The latest Microsoft earnings report included a US$900 million dollar charge related to the Surface RT. (H/T NBR Paywall).
Microsoft is trying to focus on enterprise IT because that’s where the money is.
It should be noted that in terms of Microsoft’s annual revenue – US$77.85 billion dollars – the charge is quite small.
It should also be noted that they paid a US$733 million dollar fine to the European Commission in the 4th quarter!
It is really easy when you live in a tech blog bubble to forget that most of the world’s IT spend is by large corporates, public sector organisations and other firms for whom it is actually not possible to seamlessly upgrade to each new version at a time.
There are substantial fixed costs that you incur when moving from a long term support version of a product to a new one – how much enterprise IT spend has been deferred because of cost-cutting during the global financial crisis, for example?
In terms of applying economic thinking, the cloud is great for small startups because they can defer large fixed costs like setting up an internal sever farm until they’re big enough to not worry about the cost.
Using cloud computing services, before adding a risk weight for the possibility of not having access to your app or data when you lose internet access, the marginal cost of using that capital productively is very low and getting lower because of enormous levels of competition in the space.
At the margin, cloud computing enables patterns of sustainable specialisation and trade to be found through trial and error by entrepreneurs in the tech space far faster than even 5 years ago.