Nikkho Shandittha Student Example week 4

This week we saw the new tablet/PC device called Surface invented by Microsoft. Whats interesting about this is that this is a new business model that Microsoft has come up with. Previously Microsofts strategy has been to create a piece of software and let the hardware be left to the partners. By creating this new device, clearly Microsoft is going against the hardware partners. http://www.theage.com.au/it-pro/business-it/microsoft-kept-pc-partners-in-dark-about-surface20120620-20mt5.html My objective for this student example is how Microsoft reached that decision.

1 Data
1.1 Operating System Market Share
The following is the data of Operating System (OS) usage from around the world: Operating Market System Share Windows 90.50% MacOSX 6.92% iOS 1.32% Linux 0.82% Android 0.16% Others 0.28% Statistic from http://gs.statcounter.com/#os-ww-monthly-201105-201205-bar The combined Windows OS accounted the largest market share at 90.5%. The next big contender from the OS is MacOSX and iOS which unfortunately will not run on non-Apple hardware. Linux has been in the market for decades, unfortunately it hasnt picked up any popularity so far. The next alternative would be Google OS, which comprises of two OS : Android and Chrome. Chrome is the next generation PC based OS that would be Googles main spear to attack Microsofts windows domination.

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1.2 Other Data

Data PC revenue worldwide in 2012 Percentage of how much Microsoft Hardware Partners are paying Microsoft to get Windows into their devices Percentage of PC Market Share Microsoft will capture by introducing this device PC Maker Profit Margin from selling their devices. Numbers $271 Billion 10% of the device cost. Fact or Estimation Approach http://www.etforecasts.com/prod ucts/ES_pcww1203.htm Described in The Age article: http://www.theage.com.au/itpro/business-it/microsoft-kept-pcpartners-in-dark-about-surface20120620-20mt5.html

6%

Estimation is based on the percentage of market share Amazon captured when Kindle Fire tablet is first introduced.

7%

Microsoft Profit Margin from selling the Surface tablet.

30%

Estimation is based on Dells and HPs profit margin on selling their PCs: http://www.huliq.com/12927/hpdecides-exit-pc-market-dell-andapple-fight-top Estimation is based on the percentage of Apples profit margin on selling their laptop. http://www.huliq.com/12927/hpdecides-exit-pc-market-dell-andapple-fight-top

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2 Calculation
2.1 Group Decision Tree
2.1.1 Before the introduction of Surface Tablet/PC

2.1.2

After the introduction of Surface Tablet/PC

2.1.3 -

Analysis Total Payoff does increase by $0.29 billion. Profit addition to Microsoft by introducing the Surface tablet is $2.94 billion.

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2.2 Value Added

Companies Microsoft Partners Value Added $41.98-$0.38 = $41.60 Without the hardware partners, Microsoft is selling their own Surface tablet/PC. 6%*$271 = $16.26 $0.38

Linux

2.3 Conclusion
Clearly by introducing this new device, it will boost Microsoft profit by $2.94 billion. Unfortunately, there is nothing that the PC hardware vendors can do as there are very few alternatives to the OS. Linux is not popular enough for the PC Market. Other OS such as Googles Chrome OS is still under development and will not be suitable for the market. Microsoft is still having a very strong negotiating position here and can negotiate up to $41.60 billion with the hardware vendors. This position is strong enough that pushed major hardware company to get out from business altogether. An example is HP is considering out of business altogether: http://www.itwire.com/it-industrynews/strategy/49295-hp-move-out-of-hardware-puts-it-at-mercy-of-platform-providers