Why Microsoft is Getting into Hardware

When I started at Creative Strategies in 1981, the PC industry was in its infancy. In fact, my first consulting project was with the IBM team led by Don Estridge and Bill Lowe, the two men who brought the IBM PC to market. I have seen the PC industry ebb and flow and, over those 34 years, have witnessed consistent consolidation in the industry. At one point, there were over 30 mainstream PC brands around the world. Today, there are basically four top tier brands — Apple, Dell, HP and Lenovo — and another lesser tier that, at least at this time, includes companies like Toshiba, Acer and Asus. Then there are white box PC vendors that meet different needs in different markets.

But with the PC industry contracting and selling only about 280-300 million PCs a year and showing no growth, only the big players will probably have the staying power to keep their PC business alive. Companies like Toshiba, Acer and Asus could have trouble competing against the big guys as they see their margins shrink and their own bottom lines strain. They could be forced to scale down their PC business altogether over the next 2-3 years. If this happens, it will be a issue for Microsoft as their OEM customer base would also shrink.

But there is another problem, especially for Microsoft. DDell and Lenovo are mainly focusing on enterprise and SMB, although Lenovo does have a healthy consumer business in China and Europe. At this time, HP still has a solid PC business targeting enterprise and consumers, even though the move to split the company has many concerned about the long-term viability of HP’s PC business. It is too early to tell how successful this split will be but, should HP flounder in their PC business, that could have a major impact on Microsoft — HP may not be able to deliver the volume shipments of PCs that would help drive their Windows franchise to a broader consumer audience. Add this to the fact Apple is getting more aggressive with their own Mac and iOS tablet business and are challenging Microsoft’s Windows OS with enterprise and consumers. With the iPad Pro, Apple could bring even more business users to their platform given the rich ecosystem of apps available, especially for the iPad.

Originally, Microsoft’s Surface and Surface Pro were designed to help drive the 2-in-1 concept and get their hardware partners to follow suit. But the Surface business is now a $6.7 billion dollar one and no longer can be looked at as just a prototype business. The good news for Microsoft is their partners have created 2-in-1s and, with Apple introducing the iPad Pro, Apple basically blessed this category of devices and 2-in-1s are on track to be big sellers, especially to business users. Even Microsoft’s new Surface Book is designed to push their partners to create more innovative and sleek designs. That is why they priced their version at $1499, knowing full well it will spur partners to replicate the design and come in at prices much lower than theirs. I actually think the Surface Book is such a great laptop it too will be a big money maker for Microsoft even when the OEMs release similar models.

But, in the end, what Microsoft is doing is learning how to create great hardware, which will serve as a potential back up strategy for them should more of their OEM partners flounder, with the possibility some might even abandon the consumer PC markets, given their low margins and expensive channel support. This move to hardware is very strategic for Microsoft. Although marquis products drove this initial strategy in order to make sure their partners innovated around new form factors, they now are on to more of a defensive position. This is being done in order to guarantee there will continue to be great and innovative hardware to support Windows, especially for the consumer market, so they can be ready to pick up the slack should they loose hardware partners who support their platform in the future.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

61 thoughts on “Why Microsoft is Getting into Hardware”

  1. A fundamental technique in the Toyota Production System is the “5 Whys”.


    Although going that deep is far beyond what I would ever expect from analysts, I think in this case, it makes sense to at least go two levels deep.

    So, in response to your conclusion,

    This is being done in order to guarantee there will continue to be great and innovative hardware to support Windows, especially for the consumer market, so they can be ready to pick up the slack should they loose hardware partners who support their platform in the future.

    I would ask the question; “Why would Microsoft lose hardware partners in the first place?”

    Google Android, which operates under a model similar to Windows (division of labour between OS vendors and hardware vendors), does not worry about losing hardware partners. In fact, even though precious few are profitable, there is no lack of new entrants coming in to try their luck. Why does Microsoft has to worry when Google clearly doesn’t? What is so wrong with Microsoft that it has to worry about losing large hardware partners?

    When you think of it this way, it becomes clear that preparing to lose hardware partners is a very, very defensive move that does nothing to resolve the fundamental issues of the Windows platform. It becomes so apparent that in fact, I wonder if someone who is a composed as Nadella appears to be, would really act upon such knee-jerkish rationales.

