A Few Thoughts about Microsoft's Tablet PC, the Surface

Lets catch up on some news. First up, a tablet. So Microsoft announced its tablet PC. Its called the Surface and not very much is known yet. So Microsoft continues on its path from being a pure software maker to one that does both software and hardware. The Surface follows on the footsteps of the Xbox say the optimists. Or follows the path of Zune and Kin, say the pessimists.

I am not a tablet PC expert but of course I monitor that space of course as its a hot growth area in the digital convergence opportunity. And the tablet saga with Microsoft is a bit strange. First, obviously, it means that Microsoft now goes directly against its primary hardware suppliers - the big PC makers who use the Windows operating system, like Dell, Acer, Toshiba etc. While MS has done hardware before, it has not so far gone directly against product lines of its primary hardware suppliers. This is no doubt annoying to the hardware guys and we have seen plenty of press stories about that angle.

What of the timing? Microsoft had wanted tablets to the Windows Phone 7 and Windows 8 ecosystem(s). They urged Nokia to get into it and we had strong rumors from Nokia that they might expand their product offerings from just making phones, to also adding a tablet or tablets. (I was very critical of that move, it now seems like Nokia has shelved those plans as Nokia is struggling so much in its primary business). My gut says the two are linked. Microsoft started to urge Nokia to release a tablet right after it joined the Windows Phone alliance. Nokia started issuing statements in that direction also immediately. They were consistently met with hostility by Nokia analysts (for good reason). Now that we heard of the severe problems at Nokia, and it suddenly stppped talking of tablets in June (Nokia still promoted the tablet idea in early May at the Shareholders Meeting) - this may have been the point where Microsoft simply decided, the Windows 8 ecosystem needs a tablet, and if Nokia ain't gonna make it, then Microsoft will do it by itself.

I would not be surprised at all - and hopefully we'll find out at some point - if the Taiwanese manufacturer Pegatron was originally planning to manufacture this same device under the Nokia brand, and after Nokia said no, Pegatron just pitched the same hardware at Microsoft and what we're now seeing, is the same device Nokia would have introduced as its own Tablet. Like I said, this is pure speculation at this point, but the timing and rushed nature of Microsoft's announcement seems to suggest the two are tied. Nokia and Microsoft close cosy relationship seems to have cooled a lot since May when Elop admitted to the Nokia Shareholders that all brands of Windows Phone smartphones are suffering from a carrier boycott because Microsoft bought Skype. (If that sounds weird to you, as Skype obviously exists on rival smartphones, please read this - why carriers hate Skype). So the fuzzy-warm feeling between Microsoft and Nokia now seems like so last year, and Microsoft seems to have grown tired of Nokia and decided it can go it alone (also relating to the rumors of a Microsoft-made smartphone)

Obviously the tablet space is owned by Apple's iPad. This is also a strange move by Microsoft. They have recently taken on Apple - with Zune (vs the iPod) and lost. Microsoft's hardware success with Xbox was against Sony (and Nintendo). Looking at how much many first-time PC makers from other industries have struggled with tablets - like Motorola and RIM - this also is a highly perilous move by Microsoft. They can't really afford to be seen to fail in this venture. But the tablets space is owned by Apple and Microsoft does not bring strong assets into this fight. Why pick Apple's strongest suit as the area you want to pick a fight? Why not go somewhere, where perhaps the synergies might be stronger and rivals weaker - like say the home set top and gaming and TV environment perhaps. Who knows. But the tablets space is awash with victims of Apple - Blackberry, HP, Palm, Motorola.. 

Which brings me to the question, where were the other tablets for Microsoft's wireless offerings? After we saw the highly successful iPad and how strongly it contributed to Apple's profits, you'd think many current Microsoft PC makers would adopt the Windows based tablet platform. I find it curious that Android has so many tablets but not Windows (so far). And why were Microsoft's current equipment partners so hesitant to release tablets running any variant of Windows recent or new, but happy to do so on other platforms, especially Android?

