Is Microsoft Re-inventing Itself With Surface?

Although nothing has been confirmed officially by Microsoft, it seems the rumors are all over the internet painting it as the next closest thing to fact. Microsoft Surface (well at least the ARM version) will come out at $199. Yes, that means that Microsoft’s own home-built de-facto example for how to build a Windows 8 tablet will get thrown in the bargain bin with the Kindle Fire and Nexus 7. Is this necessarily a bad thing? No. But it’s a very odd move for Microsoft to make. But it could be their most important one yet.

War Against the OEMs

Surface’s unveiling was a giant middle finger to it’s OEMs. In my opinion, Surface is Microsoft finally becoming aware of it’s slowly dwindling relevance. The problem with Windows based computers is not Windows itself. Microsoft has screwed up in the past, sure, but never to the detriment of the Windows market. Vista shuttered the industry, but Windows 7 proved that Microsoft still has it. Windows 8 is a mixed bag, but no one can deny that it is a huge gamble for the company. But if it pays off, then it’ll pay off big.

Microsoft gained it’s market dominance in the 90’s by doing exactly what it has done for the last 5-10 years: let the computer builders like HP, Dell, Packard-Bell, Compaq, etc., cut each other’s throats by driving down prices and profit margins. Computers became cheaper than ever before, and they offered a better bang for buck than Apple computers. It didn’t matter if Compaq was gobbled and destroyed by HP. It didn’t matter that Packard-Bell faded into irrelevance. It didn’t matter that Gateway represented the typical rise and fall of most Windows OEMs. What mattered  was that Microsoft sold more PCs than Apple, it sold more software, and it created the powerful legacy that we now know as Windows.

Today, things are ironically quite the opposite. PCs continue to be cheaper than Apple computers. You can definitely get better spec for buck. However, Apple has turned everything on it’s heel by convincing customers to look for build quality. One of the first things I was told to do, when I was thrown in an Apple training facility at the behest of the retailer that I used to work for, was to pick up a MacBook Pro and compare it to any of the PCs we had on the shelf. The difference, we were told, was quality. It wasn’t heavy or bulky. It felt rugged, powerful, and worth something. Whether those titles really belong is up to interpretation, but the fact is, Apple has learned how to finely mold it’s image. Everything from marketing, to packaging, to UI design, to the way it deals with fans, and even to the keynotes given by execs, are all designs around a central design that constantly argues for quality and innovation.

Microsoft, on the other hand, has lost control of it’s image. Think about all the TV ads today that have to have a computer on it. Or the TV shows. Or movies. Unless there is a blatant advertisement (Apple and Sony both control most movie product placement), you will normally see a MacBook Pro. If, on the rare occasion that the advertiser wants to be super-generalized and include a PC-ish laptop, normally the design centers around some sort of circa-early-2000s Dell laptop. You won’t see a Dell XPS, or an HP Envy, or an ASUS U5 series, or a Toshiba Portege. That’s because the image of a Windows computer is based on three things: Cheap, unreliable, and virus ridden.

Now does this terrible image have anything to do with Microsoft? Not really. The problems most people have with computers either comes down to poor programming from some developer, poor driver programming, or faulty hardware. Microsoft does not build computers. But the fact is, Microsoft has let the OEM blood letting go to far. OEMs have now doubled around and wounded Microsoft. If the OEMs go down, they want to take Microsoft down with them. And guess what, if the HP debacle is anything to go by, or Apple’s continued dominance of the tablet scene, or Apple’s rising computer marketshare, PC OEMs are indeed running into trouble.

Screw the OEMs

Surface was Microsoft’s way of trying to regain control from the OEMs. With Surface, Microsoft told OEMs and the rest of the world that they knew that their OEM partners would create nothing but crap. So instead of going the way of Android tablets and allowing the crap to come first before creating their vision (aka the Nexus 7), Microsoft decided to show the world what Windows 8 meant to them. And sure, it’s a beauty. It seems well crafted, great screen, responsive, it has a brilliant fold-out keyboard, and even a kick stand. With Surface, Microsoft told the world what it wanted Windows 8 to be.