    On the contrary, I am pretty sure that Nadella’s strategy is more about fixing the fundamental issues. And the fundamental issue is undoubtedly that Windows does not have a significant mobile presence. I try hard to see the Surface in this light.

    1. The PC industry and its channels are different animals. It includes dedicated marketing, service and repair programs. Microsoft leans on their PC vendors to do that now. But if these key vendors decide especially to not go after consumers due to shrinking margins and increased ad spends, then Microsoft’ loses the OEM’s channel and overall support to a broader audience. Yes, Nadella is fixing fundamental issues and Microsoft’s mobile position is weak. But if they lose their partners ability to deliver millions of PC’s for them with Windows on them, this fundamental issue is even more problematic for them.

      1. Since you wrote this article, there has been a lot of turbulence surrounding DELL.

        There was DELL’s acquisition of EMC which suggested a focus away from PCs, and the talk from Silver Lake about a potential sale of DELL’s PC business. On the other hand, recode reported that Intel, Microsoft, HP, Dell and Lenovo are uniting for a big PC advertising push.

        Very interesting, and maybe a sign of something big coming soon.

        1. As far as Dell selling the PC business, that is completely false. That did not happen and I know this from very high sources. This ad consortium is important for them in the short term if they want to get people buying new or upgrading PCs. But even with this PC demand this years PC shipments will be down -9% and it is not going to get better. PC sales will never be larger than 300-310 a year and could decline even more by 2018. That means more consolidation in the PC market and Microsoft has to be sure there is at least a key player beyond the big three to help them keep the Windows franchise alive in the future.

    2. I think a key difference is that the Android market hasn’t ossified yet, we’re still seeing companies starting from nothing and reaching the top-ten in less than a handful of years. That makes both old brands (Archos) and starry-eyed newcomers (Wiko/Teeno) eager to give it a shot, and these two are suceeding for now, with success being “not dying” in Archos’s case, that one was not only seeing the light, but bathed in it ^^

      Windows is down to 4-5 major OEMs (Lenovo, Dell, HP, Acer, Asus ?). That’s shaky.

      Plus the infrastructure to deal in phones is much lighter than the PC business: deals with a handful of carriers and e-tailers give you an instant national sales channel, add a web site and a deal with a service center and your local presence is fully polished. It’s really an inexpensive game to get into, especially if all you’re doing is rebranding Chinese ODM phones (which is what Archos, Wiko, BLU, … are doing).

      Also, I think MS is trying to address the “sexy” side of the “easy+sexy” formula. Design is part of it, but branding also matters, and nobody is going to find the Dell Dude nor HP’s… printer cartiridges (? do they even have *any* brand image ?) sexy. Plus… 0th-tier aura !

      What’s suprising to me is that they’re not filling out their lineup with co-opted OEM devices. The Signature program is kind of it, and they have occasional promos… but not a fully fleshed-out lineup covering low, mid and high-end, that makes choice easy for non-techie customers.

      1. “nobody is going to find the Dell Dude nor HP’s… printer cartiridges (? do they even have *any* brand image ?) sexy.”
        That may be changing. Have you seen the Dell XPS 13 and HP Spectre 360?
        I have them both, for vanity’s sake, because performance is a given. 🙂

        1. Those are devices though, not brands. Apple stuff tells others you’re rich and sophisticated (and promises not to make you look like an incompetent fool). What’s the promise/message of Dell or HP-branded stuff as a whole ? People don’t have the brainspace to segregate between individual devices from the same OEM. You get sweeping judgment on a brand, not detailed evaluations of each and every gizmo.

      2. I recall, back in the mid 90’s, a Japanese religious cult, the one that did mass poisonings on the subway, were selling PCs. Their low labour costs gave them an advantage in the new and exciting market, and I had friends who were considering buying one (before the poisonings of course). PC OEMs could be just as scrappy (or even more) than current Android ORMs are today. The difference is, as you say, ossification of the market. A vibrant market pulls in hardware ORMs like bees to a flower bed. A dying market is ignored.

