Microsoft Surface and the OEM Dilemma

Ben Bajarin / June 21st, 2012

On Tuesday Patrick pointed out that the dynamic between OEMs and Microsoft may be forever changed. The primary reason for this being that Microsoft has signaled intent to compete directly with their partners in the tablet PC arena. What I want to examine in this article are the major points of concern from an OEM (Microsoft partner and original equipment manufacturer) perspective.

Trust
The Microsoft partner dynamic is one that has historically been based on trust. The company providing the main software layer, in this case Microsoft with Windows, needs to be closely working with the company making the hardware which will run said software, in order to assure some level of quality assurance and user experience. Of course this has not always been done well but it is none the less the goal. Because of this reality both Microsoft and hardware partners need to be in communication very early in the hardware process.

In many cases OEMs share specific details of their hardware roadmap with Microsoft. If Microsoft intends to be a competitor then any hardware OEM will have to think twice about how much roadmap and hardware detail around tablets they share with Microsoft. In this scenario there is a significant risk that the software and hardware are not tightly integrated (and it should now be obvious how important that is) thus resulting in poor user experience and a poor reflection in the market for all companies involved.

Tablets are the Future
Many of the authors in our forum here at Tech.pinions are proponents of the critical role that tablets play in the future of computing. This is an incredibly important category and arguably more important to the future of computing than the notebook category. With that in mind, and depending on your opinion on the matter, Microsoft is getting into the game in one of the most important segments going forward.

I can entirely see Microsoft’s reasoning for this move and honestly, based on my convictions on where this industry is going, if I worked at Microsoft I would heavily advocate this direction . They simply can not afford to sit back and watch the iPad completely destroy any competing tablet. Microsoft is a platform company and is responsible for an ecosystem. Every customer that enters Apple’s ecosystem, whether that entry point is an iPad, iPhone, Mac, etc., is potentially a customer who will not be leaving Apple’s ecosystem any time soon–if ever.

In reality, Microsoft partners are likely to be more focused on notebooks in the short term than tablets. Which means there is a possibility that Windows 8 would have lost more time in the tablet space. So it makes sense that Microsoft felt the need to make sure a compelling product was available at launch. However, the tablet segment is one that OEM’s need to focus more on, perhaps more than notebooks, and can not afford to not have a compelling play themselves. My concern if I am an OEM is that Microsoft intends to compete with me in one of the most important categories going forward.

The challenge will whether or not Microsoft can walk a line that few have tried. In this case be vertical in a segment but also be open in the same segment and others.

Brand
Lastly, and this point could prove the most costly for the Windows ecosystem. Microsoft will have Surface, other brands will have what? Slates? Tablets? or perhaps some other new name they come up. So if I am a customer shopping for a Windows 8 based tablet, I need to learn, study, then decide between Surface, Slates, Tablets, or any other number of names and tablet brands. All with different looks, feels, ports, CPUs, versions of an OS, keyboard accessories, general accessories, capabilities, etc.

Contrast that with Apple. If I want a tablet in Apple’s ecosystem, right now my options are the iPad (2 or current). Yes with minor different configurations but my point is the brand. The iPad is Apple’s tablet, now choose which iPad you want. The environment around Windows 8 tablets is going to be much more confusing.

The tablet sector is one that is maturing. Consumers, who have not yet owned a tablet, are interested in what a tablet means to them and how it fits in their life. I would argue that right now consumers don’t know what they want in a tablet. Therefore if they are presented with too many choices which confuse and frustrate them how can they feel comfortable making an informed opinion. Take USB for example. A consumer looks at this option and says I have USB in my notebook. Why do I need it in my tablet. Maybe they do and maybe they don’t but having not owned a tablet yet how do they know? This is one small observation of the overall consumer adoption cycle and how it works. This is also generally why a market like this favors the market leader and in this case the iPad. Once a market segments the door opens for specific feature differentiation. The market for tablets has not yet segmented.

