Virtual Pants

In a great piece yesterday, John Gruber correctly argued that Apple’s iPhone didn’t disrupt the cell phone industry, it destroyed it by disrupting the computer industry. Also yesterday, Microsoft announced that Windows 8 upgrades for some users would be just $40. This is another, different, type of disruption arguably caused by Apple.

In recent years, Apple has sold upgrades to OS X for a nominal cost, usually around $30. This puts the latest features and enhancements in front of the most users. They can do this because the majority of their profit is from the sale of hardware. Giving away great software leads to the sale of more hardware. It’s like BMW giving away free maintenance to sell more cars.

Microsoft seems to be adopting Apple’s strategy with Windows 8, however, it probably won’t work as well for them. Despite the many comparisons of the two companies, Microsoft and Apple are in very different businesses. Microsoft sells software. Apple sells hardware. Microsoft’s business is selling maintenance and Apple’s is selling the car. Microsoft doesn’t have a hardware business (yet) to recover lost profits on software. By discounting Windows 8 to $40 for a significant number of users, Microsoft is taking a direct hit on profits.

Microsoft is probably doing this because they feel threatened by OS X and are irrelevant in mobile right now. If rapid adoption of Windows 8 gets them back in the game, especially in mobile, it might be worth it. But what happens if Windows 8 doesn’t get them back in the game? Now they’re in the business of maintaining other people’s cars for peanuts.