        Microsoft’s problem is that it is not significant in the exciting new market, and it only rules the old. I doubt that the Surface is a way for Microsoft to strengthen its grip of the old and dying market. It must be more than that.

        One thing that stands out to me is that they have got DELL to sell the Surface. DELL also sells some pricey laptops, so I don’t think that the lack of high-end products is a reason. DELL, also being private, is not beholden to short-term profits. Clearly DELL is seeing long term advantage to promoting Surface devices. What could that be?

        The only way it makes sense for me is if Micrrosoft and DELL are sharing a long term strategy to make Windows significant on mobile. And Surface must be an important piece of that puzzle. It is difficult and more complex, but I believe that that’s how the Surface should be understood.

        1. Is there any chance at all that the end game is vertical integration ?
          That would have sounded crazy a few years ago, probably still does today, but between Apple’s success and a shrinking market, MS must be looking at Oracle’s & IBM’s path towards services & hardware. Didn’t help Sun and DEC much, but still…
          MS haven’t shied away from buying Nokia. Would Dell and HP be a much more complicated/expensive project ?

          1. If for example, HP decided to exit the market, I’m pretty sure that an aspiring Chinese company, willing to enter the Western market on the back of an established Western brand, would buy them up.

            I don’t see the situation being as dire for them as was the case with Nokia, where they risked losing virtually the only company making phones running Windows.

          2. You’re right, the situation in PCs is not nearly as bad as in phones.

            I’m fairly sure paying some OEM/ODM to put out a Windows version of 3-4 Android phones would have been way cheaper than buying Nokia though. MS did make a decision to go a specific, optional, route.

            And with Apple getting most of the profits (well, about half it seems, though that ranking fails to account for MS’s own sales and DIY parts and peripherals) and more than 100% of the growth (they’re growing when the others are shrinking, I don’t even know how to produce a percentage about that ^^), it’s bad enough on the PC side too.

            And what is needed to fix that is certainly not another aspiring Chinese company, but, on the consumer side at least, the opposite: a strong brand with a fair bit of flair and a retail/local presence.

          3. From a strategic point of view though, there’s also one big difference between Nokia and what could happen with Windows OEMs. That is, the Nokia deal was forward looking in the sense that smartphones were and still are the future of personal computing. Smartphones are the centre of our computing experiences and will remain so in the foreseeable future. Relying solely on their arch rivals for access to smartphones is Microsofts worst nightmare. Hence the purchase of Nokia.

            On the other hand, PCs are on there way out. They are no longer the centre of gravity in computing. The market is shrinking. Why would anyone want to invest heavily in that?

            Seriously, Microsoft has more important things to do than waste it’s time worrying about some unprofitable Windows OEM exiting the market.

          4. OEMs are not MS competitors ? Well, were not, until MS made them, ensuring that now MS has to go 1st-party forever, or carefully negotiate a complicated situation. I’m really puzzled by their not going the co-brand route à la Nexus for Surface. Or phones.
            Mr Evans bores me. I don’t see any insight in his output, though he masters the art of the fakely insightful tweet. That one above could apply to pretty much anything, including large iPad, MacBooks… It also discounts going high-end, 0th-tier, convertible, design-y… I’m sure he has an equally dismissive tweet about Apple’s share of PC profits somewhere, and doesn’t even see the irony.

            I’m not sure “the network is the computer” has been proven wrong yet. That’d mean whoever makes the most transparent clients wins ? Getting rid of the mobile vs xtop disconnect would seem a huge factor in that, making xtop not that irrelevant ?

          5. Yes exactly. It does sound pretty meh to me, but for some reason, many people are excited about the Surface. I think that’s why analysts are trying hard to find good reasons why Microsoft would do this, and as I said in my original comment, I find their explanations to be superficial and without deep interrogation.

            I found the Surface presentation to be meh, and basically the same as the introduction of the new Macbook or the iPad Pro (both pretty meh, but again, analysts seem excited). The iPad Pro is a bit better because they actually demoed good application software running on iOS (progress in the ecosystem), whereas on the Surface side, the applications that they showed (the CAD software for designing the Surface itself) was running in desktop mode and was not a UWP app as far as I could tell.

