Smartphones and tablets pose a risk to Microsoft’s traditional Windows business. Meanwhile, the company’s Surface tablet computer will compete with its hardware partners and could make them less loyal to Windows in the end.

Those might seem like obvious statements to anyone who has been following these topics, but up to this point Microsoft hasn’t acknowledged them, at least not so plainly.

That changed yesterday in Microsoft’s annual Form 10K report, filed with the Securities & Exchange Commission. Here’s the relevant passage — a new addition within the larger risk factors section of the filing.

We derive substantial revenue from licenses of Windows operating systems on personal computers. The proliferation of alternative devices and form factors, in particular mobile devices such as smartphones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users may increasingly turn to these devices to perform functions that would have been performed by personal computers in the past. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform.

Microsoft CEO Steve Ballmer has sought to downplay the notion of Surface competing with partners, recently calling the device “just a design point.” He told the company’s Worldwide Partner Conference, “It will have a distinct place in what’s a broad Windows ecosystem. And the importance of the thousands of partners that we have that design and produce Windows computers will not diminish.”

Elsewhere in the 10K, Microsoft reiterates that Surface will be released at the same time as Windows 8 general availability, on Oct. 26.

By the way, those reports this week about Surface starting at a price of $1,000 were bogus. Microsoft hasn’t yet announced pricing for the new tablet.

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  • Guest

    Thank you, Microsoft, for continuing to take risks in evolving the Windows brand. We do not believe that Windows sees serious competition from the miscellany of mobile devices that can’t even display more than one app at a time, let alone allow the kind of connectivity for which Windows is legendary, but it is good for Microsoft to inform investors of the fears some have about the future.

    • guest

      Susan, tablets and smartphones have already taken Windows’ growth away. Soon they will take Office’s as well. For many under 25, the smartphone is their PC; Windows is something their dad used. MS is caught between a rock and a hard place. Their cash cows are drying up and they have nothing to replace them with because their other investments are all failures. Windows 8 is the first real risk they have taken. But they left it far too late and it’s just too weird. Unlike iPhone v1, you don’t get 80% of people looking at it and saying “I want”. Instead you get 10% saying that, 30% saying “I hate” and 60% saying “wtf?”.
      Rough times ahead. Be glad you don’t own the stock or work there.

      • guest

        Ouch! The last thing I want is a dry cash cow. I hope Steve lives up to his nickname of “Bovine Moistener” as he continues to invent new products to hasten Microsoft’s expansion.

        • guest

          Susan, Steve hasn’t invented a new cash cow in thirteeen years of trying. He’s not suddenly going to now. Anyway, he’s still in denial. He thinks W8 is going to win back all the share he lost to i-Pad and more recently Android tablets. It isn’t. Save the moistener for shareholders. They’re going to need it for what’s coming…

          • Guest

            Xbox? Kinect? Office 365? Azure? SharePoint? There have been loads of new Microsoft products in the last 13 years. Just bing and decide: .

            Each of these products is a cow, teats bulging with milk, just waiting for the right time to lactate. You, madam, are that milkmaid. Go forth and tug those udders with alacrity!
            Please be optimistic. There’s no point in celebrating what you believe to be the death of a company that employs tens of thousands of persons in our local economy. Celebrate success, not failure, and you will live a much happier life.

          • guest

            Xbox – multi-billion dollar net loss since 2000.
            Kinect – part of Xbox. See above.
            Office 365 – the latest iteration of the geriatric Office franchise. Not a new business. Simply an attempt to defend existing revenue from the successful incursions of Google and more recently iPad. Most “wins” here replace existing high margin Office business with much lower margin O365.
            Azure – Too late. Unprofitable.
            Sharepoint – the one legitimate new success, but a rounding error next to Windows, Office, Servers. And already falling behind compeittively, which largely explains the reason MS felt it necesaary to spend $1.2. billion recenlty acquiring Yammer.
            How come you left off BIng, Sype, MediaRoom, Auto, etc? Oh right, more cow manure.
            What I believe to be the death of the company? Look around. Most people believe MS is dying. MS’s own head of PR agrees they’re in trouble.

