Microsoft's Ads Redux

A while back, I took Microsoft's new Laptop Hunter series of television advertisements to task for being ill-advised. This line pretty much summed up my point:

Price is the competitive advantage of generic brands and sweatshop-backed superstores.

and this was the crux of my argument:

Now, this [approach] will resonate with some people. There are always people who take a certain pride in buying things cheaply under the assumption that anytime you pay less you get a better value and it's a waste of time comparing the actual products. I doubt that people who think like that are a particularly large percentage of the population. Maybe they are, and maybe this is a brilliant ad, and I'm simply overestimating people. Only time will tell, but I suspect that these ads will help Apple as much as they help Microsoft and, if they have any effect at all, it will simply be to polarize the consumer market even further, giving Apple more of the higher-end, higher-profit sales, and cementing Windows as the operating system of the "cheap" computer. Most people will interpret "just as good" as meaning "not as good".

To the extent that I predicted that Microsoft's ads would not have an impact, I was completely 100% wrong. These ads have almost definitely impacted computer purchasing decisions over the last several months. However, unfortunately for Microsoft, the effect the ads seem to have had is exactly what I predicted. The PC market is getting polarized, with Apple becoming the OS of choice for high-end, high-margin computers.

Microsoft still has overall market share probably in the 80-90% range, which is more than substantial. In fact, it can't be described in any other way than "dominant". There are very few industries where any player has that kind of market share.

But, the bulk of the new computers being sold with Windows on them are sub-$1,000 systems. If you look at the systems being sold in that price range, they are mostly computers with outdated components like slower (and less) RAM and older integrated graphics chips. Now, there are plenty of consumers in this price range, and Microsoft is still making a lot of money from their OEM sales.

But, Apple is now dominating the more lucrative, higher-margin computers, and that dominance has been trending up fairly rapidly.

This is bad for Microsoft in a number of ways. First, the higher the percentage of low-end, basically obsolete computers that there are running Windows, the smaller the potential market for cool new OS-level features in future versions of Windows is. That means that the opportunities for selling higher-margin retail copies of Windows 7 to existing customers (as opposed to those being sold with a new computer) will be considerably less than the installed base. It's also bad for Microsoft's dominance in the PC game industry. One of the most commonly leveled (and perfectly true) accusations against the Mac is that there aren't many games for it. Cutting edge games, however, usually want to leverage the power of the latest and greatest hardware. If 91% of the systems costing $1,000 or more being sold are Macs, don't think game companies aren't going to take notice.

But, the biggest and worst problem for Microsoft is just what I stated above. They're setting themselves up as a generic brand. By competing only on price, and touting only price in their advertisements, rather than the actual technological advantages they do have (and they definitely do have some), their current marketing campaigns are instilling and reinforcing the idea that Microsoft creates bland, mediocre, but affordable and serviceable products. They are basically saying the same thing in their ads as Apple is.

You can argue all day long that your product is better, but if that runs contrary to what you're telling consumers with your marketing, then you're just pissing in the wind. In terms of future sales, it doesn't matter whether Windows is better, it matters whether consumers believe it is better, and Microsoft has stopped telling consumers that.