            As I have mentioned in my all-too-frequent comments here on Tech pinions, I strongly believe that the future is in mobile OSes. It doesn’t matter whether you evolve the mobile OS as independent from your legacy one, or whether you merge them. The only thing that counts is whether you can own a fully sandboxed, secure and safe OS which can cover the full spectrum of personal computing, complete with a good ecosystem.

            At the Surface event, Microsoft showed off a great “laptop”, but that alone is definitely meh.

            If they had demoed the CAD software (which was used for designing the Surface) running on UWP, and running from a Lumia phone with Continuum, I would have been impressed. It would have demonstrated the viability of Microsoft’s platform for the future. But no, that didn’t happen. All that they showed running on UWP was their dumbed-down version of Office.

          6. MS’s answer to your skepticism would be that they *did* show a tablet running the actual top-end CAD software that corps currently use, Apple only wish they could do that…
            As for the medium/long term situation, whether MS manages to get apps and/or Apple manages to convince corps to switch platforms will be interesting !

        2. Microsoft’s problem is that it is not significant in the exciting new market, and it only rules the old.

          That’s not a problem thought. It’s actually a brilliant strategy for supporting the enterprise market. Why would you let that for aa market that changes every 2 years?

          1. Microsoft is the king of long term. It’s all about backwards compatibility. They are more than fine.

          2. It all depends on how you view the long term fate of the PC as a computing platform for the majority of workers in enterprise markets.

            I am very much of the view that in the long-term, mobile OSes will become the preferred platform for enterprises. It is pretty clear that mobile OSes work well for the sales force, field workers and on-site workers. Furthermore, my understanding is that there are significant security benefits to using an OS architected from the ground up with features like app sandboxing. Given all the security breaches that are happening today, I would not be surprised if enterprises forced their personnel to use mobile OSes unless they absolutely needed the freedom of a desktop OS.

            If this happens, then Microsoft could find itself in grave trouble.

            If you assume that desktop PC OSes will continue to dominate enterprises, then I would understand your logic. I would however challenge your assumption.

          3. It is pretty clear that mobile OSes work well for the sales force, field workers and on-site workers.

            Those are not the majority, not by a long shot. And if you think sales can work just with a phone, you are seriously underestimating what the sales department does. Go talk to one.

            You are also ignoring all the internal services these people need to do their job, services that need to be built. And today those are built by PCs.

            Given all the security breaches that are happening today

            Your view that mobile OSs are more secure is terribly simplistic. Even if I believe that (which I don’t) it doesn’t matter! A mobile OS is pretty much designed to be connected to an external service anyway. The iCloud breach wasn’t because iOS was not secure, but people using iPhones were definitely affected anyway. So making people use mobile OSs will not work to prevent security breaches.

            Furthermore, my understanding is that there are significant security benefits to using an OS architected from the ground up with features like app sandboxing

            Yeah, if the enterprise itself controls that experience. It’s downright irresponsible if not illegal to allow third parties access to your critical, internal data.

            Sandboxing sounds great but there are solutions besides using a your idea of an OS. There’s a whole industry working on this, you know?

            If this happens, then Microsoft could find itself in grave trouble

            It’s been said before yet their revenues grow YOY literally decades, including when smartphones took the world by storm. They’re fine. I really don’t think your right on this one.

            However, I understand that virtualisation technology has improved quite a lot, maybe to the point that backwards compatibility will no longer be a deal-breaker, but only a minor inconvenience

            Hahaha, you are day dreaming. Backwards compatibility is not an “evil Microsoft conspiracy to lock people in”. It’s something businesses actually need. An enterprise that needs to update all of it’s systems every time someone farts will not stay in business for long. It’s expensive to upgrade, you know?

            Let me get this straight, your entire reason to believe the enterprises will prefer mobile OSs is because they are more secure? That’s it?! You are incredibly naive about this.

          4. No. Of course not. It will not be a single bullet. That is plainly obvious. You are right to assert that it would be naive to think it would be so simple. Unfortunately, you mis-targeted your attack.

            It will be the accumulation of various technologies that will gradually increase the appeal of mobile OSes, while at the same time, will reduce the reasons to stay with legacy PC solutions.

