Microsoft strategy

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Aug. 31, 2012, 4:01 p.m. EDT

Microsoft’s unhealthy relationships

Commentary: Software giant has to change the way it does business

By John C. Dvorak

Microsoft

Microsoft’s Surface tablet computer will change the way the company does business.

BERKELEY, Calif. (MarketWatch) — Microsoft Corp. is getting heat from vendors, such as Hewlett-Packard Co. and Dell Inc., over its branded Surface tablet computer.

This will result in demands by vendors of Windows computers and tablets to get a better deal on the OS shipped with their products.

Microsoft needs to put its foot down. It needs to make it clear that there is no alternative for these folks besides Linux. And nobody is betting the farm on Linux.

Except for the proprietary Mac, everyone wants a Windows machine.

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And most of all, Microsoft needs to convince all the original equipment manufacturers that by MicrosoftMSFT +1.65%  selling a branded product is in the best interests of the industry. This is because at least Microsoft is still promoting Windows products. I see very little mass market advertising from DellDELL -0.84%  , HP HPQ +0.60%  , Acer or Lenovo HK:992 -0.63%  .

If sales of PC’s are falling it is because advertising budgets have been cut, not because everyone is suddenly using a tablet.

Microsoft saw the writing on the wall a few years back when it began its retail store initiative. The players in the Windows PC game had dropped the ball on moving product. “Dude you got a Dell” disappeared from the face of the earth and Dell has repositioned itself as a services company. HP did pretty much the same thing.

That leaves the Chinese vendors, none of which believe much in advertising. So the market languishes and Microsoft is supposed to stand in the corner and watch things deteriorate?

Microsoft may not be getting things right, but it is doing something. And it must be aggressive about it.

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And the complainers must first realize that Microsoft is modeling itself after Apple when Apple was licensing its OS for a short while. Apple made the high-end product and everyone else made clones that were priced to undercut Apple.

While this did not work out well the way Apple saw it, it’s exactly what Microsoft would love to see because it will revitalize the business by increasing competitive motivation.

And as an aside, let me say this to all PC vendors: You allowed Microsoft to create this virtual monopoly for an OS, what did you expect would happen eventually?

Much of the fuss, according to Digitimes and elsewhere, comes from the new Windows RT Surface tablet. This is the one version of Windows based on the non-Intel chip and is incompatible with most Wintel software.

The RT Surface might be compelling coming out at a $199 price point and the companies think this will undercut them. This assumes that people would prefer this tablet to a cheap Nexus 7 tablet or any other device.

This is carping about nothing, as most of the Windows licensees were committing to all sorts of alternatives for their tablets already. If Microsoft had not done the Surface tablets, it’s likely nobody would have done them.

Microsoft should immediately begin strategizing a plan to ditch these vendors and develop a line of branded computers. When it still allows OEM licenses (unlike Apple) then maybe the complainers will be appreciative.

In the meantime, Microsoft is going to change the way it does business because it has to. This means it will be all-in on the Microsoft stores selling Microsoft-branded gear.

And as a kicker to this strategy it’s obvious that it will have not just a branded computer, but a branded phone too. This means Nokia begins to put the Microsoft name on its phones soon.

Where that leads will be interesting. Consider Nokia a buyout candidate.