Less than two weeks ago, Microsoft shocked the technology world by announcing Surface, a Microsoft-branded family of convertible PCs with the latest version of Windows. One of the convertibles featured NVIDIA’s Tegra 3 and Windows RT and the other, a third-generation IntelCore i5 Processor with Windows 8. Details on pricing, availability, battery life and distribution were not discussed, but Surface’s differentiating features were. These differentiating features were thin, detachable keyboards (Touch Cover), magnesium cases (VaporMg) and durable kickstands. While Surface isn’t ready to ship, it appears Microsoft had worked on it for at least a year. If Microsoft had access to its OEM designs and knew what they were going to ship and how they were to be priced and marketed, can PC OEMs ever trust Microsoft?
I spent 21 years as a Microsoft OEM partner or as a technology provider to Microsoft OEMs. That means I’ve seen up close and personal the good (Windows XP), the bad (Windows ME), and the ugly (Windows Vista). Where does Surface fall? It hasn’t launched yet, but on slides and in pictures, Surface looks real compelling. I’ve always been a fan of convertibles, and with the added PC functionality at the right price, will be very successful. If Surface is successful, other Windows RT and Windows 8 tablet OEMs will have a very hard time competing on anything but price. That is, unless they can find some niches like gaming or maybe even enterprise. No one knows exactly how Surface will approach the enterprise and there may be an opening for others.
Privately, PC OEMs are enraged about Surface, and not necessarily why you may think. Sure, they are angry that their partner is now their competitor, but they are angrier about the wayMicrosoft did it. It gets back to Microsoft’s access to OEM tablet designs. I am told Microsoft had early access to OEM’s Windows 8 physical designs, so they reportedly knew exactly what OEMs were to launch. Apparently, a few weeks ago I am told, Microsoft held executive- level reviews with Windows 8 tablet OEMs to get even further details on OEM launch and marketing plans and pricing. Then a few weeks afterward, the Surface launch occurred which to most industry observers looked professional, but rushed. Is this just a coincidence? I’ll let you be the judge of that.
Should this be viewed as a violation of trust or Microsoft doing what needs to be done to increase their chance of success that wasn’t being done by OEMs? It depends how you look at it.
On one hand, OEMs knew what they were up against with the iPad and just how much effort it would take to compete. HP is the perfect example as they spent billions, write-downs included, to buy Palm then unceremoniously dumped it. What if HP had invested half that money into Windows 8 tablets? Dell was one of the first out of the gate with Android-based tablets that have since been discontinued, and have since taken a commercial-first approach. Lenovo has been on a growth spurt of late and offer innovative convertible designs like “Yoga”, but today are primarily focused on the commercial market. Asus has had some of the most aggressive designs with the Transformer line but doesn’t have the global brand needed to provide broad coverage. With Google about to launch their own branded tablet at this year’s Google I/O and the success of Apple’s iPad, can we really scorn Microsoft? Let’s look at it from a different angle.
On the other hand, Microsoft takes a sizable chunk of the profit dollars in every PC, leaving little for OEMs to reinvest in R&D and marketing. Chip guys take their chunk too. The OS die was cast back in 1981 when IBM licensed DOS from Microsoft and became the de-facto standard PC operating system. Looking back, this was the nail in the coffin for CP/M, or competing PC operating systems for years to come. OEMs tinkered with Unix and Linux, but didn’t make an impact to any Microsoft-based operating system. Until the iPad, Microsoft had virtually no competition in any personal computing device with a display over 5″. Of most significance, Microsoft has access to virtually every OEM design well before it ships, too, which could give it an unfair advantage in that it now has access to its competitor’s design well before anyone else. Nowhere else does this dynamic exist and it cannot last for long if OEMs have their way.
So can Windows 8 partners trust Microsoft in the future? That’s the wrong question to ask at this point. OEMs need to approach Microsoft as a competitor andas a supplier. The partnership aspect is gone now in PCs and OEMs need to start to invest in unique approaches, remain happy to pick up the lower end, lower margin business, or simply exit segments of the PC business. Ironically, some OEMs I’ve talked with post-Surface announcement will now reinvest in Android-based Chromebooks and Android tablets. Short-term, this isn’t good for Microsoft. This won’t really solve anything long-term as the big question must be, “will you invest to win,” “invest to survive,” or exit. If certain OEMs now invest heavier in the Windows 8 ecosystem, this is good for Microsoft. If OEMs retreat, this will be disastrous for Microsoft as the ecosystem they had built over 30 years rips apart at the seams. As we know more about Surface’s pricing, positioning, distribution and roadmap, the payoff or penalty for Microsoft will become quite clear. What is certain is that OEMs must act decisively.
Disclosure: I consult with various PC OEMs.