            People have a strong tendency to only see the short term. This is human nature. One way to escape this trap and free yourself to see long-term, is to go to the extreme. You can go either into the future or into the past, but since personal computing is still very young, let’s go into the future.

            In the year 2115, a hundred years from now, do you still think we will be using Windows on x86 hardware? I would definitely say no.

            If we can agree that there will be at least one platform transition in the next hundred years, then we can assume that at some point in time, the backwards compatibility issue will be solved. We can also assume that some features will compel even enterprise to make the shift. It is only a matter of when.

            I do not know what will solve the backwards compatibility issue, nor do I know what exact features will drive the shift. I do think that security breaches are becoming more of a problem, and that app sandbox, while it cannot prevent all incidents, it can significantly restrict the damage that can be done. I also think that virtualisation technology is improving rapidly, and that network speed increases also work in its favour. I therefore see the market trending towards a more favourable environment for the shift. As I said, I don’t know when or what will tip the scales. I do see this moment inching closer though.

            Is this moment imminent or is it still far away? I am guessing that we will see it start to happen in some companies in the 5-10 year time frame, and the full transition will take maybe 20 years. I definitely think that Microsoft should be thinking about this in their long-term planning.

          5. No. Of course not. It will not be a single bullet. That is plainly obvious.

            Then give more than just a single point. Why would the appeal of mobile OS increase, specifically? They are not cheaper, less accurate input controls, pathetic multitasking… And have you seen the latest PCs? Touch screen support, powerful and lightweight for portability. I just don’t see all these “obvious” benefits a mobile device has that a PC does not.

            Security-wise they may be more secure than some random PC, but a company’s data will never be stored on them, you need a sync mechanism to the cloud. Which means it doesn’t matter if your clients are using only iPhones, you can still be breached, such as the iCloud incident.

            In the year 2115, a hundred years from now, do you still think we will be using Windows on x86 hardware?

            What a terrible argument. What are you trying to say? That life will be dramatically different 100 years in the future? You don’t say… /s

            Joking aside, can you be specific? How are you going to replace the massively complicated legacy systems that power our world’s today? How are you going to build websites, RESTful services, the next Google/Facebook/AirBnB, banking systems, trading algorithms, war ships and many many more? Using drag and drop interfaces on an iPad? Right…

            and that app sandbox, while it cannot prevent all incidents, it can significantly restrict the damage that can be done

            I explained before, it doesn’t matter because these mobile OS are not used as data storage. Everything is in the cloud. This point is moot.

            I am guessing that we will see it start to happen in some companies in the 5-10 year time frame, and the full transition will take maybe 20 years

            Huh… So this is all speculation from your part with no way to verify it? Great, it’s nice to have opinions. I’m sure many companies will change significantly in 20 years too! Not a good prophecy mate.

            I just assumed you would have something else besides gut feelings and “sand boxing”.

            IBM didn’t buy hundreds of thousands of iPads, but Macs. Just saying.

          6. My mistake. I originally assumed that you had expert knowledge of this domain and a balanced opinion/attitude. I hoped that you were willing to engage in an intelligent argument.

            It seems that I was wrong.

          7. You said it won’t be a single bullet and I asked what other arguments to you have for the increased appeal of mobile OSs in the enterprise.

            Yet you respond with this. I thought asking basic questions like “why do you think that” or “why will that happen” are the basis of intelligent arguments. Not making snark remarks or pretending that tautologies like “the world will be different 100 years from now” help your case.

          8. Oh Lookie! Little Willie has been typing on the computer again. Such a big boy!

            But little Willie, you shouldn’t be inside playing grown-up on the computer. You should go outside and play! You might even make some friends!

            We know, its sad that all the other children pick on you. “You’re stupid, and so ugly” they always say. It has to hurt. Just remember, after you get through these awkward puberty years, your acne may clear up and some kids might even like you. It gets better, Willie.

            There is always a chance, however remote, that when you grow up –someday, many, many years from now– you might type something that’s actually interesting or even intelligent. Anything’s possible. Even for a dull-witted troll like you! Now Run along, little Willie.

          9. “Microsoft is the king of long term.”

            Assumes “facts” that are not in evidence.

