Business Management

Mathieu Baissac (Global) - The "Holy Trinity" Will Guide Microsoft's Surface Success

Microsoft's Surface RT tablet was on sale for only four days before it was declared out of stock - clearly a heartening sign for Microsoft. Analyst Adam Holt from Morgan Stanley has estimated that Microsoft will ship three million units before the year is out and then a further nine million in 2013.

However, the jury is still out on whether or not the Surface is a success. For a start, will the tablet make even a dent in the iPad's popularity?

The much-debated pricing and popularity issues aside, the success of Surface to a large extent depends on how its ecosystem develops, how many application developers it can lure to it, which in turn is dependent on the developers' opportunity to make money.

With Surface being an intelligent hardware device, Microsoft now sits in much the same place as other intelligent device manufacturers who are learning how to develop software-driven products and monetize the software IP through licensing and entitlements. But comparatively, Microsoft has an advantage - at its core it's a software company, and it must leverage its understanding of the value and potential of software to make Surface a success. Unquestionably, software is the primary differentiator in such devices - the primary vehicle delivering value to the end users.

Manufacturers in virtually every industry - from telecom and medical devices, to test and measurement and building automation - are transforming their business models. They are making their devices intelligent by controlling their features and functionality through software. This allows them to very quickly tailor and customize their products for different customers and markets, not by manufacturing different physical models, but by turning on and off software features to create those different models. Manufacturers can make more money doing this because through software licensing, they can monetize different features and functionality much more easily, while at the same time reduce costs by manufacturing fewer model variants.

This is the "holy trinity" that now guides all intelligent device manufacturers: device + imbedded software + flexible licensing and entitlements = increased profits.

Consider iTunes, which allows consumers to "customize" their iPads, iPods and iPhones to their unique tastes simply by downloading apps they want. Clearly, behind the scenes, iTunes is performing all the licensing and entitlements to ensure only legal users who've paid for the app can access it, and that both Apple and the app developer get paid. By delivering on this "holy trinity", consumers have their devices customized to their tastes, and the manufacturers/app developers make money.

While Microsoft knows how to monetize its software through licensing and entitlements, the company is not used to manufacturing intelligent devices, or applying the "holy trinity" to those devices. It must adopt and imbibe the tenets of this approach. It is this principle that's powering BYOD, the consumerisation of IT, and the Internet of Things.

Microsoft's roots are in the software space, so arguably it should more easily be able to make the transition to the intelligent device space because, at its core, it lives and breathes software, licensing and entitlement management. Moreover, in its Xbox products, it also has a strong track record in creating a robust, successful hardware platform. And, with Windows 8, Microsoft's new Metro app framework and App Store, launching, Microsoft is gunning for Apple with an integrated hardware, software and licensing platform that promises to be a strong competitor to Apple, with tighter integration of business apps that currently do not work with the iPad.

By Mathieu Baissac, Vice President of Product Management, Flexera Software



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