          • Guest

            I’d like to conclude this weekend’s session with a small homework assignment.

            In your desk drawer you will find a pad of paper and a pen. Each day, from Sunday to next Saturday, I’d like you to write down one thing that makes you happy. Try to write down a different thing every day. It would be ideal if you were to draw from your own experience on the day; that is, write one thing you did or that happened to you that made you happy each day.

            Next Saturday, please bring your results to our session. I’d like to explore improving your happiness for the benefit of your own well-being, your career, and of course your interactions with others.

            See you next Saturday, Susan!

          • guest

            Susan, I threw out pads of paper with my dad’s slide rule. And while I appreciate your concern for my happiness, I’d prefer if you just stuck to the topic, which is MS’s decline. But since you’re into assignments, here’s yours. Another recent occurence is far more ominious that the 10K threat which is the subject of this article (so much so that Todd should do an entire article on it, because it’s shocking). The latter, by the way, is nothing special. It’s a rather obvious one that MS was required to include given market developments. But here’s the one that is concerning. Frank Shaw, head of MS PR, recently tweeted that the following article, minus the “woes” part, was “spot on”. I can’t link it here for some unknown reason, but Google “The Real Reasons for Microsoft’s Woes” (Forbes). Read it thoroughly, particularly the numerous negative statements about MS and its future. While most are accurate, they’re also points that MS’s senior management have been denying daily for a decade. Shaw’s inexplicable about-face suggests that things are so bad even MS’s senior management have concluded that continued denials are useless. Who has a better handle on MS’s future prospects, them or you?

          • Guest

            You don’t have to use a pad of paper. A text file will suffice. See you on Saturday! Be sure to include the thing that makes you happy for today.

            And to answer your question, I have a better handle on Microsoft’s future prospects than the head of Microsoft PR has. I’m planning to replace Frank next month anyway for his negative attitude.

  • Peter

    Hey Guest from what could be the MSFT PR Dept. Thank you for your entertaining comment. I really don’t need a cluttered screen with multiple apps fighting for my attention. There’s a great solution for that and it’s called… (drumroll) Notifications! Maybe you should try a recent iPhone or an Android 4.x.x phone (don’t let SteveB see it) and learn how things are done by the Big Boys who sell tens of millions of phones with this feature (how are Lumia sales by the way?).

    Oh and bravo for boldly downplaying the risk factors in the 10K (“the fears *some* have”). Fortunately this is the real world, de-unicornified and all, where MSFT is obligated to report real perceived threats. There is no backpedalling on a 10K so may I suggest a good reading over the weekend what a 10K actually is (and maybe some PR 101)?

    Finally, that connectivity for which MSFT supposedly is legendary is baloney. Out of the box any recent Linux distribution like Fedora or Ubuntu supports more hardware. Maybe you could give it a try. It’s Free and you might learn something the rest of the planet has already figured out: it powers the entire online world. Even Skype. Now that’s legendary.

    Thanks for a good laugh and have a great weekend!

    • Guest

      We, who are not employed by Microsoft, find that notifications are not sufficient for efficient working. It is common for us to compose an e-mail message while referring to a spreadsheet, a web page, or a calendar that is open in an adjacent window. This functionality is not present in any limited-function tablet or smartphone but is present in full-function tablets such as Microsoft Surface. Frankly, we don’t see persons swapping full-function computers for limited-function tablets for any but occasional uses.

      Linux, like Windows, supports multiple concurrent windows (MCW) so we believe that it provides an adequate desktop experience. However, the limited application and official hardware support for Linux makes us hesitant to recommend it. We have found that companies usually refer Linux support inquiries to forums where we are “flamed” for being a “newbie” and not referring to the “FAQ” which is mostly irrelevant to our questions. Microsoft Windows engenders far more attention from our hardware vendors, in addition to supporting MCW.

    • guest

      And yours could be one from the “2013 is the year of the Linux desktop” shills.

  • guest

    Microsoft’s entire business model is at risk. That’s what happens when you take a decade off while your competitors didn’t.

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