Daily Archives: July 22, 2007

Will Microsoft Get Into the PC Hardware Business?

In his commentary last Friday, John C. Dvorak wondered whether Microsoft might be about to enter the PC hardware market in the United States.

Dvorak builds a superficially plausible case, citing a Microsoft-branded PC available in India and the Redmond company’s growing range of hardware products, now extending from PC peripherals, such as mice and keyboards, to Xbox 360 consoles and the Zune media player.

He also argues that Microsoft might be getting frustrated with its existing hardware OEM partners, including Dell and HP. Those vendors sell Linux-based systems as well as Windows Vista offerings. Moreover, Dvorak contends that the hardware vendors have been primarily to blame for many of mechanical glitches that have prevented Vista from being an unalloyed success in the marketplace.

Dvorak isn’t complete adrift. I’m sure some of the big brains on the Microsoft campus have carefully pondered the pros and cons of following Apple’s lead and getting into the business of selling the entire PC experience.

Still, from a Microsoft perspective, the costs of such a strategy would seem to outweigh the benefits. First, selling PC hardware isn’t exactly a high-margin business. In fact it’s getting harder to make money at it all the time, as this piece in this weekend’s Wall Street Journal attests.

What’s more, Microsoft doesn’t have the hardware brand that Apple possesses. Apple is renowned for its elegant, stylish hardware. Microsoft is known for serviceable mice and keyboards, a box-office bomb in the ungainly form of Zune, and Xbox and Xbox 360 consoles that have been riddled with design and manufacturing faults. If, as Dvorak suggests, the Xbox has been a trial run toward a Microsoft-branded PC, the experience has provided at least as much reason for prudent pause as for an enthusiastic leap into a new frontier.

There’s also the inherent risk of Microsoft, in choosing to produce its own PCs, pushing its existing business partners firmly into the arms of Linux distributors. Despite Apple’s recent market-share gains, Microsoft still owns the vast majority of the client operating-system marketplace. In choosing to make its own PCs, Microsoft would likely lose more market share than it would gain, making low-cost Linux PCs more attractive to entry buyers while failing to gain market share from Apple’s elegant products.

Besides, at the end of the day, Microsoft should know it must focus on where it can deliver the best returns for its shareholders. Is that really in the consumer market, selling low-margin PCs into an operating-system space it already dominates? Isn’t it obvious to nearly everybody by now that Microsoft is better at serving businesses and enterprises than at serving capricious consumers?

Microsoft’s focus ought to be in expanding its footprint in enterprise software rather than in trying to beat Apple and its own current hardware partners in the PC market. The risks of such an endeavor clearly outweigh any likely rewards.