            In actual fact, Microsoft is now forced to provide backwards compatibility, because enterprise refuses to budge from Windows 7. That’s six solid years of enterprise saying “no thank you” to everything Microsoft’s long term strategy has tried to foist on them.

          10. You say

            Assumes “facts” that are not in evidence.

            And then

            In actual fact, Microsoft is now forced to provide backwards compatibility

            So, is it a fact or not?


            That’s six solid years of enterprise saying “no thank you” to everything Microsoft’s long term strategy has tried to foist on them.

            If you think enterprises don’t upgrade because they don’t like upgrades you are a naive fool.

            The real reason is that it’s expensive. Which is why backwards compatibility is important. A company that needs to buy new hardware every two years and upgrade all their systems ever created to be compatible with the new APIs won’t stay in business for long

          11. There are an estimated 2+ billion existing PCs with hardware sufficient to run Windows 10. No new hardware required.

            If enterprise must always wait a half of decade (or more) to even consider updating the operating systems of their existing computers, than something naive and foolish must be going on.

            Doesn’t it seem odd to you that one of the reasons given for NOT purchasing new PCs is that enterprise needs to wipe them and install licenses of Windows 7?

            If you think this reflects well on Microsoft’s awesome strategy, than merely being a naive fool would be a compliment. To you. No offense.

          12. There are an estimated 2+ billion existing PCs with hardware sufficient to run Windows 10. No new hardware required.

            If you think matching hardware specs is all that’s required for an upgrade you are a fool and most likely never worked for a big corporation. It is an incredibly naive view of the world, no offense.

            If you think this reflects well on Microsoft’s awesome strategy, than merely being a naive fool would be a compliment. To you. No offense.

            Microsoft is merely responding to what the market wants, it didn’t create it the demand.

          13. Microsoft is merely responding to what the market wants…

            That is the funniest thing I’ve read in a long time.

    3. The other issue is it’s getting harder to monetize software when you’re competing against “free”. You either monetize through ads (Android) or through hardware sales (iOS & OS X). Microsoft’s business model is vanishing as we speak and so it has no choice but to explore other modes of monetization.

      It appears though that MS is taking care not to compete against its hardware partners thus they’ve gone for the high end of the market leaving the vast middle-to-lower end alone. Which puts it right smack against the question of whether, for a given OS, a significant high end segment can survive side-by-side with the low end. History has shown that it can’t and I don’t see why it should be any different for 2-in-1s.

      Could also be that MS is out to eventually slay its hardware partners (and be more like Apple) but feels it imprudent or premature to “surface” its true motives for now.

      1. Although I wouldn’t rule out what you say for the very long term, you have to take the current Surface sales into perspective. I think they said they have 3.5 billion in Surface revenue, which means a few million units. That puts them in Chromebook territory, and a fraction of Mac sales. About 1% of the market.

        They still have a long long way to go before they can even consider slaying their hardware partners.

      2. I’m wondering if the software monetization issue in general, and the OS monetization issue in particular, is transient or permanent.
        It goes back to general industry structure (a vertically integrated seller doesn’t really need to assign value to a particular component of its product, whether, hardware, software, services…), and perceived user value.
        The pendulum has been going back and forth on both issues. At one time, having an OS that was good, maintainted, and separate from the hardware and the apps (we’d add cloud today) was seen as well worth a few bucks. Ditto for apps.
        I’m wondering if, as Mobile hardware and markets matures, customers wouldn’t be OK to pay for apps and updates, again. Update sales disappeared mostly because Apple didn’t implement it in their AppStore, and crazy growth made the issue negligible. Also, ads and free to play made software seem free, and frequent hardware updates made OS maintenance irrelevant.
        Now hardware is lasting longer, and new buyers are less numerous than existing customers. And ads and free to play are irking customers.

        I’m surprised MS haven’t tried to sell their story more energetically, and seem to have capitulated… maybe with the worst possible timing ?

      3. You either monetize through ads (Android) or through hardware sales (iOS & OS X).

        Android is not based on ads. At all. Incredibly misinformed.

        Microsoft’s business model is vanishing as we speak

        Um… It’s really not. Microsoft is a very safe cash cow. The problem is missing the potential mobile market for them. It’s called opportunity cost, but they still make money, lots of it.

