A Warning Microsoft Would Do Well To Ignore

Aug. 7.12 | About: Microsoft Corporation (MSFT)

In politics, you can usually tell when an attack hurts. The attacked party calls it unfair. The wise politico, seeing this, is well advised to keep hitting the same spot.

This is not news. This has been true since at least the Adams-Jefferson campaign of 1800. Or, as the 19th century humorist Finley Peter Dunne wrote, politics ain't beanbag.

Neither is business. I thought of Dunne's quote as Acer (ASIYF.OK) CEO JT Wang warning Microsoft (MSFT) against making its own Surface tablet, predicting it will alienate OEMs and the channel.

As my former boss at ZDNet, Larry Dignan, wrote yesterday, the warning is "laughable." Dignan notes that Acer's products are no great shakes, that the company is doing poorly, and that Microsoft would not be moving this way if its OEMs were doing anything more than copying Apple.

There's another important point. Innovative hardware emerges from innovative software. There is no Chinese software - there is only Windows, iOS, and Linux. Chinese threats to innovate around American ingenuity will amount to nothing so long as Chinese software companies don't have the freedom to think different.

What Microsoft is looking at, jealously, is how rival Apple (AAPL) is being forced to let its Foxconn supply unit and Hon Hai of Taiwan take a controlling interest in Sharp (OTCPK:SHCAF), once a big PC rival but now failing as its TV market disappears, the victim of its own success in engineering reliability on one hand and of China's success in manufacturing efficiency on the other.

Apple is letting its Chinese partners act to protect its supply chains. This story is not about China beating Japan. It's about America beating both.

The lesson, to Microsoft, is clear. Software rules. The fact that it has taken Microsoft a decade to figure this out is what should concern its shareholders, not its acting on the realization. Business ain't beanbag.

Disclosure: I am long MSFT.