Edible Apple

Microsoft’s tablet strategy remains in shambles. The HP Slate was essentially a bust on arrival, only to be followed up by the news that HP was abandoning Microsoft altogether in light of its $1.2 billion acquisition of Palm and its heralded WebOS.

So what’s Microsoft to do? It’s not working on an iOS style version of a tablet OS and is instead focusing on tablets running full fledged versions of Windows. All in all, it sounds like a recipe for disaster. But perhaps all of the blame shouldn’t fall at the doorstep of Microsoft CEO Steve Ballmer.

Writing for Business Insider, Matt Rosoff writes that the profit margins on Microsoft software is so enormous that Ballmer can’t in good conscience implement a tablet strategy that might eat into the cash cow that is Windows. The profit margins on certain versions of Windows, Rosoff notes, can be as high as 80%.

This dynamic is referred to as a strategy tax and essentially describes a situation where a company stunts growth and functionality in certain areas as to protect profitability on other areas. This strategy, for lack of a better word, is the reason why the Xbox never came with a digital video recorder (Windows Media Center had that locked down) and why Microsoft abandoned its 2001 NetDocs initiative to bring Office to the Web. Of course, protecting profitable business units is desirable, but the strategy tax inherently gives competitors more wiggle room to emerge with competing products and services.

Rossoff relays an interesting story of just how important the revenue spigot that is Windows is to Bill Gates and Microsoft. It’s sort of like the wife of a mob boss, it’s not to be touched.

A former employee once told a story of pitching a feature to Bill Gates back when he was still doing product reviews. Gates said “That sounds like the f*** Windows strategy.” Then he started going around the table. “Do you want to f*** Windows? How about you? You?” The team got the message loud and clear.

Ballmer is clearly cut from the same mold as Gates. Ballmer frequently talks about a world where Windows runs on every type of computing device imaginable. The problem is that not all devices lend themselves to a Windows experience, but perhaps blinded by fat profit margins, the powers at be at Microsoft can’t seem to grasp that reality.

So that doesn’t really leave Microsoft much room to maneuver. It now finds itself in  post-PC world heavily reliant on a PC operating system that doesn’t scale down to new mobile devices. Windows 8 will presumably be more tablet friendly than Windows 7, but Windows 8 tablets aren’t going to be available for some time, thereby giving Apple even more time to solidify a tablet market it already holds a commanding lead in. And when you consider that even Android, for all of its tablet woes, has a significant head start on Microsoft, things aren’t looking terribly promising in Redmond.

Incidentally, there have recently been reports of an immersive tablet UI in Windows 8.

via Business Insider