, especially if it’s a tangible object, the person making the purchase will be the person using that object for it’s useful lifespan. This is not true of the licenses that make up the BULK of Microsoft’s sales figures.
The vast majority of Microsoft license sales are to computer builders* like Dell and Acer, not to end users.
Way, way back in the 1980s and 1990s the only people who bought computers were corporate IT departments and computer hobbyists (aka “nerds”). Nearly 100% of the people putting down cash for these machines opened them up and tinkered with the inside, either for business or pleasure. In other words, nearly all computer buyers were also computer builders – so OS License customers and OS users were the same people.
This is no longer true.
The computer has broken free from the cubicle and the computer club and has hit the mainstream as a tool and toy for the masses. Non-corporate sales of computers is the fastest growing segment of an otherwise shrinking market, and the bulk of the machines sold are tinker-unfriendly laptops. In the 21st century, most people who buy computers will never install an operating system, much less buy a license to one. They just agree to the end-user license that comes bundled with their computer**. Microsoft seems blind to this fact.
The percentage of buyers that are also builders has shrunk significantly. The percentage of builders that buy their OS license at retail is even smaller. Microsoft seems blind to these facts, too.
Getting Into Retail.
The news that Microsoft is planning on entering the retail game, coupled with this review of Microsoft’s business model, raises several questions. The most important is: WHY!??!
The only reason anyone can seem to come up with is: Because Apple did it.
Why Apple got into retail.
Apple got into retail because it couldn’t get it’s products into many stores, instead it had to depend on mail-order to survive. Not having a place for people to buy your product is a major sales obstacle. Microsoft does not have this problem.
The Side Benefit of Apple Retail.
Before the retail stores, the only way a non-geek could learn about Apple gear was either from their Apple-hating geek friend, or the Apple Zealot in the family… neither of which is a good source of accurate information.
Apple’s retail stores gave people who had never been exposed to their gear first-hand experience in low-pressure sales environments. This new familiarity with their products improved their reputation among the non-technical.
An unfamiliarity with your product is a major sales obstacle. Microsoft does not have this problem.
What problem DOES Microsoft have?
People who have used their new OS dislike it. The existence of a retail store will not make them like it more.
What will Microsoft sell in its stores?
We’ve established that only computer builders buy operating systems, and only hobbyists buy at retail. Unless Microsoft has a new product up it’s sleeve (XBOX 4?), I think that the stores will be filled with non-MS products and advertisements for Windows 7.
Keyboards and mice bear the Microsoft name; but like the Zune 1.0, those are just re-branded products made by other companies. It’s entirely possible that Microsoft can slap their name on a machine made by someone else, but I think they are too dependent on license sales to builders to make their own PC.
The last thing Microsoft needs is a replay of what the Zune did to PlaysForSure license sales: hardware makers and music stores (their only customers) stopped buying.
Can Microsoft succeed where Gateway and Dell have failed?
Who knows. Maybe the secret to PC Retail Sales is to sell someone else’s product. It worked for
Circuit City Federated Sharper Image Sears Montgomery Wards Babbages Computer City Radio Shack Fry’s.
*Dell doesn’t buy EULAs. They buy OS-Loader licenses.
Dell does not buy/resell end-user licenses. They PACKAGE end-user licenses. They buy OS-Loader licenses (known as “Original Equipment Manufacturer”, or “OEM” licenses). This buys the right from Microsoft to install Windows on the machines they sell and obligates them to package a non-transferrable end-user license with the installation. Dell then shifts the cost of the OS-Loader license fee to the customer. (Which is refundable if you choose not to use Windows).
**The End-User License is a misnomer.
The bulk of the license is not about the USE of the software, but under what circumstances you are allowed to copy the software. The definition of “copying” is not limited to loading it onto your hard drive, or backing up the installation disc. Copying includes any duplication of the data, including such mundane details as reading the installation media and loading into your system’s memory.
In legalese, the act of booting your computer is making a copy. The End-User License grants you the right to make this copy.
All operating systems are computer programs and are the sole property of the individual or group that created it. (Yes, even open source operating systems, such as Linux.) That individual or group may grant a large or small amount of rights to those outside the group (including the right to modify the source code), but no transfer of ownership rights occur. If you want to own your operating system you will have to a) write one yourself, b) pay someone to write one for you, or c) buy the ownership rights to one that is for sale. If you copy someone else’s work, you may still have to pay a license fee if 1) they can prove you copied it, and 2) you are attempting to distribute said work.