The problem is that they are selling Surface. Yes, Microsoft is formally breaking the taboo and making it’s own computers. A Microsoft tablet may very well be selling right next to an ASUS tablet or a Sony tablet, or an Acer tablet. Or not. Acer has already been very vocal about it’s displeasure at this move. They want to boycott Windows.

The whole “pissing off the OEMs” thing seemed a little weird. Aren’t OEMs what make Microsoft? Could Microsoft survive without OEMs? Certainly if there were no OEMs to build Windows-based computers, there wouldn’t be any Windows computers right? Well maybe not.

My original thoughts about Surface was that it was going to be a high-cost but high-end Windows 8 tablet. It would be the primo awesomeness, and it would let the OEMs do the bottom feeding to fight for 2nd place. However, it was conservative enough to allow OEMs to also compete for the “greater than Surface” award. However, that strategy still relies on OEMs to at least pick up some of the competition that would be offered by the Nexus 7 or a potential iPad 7-inch. For that matter, it would also place Surface in direct competition with the iPad. Unfortunately, Google has proven Apple is really hard to beat at it’s own price point when you have an underdeveloped app catalog. Since Windows RT will be ARM-based, it will also suffer from a lack of Windows program support. The only place Windows Surface tablets will get apps is from the Windows store, and there will be approximately 450 apps available on launch. Considering Apple’s iPad touts hundreds of thousands of apps, and Android’s catalogue rising every day, Microsoft has some catch-up to do.

Cue the Rumors

Well, these rumors are throwing a huge wrench into the theorizing. $199? What the hell Microsoft? With that price point, Microsoft has officially decided to tell OEMs to go screw themselves. There is literally no way in hell that an OEM is going to make a Windows 8 tablet that is cheaper than that or as high quality as Surface for the same price point. Maybe HP might decide to make one out of pure glass and charge $500 for it hoping that some poor schmuck will buy it because he thinks more expensive = better. For the time being, OEMs be damned.

Microsoft would also be hard-pressed to ever sell a tablet that wasn’t at a loss, since $199 would officially be the go-to price for any Windows 8 tablet. Certainly, there’s a lot of speculation on this rumor, and even the original source of the rumor notes that it’s “complicated.”  A 10-inch tablet with 32GB of storage and a foldable keyboard is ludicrous at $199, and while the low price could indicate some sort of service-based subsidization, it could also indicate that Ballmer is descending into madness. Currently, Microsoft needs OEMs for it’s laptop and desktop divisions. To piss on OEMs at this point is akin to pissing in the wind.

On the other hand, didn’t the Nexus 7 do the exact same thing? Sure it’s only 7 inches, but it has the best hardware in the industry, the Nexus name, a great hardware partner (ASUS), and the newest version of Android on the market. Ironically, you don’t hear much about OEMs boycotting Google. But then again, nobody could sell an Android tablet before the Nexus. So as OEMs struggled to sell even a few tablets, Google sits back frustrated as it looks at the latest Apple earnings reports. Google could only get it’s OS, it’s app store, and it’s marketplace out to the public by selling a tablet at or below cost.

Google actually has the OEM advantage, but it failed them. By creating the Nexus 7, Google alienated it’s OEMs, but it also finally created the first successful Android tablet.

Let’s consider for a moment that these rumors might be true, somehow. Obviously the justification is to get Windows 8 into the public sphere in (possibly) huge numbers. Obviously that wouldn’t work if Microsoft’s OEMs jumped ship and turned to Android, as Android would be a more secure platform to invest in at that point. But once again, let’s imagine that Microsoft somehow stroked the OEMs into going along with it. Consider that this is actually Windows RT. It’s Metro without Windows. No classic desktop, no legacy programs, although SmartGlass will make it fairly useful for streaming. But for all intents and purposes, Windows 8 RT is tied into Microsoft’s Windows store. So obviously, by giving away Surface, Microsoft would be building a bigger user base. But at the same time, Windows 8 RT is as close to a Microsoft-owned “walled garden” as you can get.

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