My gut says this was a strategic mistake. I think that Microsoft had already been alienating its 'partners' in the equipment side with decades of a dictatorial attitude and constant feuding and lawsuits. Microsoft's equipment partners were willing to make traditional keyboards and mice -based Windows traditional PCs on desktops, laptops, netbooks, but not in tablets (and increasingly refusing to make Windows based smartphones either). With Microsoft releasing a tablet now, I think Microsoft crosses a line it cannot recover from - it blatantly goes against its equipment-maker rivals and that will not help, it will only hurt Microsoft. This will not entice those manufacturers to provide tablets for Microsoft and Windows 8 (as there are many alternatives, especially Android). It will scare them even more away from providing Windows based smartphones (into Android and later this year, Tizen). And in the long run, they will seek rival solutions to power their traditional PCs. Haha, the really Machiavellian move by Apple would be to issue a low-cost license version of the Mac OS and lure in HP, Dell, Lenovo etc to release Macintosh-compatible PCs. But honestly, I don't see that happening, the risks to Apple's brand purity are too big.

Meanwhile, there also are now rumors that Microsoft will also do a smartphone but I'll deal with that on the Nokia-related Windows 8 news blog next. 

Can the Microsoft tablet succeed? I think it will see headwinds, Microsoft is wealthy, it can throw a lot of money at this project. Microsoft can almost guarantee enough sales not to be seen as a failure in the start. The good news, compared to Windows Phone and Nokia Lumia launches, is that with tablets, Microsoft is not hostage to the whims of the carriers/operators. But it still means very solid marketing from product design to pricing to marketing promotion to retail channel distribution to aftercare.. Microsoft can succeed with this, witness Xbox but it can also fail, witness Zune. My guess is that the first edition Microsoft tablet will do ok, but will suffer over time, being more a Zune than an Xbox. In the longer run, I think the Surface tablet line will be seen as a perennial drain on Microsoft profits, and quietly dropped a few years from now.

But lets see, like I said, this is not my core competence. It is a huge change in Microsoft partnerships strategy, however, to compete directly with suppliers who buy licensed products from Microsoft. That will not be good for the long term reputation in any partnering that Microsoft does, or attempts. The Evil Empire has just become More Evil. And its partners will take note, and they have long memories. Ballmer is likely going to regret this decision over time.

Comments

[KPOM]

I think Microsoft is trying its hand at Apple's game by integrating the hardware and software experience. The issue appears to be that OEMs weren't interested in Windows RT, particularly not at $85/license. Microsoft can't afford for Windows 8 and Windows RT to fail. They have staked too much of their future on Metro, and can see the writing on the wall that the consumer market is where the growth is. Therefore, although it's a risky move alienating OEMs, they don't have much choice. OEMs were part of the reason XP stuck around for so long, and left to their own devices, they could settle on Windows 7 (which is stable enough to be the "next XP").

Surface Pro appears to be a Microsoft-branded "Ultrabook" with an interesting keyboard. That model appears geared toward enterprises, particularly since it won't be out until after Christmas. The base Surface will be the cheaper device, and will ship with a special version of Office. That appears to be Microsoft's focus right now.

If Microsoft is able to make the Surface (and Surface Pro) successful, OEMs will go along begrudgingly. After all, Android has yet to make a dent in the tablet market, even though it is dominating the smartphone market, so where else would OEMs go? The stark contrast between the Samsung Galaxy SIII (which will sell 10 million in July),and Galaxy Tab (which is virtually nonexistent in sales charts) is stunning.

[bob]

i don't know why everybody says that xbox is a win, when it's a second place after wii sales figure:
http://en.wikipedia.org/wiki/Console_wars#Worldwide_sales_figures_6
.... and wii as sold twice more than xbox!
if someone lost a race after making twice the time to complete, nobody will say "look! he win!!!".
i fact, nobody will look after hil ...