  2. This article also provides a possible motive for Google to manufacture Nexus smartphones — to be in a position to take up the slack if/when key smartphone makers exit the market. That discussion is happening now, and even Samsung is sometimes mentioned.

    If one cannot earn a profit, why get into (or stay in) an industry?

    1. As far as I know, there seem to be no shortage of Android OEMs entering the market. Shenzhen does not seem to have trouble making Samsung level hardware either.

      So regardless of profit, companies are entering and they’re making pretty good phones.

        1. @Naofumi – Sorry for that abrupt answer above.

          I meant that the media is now carrying stories that first-line Android phone makers are getting squeezed out of the market, while those taking their place are not offering superior hardware choices or supporting the full Android experience. If that trend continues, it will bring Android down to the bargain basement and eliminate profit opportunities for Google’s ad business. That, not the fear of unit volume falling to zero, is the motive for Google to manufacture Nexus phones. That motive is comparable to Microsoft’s need to make devices to support its Windows and Office profit centers.

          1. Might be the other way around: back when I was at Dell is the ’90s PC heyday, we kept harping on how the small fish would bow out and a handful of major players would regain pricing power. That didn’t come to pass in the PC market, and probably won’t in the mainstream Mobile market.
            But I think the high-end is a wholly different segment. The weaker high-end players exiting will strengthen the remaining ones, not signal the disappearance of the market as a whole.

            As for mainstream phones not offering superior hardware choices and not supporting the full Android experience, I’m not sure what you’re referring to. By definition low/mid-range phones are lower-specced and -designed than high-end phones. Put on a timeline, they’re not inferior in the absolute: today’s mid-rangers are competing with last year’s high-end, and pulling ahead of two-year-old high-enders. They’re not a bad choice, not any more than last year’s flagships were/are, if what you’re willing/able to spend on a smartphone tops out a $300.

            As for “not supporting the full Android experience”, what is that experience and how do they not support it ? Specs are lower across the board (screen, camera, CPU, GPU, radios…) but that doesn’t preclude anything really; and the missing high-end features (touch ID, wireless charging and.. that’s it ?) are not part of the core experience ?

          2. Not only are specs lower across the board, but they are less standardized since discount manufacturers find their own unique shortcuts for keeping costs down. A $5 fingerprint ID chip is available for such devices, but may prove frustrating in use. That trend makes it increasingly difficult to predict performance in future use — uses that are now changing rapidly, and will undergo more changes in the coming 1-2-3 years of the life of a smartphone. If those future uses are important to users, then reducing uncertainty may require switching to Apple. I think the Nexus phones represent a strategy aimed at dealing with that. It hopes to encourage standardized hardware to go along with its OS.

            I think this is the standard take on Nexus. I’ve read it elsewhere, and don’t think I’m breaking new ground.

          3. I don’t get your segue from “less standardized” to “of lower quality”. An iffy finger scanner for example: most phones don’t have any, some Androids have an excellent one, and the phones with an iffy one might still, say, use it but only for payments instead of all unlocks. It’s the same really as for screens, cameras, SoCs, batteries… there’s a gamut of prices and capabilites… it’s not an issue, it’s an opportunity, because everyone does not need/want/have the money for everything, they can choose to cut down and make tradeoffs.

            As for predicting future uses, unless flagships also come with a crystal ball, they’re not prepared any better. 3yo iPhones don’t have any more touch ID, NFC, wireless charging… than 3yo anyone else flagship or cheapy. Actually a lot of cheap phones had NFC, wireless charging, and one even had touch ID then. You’re not any more future-proof nor risk-immune for paying more, you’re just getting a lot more cachet, and a bit more of everything else. Older models might report they’re running “iOS9”, but they’re running a pared down version of it, for hardware and/or performance reasons, and missing many of the new features.

            I have no idea what standardized hardware the Nexus are supposed to be trying to promote. I don’t think OEMs need to be told that touch ID is becoming a thing. What else remotely non-standard do Nexus phones offer ? They’re even missing an SD slot (at a time when Google has tweaked Android to transparently support it), wireless charging (which was on the previous iteration and is gaining popularity, most other flagships have it, almost as many as touch ID), does not have USB 3.1 rev b, nor even MHL/HDMI out, nor tap-to-wake… this year’s Nexus are not leading on anything, they’re trailing… Apple-like ^^ Maybe that’s Google’s message: need more shiny, fewer features.

