Software to Hardware: How Tough is It?

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Google (NASDAQ: GOOG), a multinational company, is known for its search engine, the mobile operating system Android and its advertising technologies. Google has always been an aggressive player and never backed out from trying something new. This time Google has decided to dive into a new arena. Hardware Manufacturing is the new game. They had proposed to manufacture their very first tablet, Nexus Q, a media-streaming entertainment device, at the Google I/O 2012.  

Google has enjoyed dominance in the Smartphone world with a 60 percent market share afforded by its mobile operating system, Android. But to the disappointment of many the Nexus Q proved out to be a disaster. After complaints from critics about a lack of features for the high price point, the Nexus Q was shelved indefinitely, as Google says it needs time to make the product "even better."

Another name, in the reckoning, for the shift from software to hardware is Microsoft (NASDAQ: MSFT). A company which is known for its Desktop Operating System, Windows, along with Microsoft Office without which our business needs would be incomplete. Microsoft has decided to manufacture its very own tablets called ‘Surface’ and ‘Surface Pro’.  They are launching the operating system for Smartphones, Windows 8, along with Windows RT, the operating system exclusively designed for tablets.

Is it by Force or by Choice?

“People who are really serious about software should make their own hardware” as stated by Alan Kay, a famous computer scientist around 25 years ago. This was even used by Apple’s Steve Jobs, when he launched the original iPhone, back in 2007. A formula that proved quite successful for Apple.

The Smartphones and Tablets markets are very attractive for the apps developer, but it is also very lucrative for the hardware manufacturers because of good margins. This is supposed to be the sweet spot for investors in the coming few years. This is what forced Google and Microsoft to move into hardware manufacturing.

Is it That Simple?

It is not so easy to shift gears from software to hardware, even for companies the size of Google and Microsoft. The cost of manufacturing the device in its own backyard rises a bit higher because they are not able to attain the economies of scale. It is not as simple as it may seem. The software company needs to acquire small components from different manufacturers and the assembly takes place in the U.S. itself. Thus the label “Manufactured in U.S.” can benefit the price.

Will Surface Follow the Glorious Path of iPad or Will it Go Down the Drain as Nexus Q?

Microsoft’s share prices did not reflect much improvement in the last 3 years. Where companies like Google and Apple are touching figures of $700, Mr. Softy is still trading at $28 and has had a return of only 9.36 percent since the last 3 years. The world is audacious; it is not a question of survival. Investors are looking forward for higher returns and such figures would not attract them. 

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*Source : http://money.cnn.com

Basically the point here is Microsoft is launching a full scale attack on Apple and Google in the Smartphones and Tablets war. They have been losing a lot of business because of the shift of technology from PCs to hand held devices. Their lack of presence in this market has already cost them a good amount in the past two quarters. Microsoft had also posted its first ever loss since becoming a public company 26 years ago. This is the very reason they are trying to get into both mobile hardware and software almost at the same time.

Conclusion

Microsoft’s entrance into this Smartphone and Tablet arena is one of its biggest moves in this ongoing war. Apple and Google are enjoying their dominance because of a lack of sufficient competition. With Windows 8 expected to hit the market very soon, can Google continue to enjoy its dominance with Android? Will the formula of Apple (all in one hood) work for Microsoft as far as the Tablets business is concerned? 


Umang27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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