[Felipe]

@bob
Not only that, but Xbox360 is Microsoft's second attempt, the first one was a total failure. The Xbox project is just now returning any profit to Microsoft. The only reason Xbox360 even succeeded is because Sony made a gamble on Bluray, making its console way too expensive.
I'd argue Apple and Google are way smarter and with deeper pockets than Sony and Nintendo. (they also have better developer support for tablets/smartphones)

[cke]

You make good points why Microsoft seemed compelled to do their own Windows tablet. Nokia and the other manufacturers were simply not stepping up to the task. Reports are also out that at least HP was angry at the poor performance and slow improvement of MSFTs touch version of their software. HP eventually went out on their own and bought Palm to address it (it failed and was shut down). Without their own hardware, MSFT would likely miss the tablet category entirely.

However, in typical MSFT fashion, they larded up the tablet with all their legacy features - a full capability laptop. This is a mistake. A high productivity laptop, which is the segment that MSFT dominates, is a "lean-forward" product. It is best consumed sitting at a table top with a good keyboard, a properly angled display, and a mouse at the ready. Except for thinness, this describes an Ultrabook - not a tablet. By contrast, the tablet experience sought is a "lean-backward" one not one of content creation, but one of content consumption. The valued tablet aspects are how well it performs while lying in bed or on a couch, or sitting on a public bench. The job the tablet is hired to solve is very different than what a high-productivity computing device is hired to solve.

The MSFT Surface misses with its high-productivity solution in a tablet formfactor for which the market seeks a high-convenience content-consumption solution. I believe MSFT will fail in its Surface product, but neverless gain benefits by spurring its hardware partners to hurry suitable Ultrabook designs to market.

[notthatbob]

If M$ is following Apple's lead, ie, branded stores, online and brick n mortar, then they need M$ branded products. Maybe they will announce real laptops/desktops next.
Poor Nokia...was once great company, w. world dominant position in mobile. Then they danced with M$, now they will be bankrupt by 2013. Elop is sending out resumes now, I would guess.

[Poifan]

HP tried the Palm Tablet, PC Makers Lenovo, Acer, Samsung,etc. are all making Android tablets. This is simply a warning shot from MS to the usual suspects to bring your best design work to Windows or MS will go direct. Initially they are only going to sell Surface tablets in MS Stores and few countries. If the usual suspects don't deliver more than half-assed products, MS will ramp up production, advertising, as well as sales channels.

[khim]

@Tomi T Ahonen: And why were Microsoft's current equipment partners so hesitant to release tablets running any variant of Windows recent or new, but happy to do so on other platforms, especially Android?

The answer is obvious to anyone who've observed tablets for decade of their existence. Yes, it may suprise you but tablet market is DECADE OLD MARKET - and Microsoft was there from the beginning: http://en.wikipedia.org/wiki/Windows_XP_editions#Tablet_PC_Edition

Yet iPad turned this old, tired and permanently underperforming market upside down. Why? As usual Apple found the key (and as usual it was not the only one to find it but the first one to popularize it heavily).

Remember? Touchscreen phones were total flops till Apple showed that touch-screen is not the problem - stylus is! Because you can not operate touch-screen phone using one hand (and we often want to do simple tasks with phone using just one hand) if it requires stylus.

Similarly tablets were total flops as long as Windows was used - for similar reason. You often want to use tablet while using one hand to hold it and another to operate it (it's too big to operate using just one hand as a phone, but two hands are common way to use it). And if your "tablet" weight two kilos and has 14"-15" screen... it's just not feasible. Plus tablet is not a workhorse (at least not at first), people are not going to spend $2000 on it. IOW (as Apple showed): tablet must be LIGHT and CHEAP. This is not possible with Windows. Windows RT promises "light", but "cheap" is probably not in the range of possibilities (if often-mentioned $85 price for Windows RT is even remotely close to reality).