          4. When considering the viability of Android, it all comes down to the ad business. That’s Google’s primary reason for providing Android. If a day comes when Android is chiefly installed on inexpensive phones used in developing nations instead of full-featured devices that appeal at the middle- and upper-end of the market in developing nations, Google’s ad business on Android will not be viable. I am not claiming that day is here, but that is the direction things are heading. Many experts say that, and it makes sense to me — though obviously not to everyone. Samsung is struggling and those replacing it in the marketplace (e.g., in China) have far more modest plans for Android. They want something free.

            Likewise, one reason for Microsoft to manufacture hardware is to provide leadership for other PC makers, so the platform remains viable for selling (mainly) Windows and Office.

            The chief value of Android to Google and of Surface to Microsoft is to generate income from another business. However, that won’t happen if their “partners” don’t follow the script. They are competing with Apple, which does integrate hardware and software, so the two software companies have to devote resources to hardware and integration, too.

            Apple is cleaning up the marbles at the upper end of the market, and that is a reality affecting the plans of its competitors.

          5. Re Microsft: it seem they just realized that owning the platform is a “nice to have”, not a “must have”, as long as people end up using Office. All their wares are now also available on iOS and Android, which changes the equation.

            Re Android: Indeed. But OEMs don’t have much choice if they want in the phone business. The most likely alternative, Windows, is probably worse for them than Android in the long term. As for building a new ecosystem, it’s probably too late, especially vs a free product.
            What full-featured devices do you think are missing ? Apple barely made top 10 for camera quality this time around (their position has never been lower), their screen is also not flagship-level… Again, running the gamut from cheap to premium doesn’t mean Android = cheap… The most advanced phones feature-wise are Android too (the one with outstanding cameras and screens, wireless charging, pen, multiwindowing…). I still think the long-term risk for Apple is commoditization, they’re dropping further behind on features and (performance+features)/price… I’m curious as to how far the strength of the brand will go. Probably quite far, if we refer to Nike, Vuitton, Burberry…

    2. There is no shortage of Android manufacturers. I wouldn’t personally buy their stock but they definitely exist. Every new phone company basically runs Android.

  3. with Apple introducing the iPad Pro, Apple basically blessed this category of devices and 2-in-1s are on track to be big sellers, especially to business users

    No offense, but Apple has not proven itself in business at all. iPads are not growing and the iPad pro is a desperate attempt. Apple didn’t “bless” anything, you are way over your head.

      1. No offense, but it’s not an opinion, it’s a fact. iPad sales are going down, are not taking over the enterprise sector and the iPad Pro is a response to that.

        Unless of course you want to provide some proof that I’m wrong and I’ll change my mind in a second. Until then, we’re dealing with facts, not “that’s just like your opinion man”.

        1. Apple had a $25,000,000,000 enterprise sector business in fiscal 2015.

          That’s $25,000,000,000 worth of proof that you are way over your head.

          No offense.

          1. Yeah, Microsoft makes that in a quarter, not a year (almost at least but still).

            Also, it’s only 11% of Apple’s total revenue. So yeah, Apple doesn’t get enterprise.

          2. And even if it was, how does that negate $25,000,000,000?

            How does that negate Microsoft’s massive enterprise presence?

            Surface sales contracted more than iPad.

            Um… One, source? Second, who cares, surface doesn’t compete with the iPad. It’s a full OS for one. You’re not worth arguing about the rest of the argument.

          3. Speaking of worth, come to terms with the FACT that Microsoft is utterly irrelevant to the future of personal computing. This has been true since Vista.

            Microsoft is king of vaporware, abandonware, FUDware, and pathological Apple Envy.

            How’s your Zune holding up? Engage me when you understand something.

          4. Speaking of worth, come to terms with the FACT that Microsoft is utterly irrelevant to the future of personal computing

            Their revenue begs to differ. As well as 90% of PC users in the world. Also most gamers too.

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