The Microsoft Surface business model is a unique. The Surface business unit doesn't operate like any other within Microsoft and it is unclear how profitable Surface will become. Lets compare Surface to other business units in Microsoft. Consider how the Windows business model (where makes most of it's money) works:
1) Create new version Windows
2) Release free or cheap development tools to create a huge eco-system of developers writing applications for Windows
3) Secure agreements with hardware manufacturers to put Windows on almost all PCs
On the surface (ha!) it would seem that Microsoft Surface is more like the Xbox business model because it involves selling hardware. The Xbox business model looks like this:
1) Create and sell Xbox at a loss
2) Extract massive licensing fees from Xbox game developers at a profit
3) Pay for a huge maintenance and support department for broken Xboxes
5) Hope for profit?
Compare the two models above to Microsoft Surface:
1) Create and sell Microsoft Surface (at a loss?)
2) Release free or cheap development tools to create an eco-system of developers writing applications for Surface
3) Pay for a huge maintenance and support department for broken Surfaces
5) Lose money? (for now...)
So it looks like the Surface business model combines the least profitable aspects of the Windows and Xbox business models. Why in the world would Microsoft operate like this? How long is this even sustainable?
There are genius reason behind all this, though. Continue reading why in Part 2.
Edit 3/10/09: modified phrasing and word choice