A Model of Trade on Networks: Microsoft Surface
The emergence of Microsoft Surface has brought excitement to the consumers of tablet computers. In a nutshell, Microsoft Surface is an innovative tablet computer from Microsoft (obviously) running Windows 8 OS (or Windows 8 RT). The most interesting thing about the tablet is that it is a hardware manufactured from Microsoft, which is extremely rare when it comes to personal computers. For 37 years, Microsoft has been distributing its software to hardware venders such as Lenovo, Dell, HP, and Asus, and collect licensing fee to place Windows OS to their PCs. According to the article, the company has been generating about $14 billion dollars a year solely from its software business. Although Microsoft claims that its move to enter the hardware industry is mainly to promote Windows 8 OS, the move seems certainly threatening to other hardware companies.
A trading network can be created from the information presented in this article. Assuming that the only existing operating system for tablet computers is Windows 8 and that there is no cost difference in manufacturing between companies, I can have software venders as sellers, hardware venders as intermediaries, and buyers as consumers. I am aware that it would be more accurate for the intermediaries to be retail sellers like Best Buy or Amazon, but I decided to simplify the trading network by having the software venders sell directly to hardware venders, and then sell directly to consumers. The only seller in this case is Microsoft, while the intermediaries are Microsoft, Lenovo, Asus, and Dell. According to the article, while Microsoft will pay $0 for its software to be a part of its hardware, other manufacturers will have to pay Microsoft $30 per device for Windows 8. Although currently no other Windows 8 tablets are out in the market except for the Surface RT ($499) and ASUS Vivo Tab RT ($599), it is still quite apparent that Microsoft has a dominant advantage, as other manufacturers will have to put in extra effort or make a few sacrifices in terms of pricing in order to stay competitive.
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