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Microsoft: Keep Making Hardware

What the Surface tablet means for a software-licensing company.
June 26, 2012

The New York Times has a fascinating article on the backstory behind the Surface tablet, the Microsoft-designed tablet that will run the Windows 8 operating system. It details some of the frustrations Microsoft, which is a company that has always predominantly made its money by licensing its software, had with its hardware partners. While Apple was cornering the market on high-quality aluminum from a particular Australian mine, Microsoft feared its partners weren’t likewise “thinking different.” And while the iPad took off as a runaway success, collaborations with the likes of H.P. were faltering for Microsoft.

Hence Redmond’s decision to make tablet hardware of its own.

Buried near the end of the article, though, is speculation from a management professor at M.I.T., Michael A. Cusumano, who thinks that Microsoft’s foray into hardware is something of a one-time gambit. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” he told the Times. The idea being that Microsoft will lead the way to prove a beautiful tablet can be made on Windows 8–but that ultimately, it will cede to partners their core competency of hardware production, and return to its own: software.

But Microsoft may do best by sticking to this new path of making its own hardware. Its recent forays into hardware have produced some of Microsoft’s most innovative products. And its recent investments hint at an interest in a hardware-centric future. Tightly yoking hardware and software has obviously been a great success for Apple’s iOS devices; integration of hardware and software likewise seems to be a motivation for the Google-Motorola partnership (though it also was an I.P. play–Motorola has a huge patent portfolio).

Microsoft Xbox 360 is one of the great pieces of hardware extant; it (and its successor) stands to transform our living room. And with Microsoft’s recent investment in Barnes and Noble’s Nook, it stands to reason that Microsoft might be interested in getting into the e-reader business, where it could be a worthy competitor to Amazon. In early May, the Times’s Nick Wingfield called that an investment that offered “tantalizing clues that Microsoft may be rethinking its position on hardware.” Wingfield called attention to a section of a filing that referred to a “Microsoft Reader.”

From the Xbox to the Nook investment to the promise of the Surface tablet, it’s clear that Microsoft has great minds in hardware design. Why step aside and cede all responsibility for the actual embodiments of the products that run your software to partners? Having begun down a hardware-centric path, it would be wise for Redmond to continue along it for a little while, to see where it leads. 

As Steve Ballmer himself said, when debuting the Surface tablet: “We believe that any intersection between human and machine can be made better when all aspects of the experience — hardware and software — are considered and working together.”

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