The following commentary is the author’s weekly guest blog contribution appearing on the Supply Chain Expert Community web site.
Community readers have probably already aware of the newest entry in the tablet computer market segment, that being Microsoft. On Monday, the czar of Windows and Office software announced its first ever computer, a tablet to be named Surface. Beyond the product’s late market entry comes another interesting challenge, namely Microsoft’s deepening of its hardware supply chain planning and operational fulfillment capabilities.
On the product side, announced features and functions appear rather interesting in contrast to the obvious industry dominant, the Apple iPad. The company’s colorful CEO, Steve Ballmer, was reported to repeatedly utilize the words “no compromises” to describe planned features. The Surface will feature a larger screen area (10.6 inches vs. 9.7 inches for the iPad), a built-in kickstand and magnetic cover which acts as a touch keyboard, and will be based on a mobile version of the company’s upcoming Windows 8 and Windows RT release. Speculation is that Surface users will be able to leverage Office applications such as Word and Excel on their tablets. Not stated was the actual timing of market availability, which business media speculates will be the second half of the year, prior to the 2012 holiday buying season. The critical question of pricing was not disclosed as well.
The supply chain aspects for Surface are even more interesting, and open for speculation. Microsoft declined to identify which contract manufacturer will produce the Surface, probably to avoid supplier information leaks regarding volume production numbers and component identities. That is wise strategy given the increasing information leaks coming out of the Apple supply chain. Supply Chain Matters speculates that Microsoft will leverage certain existing contract suppliers associated with its Xbox gaming and other accessory hardware devices. Speaking of speculation, one also has to ponder whether “no comprises” applies to individual component choices and overall material costs related to the Surface.
Even more of interest, The Wall Street Journal in its reporting, noted that Microsoft plans to sell the Surface at its current handful of retail stores and through some unnamed online channels, thus initially restricting a broad based distribution channel. That may limit the initial volume focused breakeven profitability threshold, but then again, Microsoft may be opting for more initial control of distribution and pricing as well as avoiding obvious channel conflicts with the company’s existing PC and mobile device hardware suppliers such as Acer, Dell, HP, Lenovo or Nokia. There is some reported speculation from Silicon Valley which indicates that with a limited volume distribution strategy, Microsoft can prove the value of its new tablet software, declare victory, and leave the market open for other hardware partners to exploit with Microsoft licensing royalties.
The notion of ultimate pricing also relates to the supply chain strategy supporting Surface. Microsoft’s plunge into this market segment is obviously geared to leverage more of its software and content revenue sales. Similar to Amazon’s Kindle Fire, will pricing of the hardware be pegged to either forgo initial profitability or achieve razor thin margins, in favor of a volume distribution strategy that places more number of devices in consumer hands. The limited distribution noted earlier seems to negate that argument.
Finally, a comment related to supply chain software technology. With this announcement, Microsoft was the added opportunity to demonstrate leveraged use of its own technology geared toward managing supply chain business processes. Leveraged use of Microsoft Dynamics AX, Windows Azure, SharePoint and other technologies should provide a testimonial that the company is willing to demonstrate use of its own products for achieving agile and efficient supply chain capabilities.
From our perspective, we look forward to Microsoft providing our community some interesting supply chain related commentary in the weeks and months to come.