All recent technology
articles are seemingly focused on Apple and its success at creating both
software and hardware products based on existing products but slightly modified
to make demand for like products seem endless.
Microsoft, long known as a giant in the software industry, recently
released its new Surface tablet which might become its first big device and
service provider success, outside of the Xbox.
Profit margin is a good measure of success in the computer industry
where manufacturing typically takes place in low cost countries and with
products then imported to the US for sale.
This article is based on a breakdown by IHS iSuppli, who stripped down a
Surface tablet and found Microsoft can earn even bigger margins on the Surface
tablet based on current retail prices than the lowest cost/highest margin iPad
offered by rival Apple. A margin of
almost 53% compared to a margin of 44% for the new iPad. The margin estimates are only based on
manufacturing costs and don’t include items like marketing, distribution, and
other costs.
According to the article, the key to the Surface’s success appears to be the addition of a keyboard to the tablet. In comparison to the iPad, which does not offer a keyboard as part of the tablet, Microsoft is gaining margin and defining the product through this keyboard, which doesn’t cost Microsoft much to include. The keyboard also acts as a screen guard- another option not included with the basic iPad but available as an additional purchase. The result is a blurring of lines between what is considered a tablet and what is considered a laptop PC. What Microsoft and Apple are currently doing runs counter to what is happening in the broader tablet market. Amazon and Google, makers of the Kindle and Nexus tablets respectively, use a strategy which attempts to get consumers to purchase their products, even if it means a very low margin, with the belief they will make profits off the content consumers purchase from them afterward.
According to the article, the key to the Surface’s success appears to be the addition of a keyboard to the tablet. In comparison to the iPad, which does not offer a keyboard as part of the tablet, Microsoft is gaining margin and defining the product through this keyboard, which doesn’t cost Microsoft much to include. The keyboard also acts as a screen guard- another option not included with the basic iPad but available as an additional purchase. The result is a blurring of lines between what is considered a tablet and what is considered a laptop PC. What Microsoft and Apple are currently doing runs counter to what is happening in the broader tablet market. Amazon and Google, makers of the Kindle and Nexus tablets respectively, use a strategy which attempts to get consumers to purchase their products, even if it means a very low margin, with the belief they will make profits off the content consumers purchase from them afterward.
The outcome isn’t clear
to date, as Microsoft only released the Surface at the end of October. If successful, however, the implication for
managers isn’t a complex lesson to learn.
If you can receive a greater margin over your competitors and
differentiate your product enough to increase market share or successfully
enter a new market in your competitors’ territory, you’ve positioned yourself
well. Also important to remember is low
cost / high margin isn’t the only factor going into a successful product launch
in the technology industry; differentiating yourself from your competitors is
equally important.
Author: Dara Keer
References:
- http://www.computerworld.com/s/article/9233310/Surface_s_high_profit_margin_reveals_Microsoft_s_ape_Apple_strategy
- http://www.eweek.com/mobile/microsofts-surface-brings-in-more-dollars-than-ipad-does-for-apple/
- http://www.eweek.com/mobile/early-surface-store-sales-validate-microsofts-strategy-analyst/