[HCE]

I'll disagree a little with Tomi. I completely agree that Microsoft's OEM partners will increasingly run into Android's arms but the PC business is not going to change. Don't get me wrong, they would if they could. However, the PC OEMs do not have an alternative to Windows. Apple is not going to license OS X and Linux is simply not good enough as a desktop OS for the average user. For a techies, sure but not for the average non-technical user (and I'm saying this as a Linux fan who uses Linux as his primary OS at work). I'm sure you could get Linux to the point where it could be usable for the non-technical user but that would require a concerted effort by a bunch of major OEMs and that is not going to happen.

Not that Android comes with any guarantees either. Now that Google has an in-house OEM, everyone else is worried about the day when Google starts obviously favoring Motorola over all others. They are not likely to do it right away because Motorola is weak but if it regains something like its former strength, Google's partners had better watch their back. Samsung seems to be trying to create an alternative for itself by developing Tizen but the others will all be up a creek without a paddle. What is their alternative then - only Microsoft.

- HCE

[khim]

@HCE: What is their alternative then - only Microsoft.

Nope. With Microsoft you have no way to control your destiny. If you want to see alternative - look on the Kindle Fire.

Open source software (including Android) ALWAYS have built-in feasible competitor: fork of the very same project. Sure you'll need to spend sizable resources if you want to create something credible, but this is requirement anyway (if you don't promote your creation then you'll be lost in a sea of OEMs no matter what OS you are using).

This is why Google can not favor Motorola too much: other members of OHA can always rebel and go away without Google. If they feel that creation of their own fork is not feasible - they'll accept Motorola as an inevitable cost of using Android, if Motorola will get too many preferences - they can always go away with what they have and continue from that point.

[Olavi Petri]

If Xbox was making money for a while, then it was only a passing thing:

http://www.edge-online.com/news/microsofts-xbox-division-loses-229-million
http://www.bizjournals.com/seattle/stories/2003/06/02/story7.html

The (new) Surface could be kept on life support for years like has been done with the Xbox, but that would only undercut Microsoft's supposed allies. The best thing that Microsoft could do at this point would be simply to go away.

The form factor on the new Surface looks like the worst aspects of a tablet and a notebook. However, there is no point in discussing the vaporware because there is no ship date nor a price. Usually when Microsoft promotes vaporware it means that they would like to distract from something good happening in the market.

[Lasko]

http://www.gizmodo.com.au/2012/06/this-is-googles-new-nexus-tablet-the-nexus-7/

[Tuffy]

On one hand, Microsoft's tablet brings a bundled keyboard and the promise of Office, which differentiates it from the iPad and pushes it at the business crowd. On the other hand, they're releasing two versions running incompatible versions of Windows with different CPUs. I believe that sort of fragmentation will hurt the platform out-of-the-gate and slow adoption.

[notzed]

Totally naff form factors. 25cm is too small for a laptop, and too big for a tablet (that isn't an ipad). Getting it wrong twice in one day is some achievement. No wonder none of their 'partners' wanted to make them.

There's a reason the kindle fire was a hit beyond the price and marketing: 18cm tablets are just more usable devices for most people. You don't need two hands to hold it at a decent angle, and it's small and light enough to be more robust and fit in a coat pocket or handbag. (and they're cheap cheap to make).

As for the flaptop thing, what is that useful for? A laptop is great because once you have enough room for a full-sized keyboard, you have enough room for a decent-sized screen which forms a hard shell cover for it when not being used. It self-supports the screen and you can use it without a table - i.e. on a lap. A soft keyboard or flimsy sit-together contraption needs a table, and gives you a tiny screen as a bonus. Both inconvenient and useless.

[Fabio Correa]

HP bailed already. This analysis makes some very interesting points:

http://semiaccurate.com/2012/06/29/hp-said-to-dump-microsoft-over-surface/

[tablet pc]

but will suffer over time, being more a Zune than an Xbox. In the longer run, I think the Surface tablet line will be seen as a perennial drain on Microsoft profits,

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