The Joplin Globe, Joplin, MO

Business

June 20, 2012

Microsoft sends tough message to partners in making own tablet

SEATTLE — Knife in the back or the match that lit the fire?

That’s the question after Microsoft announced Monday it was breaking from longstanding tradition, choosing instead to produce its own tablets, called Surface, designed to showcase the capabilities of its upcoming Windows 8.

Was Microsoft’s move a stab in the back to its longtime hardware partners, such as Hewlett-Packard, Dell and Acer, which make the PCs that run on Windows software?

Or was it a much-needed fuse to light a fire beneath manufacturers’ feet, spurring them to produce better, more innovative products?

“This is a bold move from Microsoft,” said Michael Gartenberg, an analyst with research firm Gartner. “They did not trust their partners to deliver on their vision of Windows 8 and mobile computing to the consumer and felt the stakes were high enough (that) they needed to do this themselves.”

That’s not exactly a vote of confidence from Microsoft for some of its biggest partners, who now will have to compete for tablet sales not only with Apple, but with Microsoft as well.

“The conventional wisdom says you should never compete with your OEMs (original equipment manufacturers),” said Al Hilwa, an analyst with research firm IDC. “So Xbox, for example, is produced only by Microsoft.”

This move is “a huge bet for Microsoft because it will upset the hardware manufacturers, but it is also likely the only way Microsoft can approach the level of experience Apple provides,” said Rob Enderle, principal analyst with The Enderle Group.

Microsoft apparently gave its manufacturing partners a heads-up that it would announce something tabletlike, though not the specifics.

When asked how those partners reacted, Microsoft CEO Steve Ballmer replied, “No comment,” according to blog AllThingsD.

Lenovo and Dell have said they would continue to support Windows 8, according to CNet.com, which also reported that LG plans to focus on smartphones, while Acer and HP declined to comment.

How the partners end up reacting to Surface depends on several factors, said Michael Cherry, an analyst with independent research firm Directions on Microsoft.

Those include what price Microsoft will charge partners for Windows 8 and Windows RT (the variant of Windows 8 that will run on tablets using ARM-based processors), and what kind of support Microsoft will provide for its partners who use those operating systems.

Partners pay to license the Windows operating system that goes into their PCs. Microsoft presumably would not have to charge itself for using Windows 8 or Windows RT in Surface tablets.

“This alone gives Surface an advantage,” Cherry said.

Second, if a hardware partner has an issue with the operating system that it would like Microsoft to change, does that partner have as much of a priority as the Surface team?

“In the end, the OEM is probably OK if the field remains relatively level,” Cherry said. “Then they have room to compete on quality and other factors such as price.

“(But) if the field is too tipped in favor of the Surface team, then OEMs may be more inclined than ever before to offer alternatives such as Ubuntu (a Linux-based system), or produce fewer Windows models,” he said.

There’s another way of looking at what the Surface announcement means for Microsoft’s hardware partners, though.

“Microsoft is trying to bootstrap the market by taking the big risk of offering devices which potentially OEMs may be hesitant to embrace,” said IDC’s Hilwa. “Microsoft also wants to paint a vision for what these devices look like and control the prices at least initially. My sense is that is why they are going into this now.”

The big question, Hilwa says, is whether Microsoft will continue to make future generations of Surface devices.

Ted Schadler, an analyst with research firm Forrester, agrees with Hilwa’s take.

“PC makers have been racing to the bottom to meet your (chief information officers’) stringent price requirements while still trying to compete,” he wrote in a blog post.

“That of course created the market gap that Apple swooped into with the MacBook Air that your employees love. Microsoft can’t let that happen with tablets. So Job 1 for Surface - and it better be frickin’ great - is to prod partners to make great tablets. So even if partners like Dell and HP are angry about the move, it could pay off in better Windows tablets.”

 

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