I firmly believe that any platform or ecosystem that offers confusing choice to consumers around tablets is going to have an uphill battle.

Of course one possible way Microsoft can maneuver in light of everything I have pointed out is to let Surface be a general brand and product strategy that others OEMs can participate in. I suggested this on Tuesday when I stated that Microsoft should let other OEMs participate in the Surface program. Time will tell what path they take.

Regardless one last point on hardware needs to made with respect to open platforms like Windows, Android, etc. Hardware only exists as a gateway to a software and service ecosystem. Thus a platform like Windows creates platform loyalty but it does not create hardware loyalty. Therefore, those who compete only in hardware will have to do so with every upgrade cycle. This means for Microsoft its a win-win for their platform either with their hardware or others. If this plays out how I think it might, I can’t say it’s a win-win for OEMs.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • Rich

    “The Microsoft partner dynamic is one that has historically been based on trust.”

    What about Plays For Sure? If I remember right, that eventually reached a violation of trust.

    • And that violation occurred with the Zune.

  • bill

    This situation is no different than Google’s purchase of Motorola and the “trust” relationship that has been built with their OEM’s like Samsung and HTC. And they face the same issues over time as GOOG gets more and more into the hardware business.

    It is a seriously fine balancing act to be a supplier that competes on some level with your customers. And if there is ANY belief that the supplier part is either advantaging or sharing information with the product part, it’s over.

  • We might want to consider that the partners may be reluctant to put MS’s untested software platform on their devices. MS, in that case, would have to create a device to demonstrate its ability to compete with Android, in the least, effectively. If we are to forecast anything from previous experience (Zune and the MS mobile phone platform) the partners’ reluctance is understandable.

  • FalKirk

    Ben, you make many fine points.

    “They simply can not afford to sit back and watch the iPad completely destroy any competing tablet. … Every customer that enters Apple’s ecosystem, whether that entry point is an iPad, iPhone, Mac, etc., is potentially a customer who will not be leaving Apple’s ecosystem any time soon–if ever.”

    I think Microsoft is far more aware of the danger than the analysts, industry-watchers and pundits are. They know the in-roads Apple is making in Enterprise and they well know the danger it presents to their business model.

    “Microsoft will have Surface, other brands will have what? Slates? Tablets? or perhaps some other new name they come up.”

    This is a very good point that I hadn’t yet considered. In one sense, Microsoft is making everything extraordinary plain by offering their own branded product. In another sense, they’re mucking up the buying experience to an extraordinary degree.

    “I firmly believe that any platform or ecosystem that offers confusing choice to consumers around tablets is going to have an uphill battle.”

    Could not agree more. We’re both fans of the book”The Paradox of Choice”. When people have to make complex decisions they often choose not to choose. In retail, that means “no sale”.

    Microsoft is making a desperate move because they realize how desperate the situation is. At this juncture, taking a big gamble may be their best play. But even if gambling is their best play, it still means that the odds are against them.

    • jfutral

      MS certainly has enough history to learn from and it could be argued they are finally learning. The OEMs let MS down with MP3 players until MS finally took over the reins. But by then it was too late. MS has done very well with the XBox, which they control the whole widget so to speak.

      With tablets they are doing this at the right time. No one remembers tablets of yore. And only geeks like us even remember the Slate introduction, what, over two years ago now? Not even a shadow in the consumer mind.

      Speaking of trust, they tried to trust their OEMs in two areas (MP3 players and tablets/slates) and the OEMs let them down. I would imagine the hope is that no one remembers the tablet failures enough that the effect ends up like the Zune, which came on the tails of successive failures. The only gamble at this point is this turns out to be more like the XBox model.

      If Acer’s recent comments are any indication plus the failure of Android to make significant tablet inroads for any single vendor, I can’t imagine any OEM wanting to jump on the MS bandwagon without at least some proof of potential. From the perspective of a slim margin hardware maker, that’s a lot of investment only to see it go up in flames. So I am not convinced MS did not try to find an OEM partner.

      MS did not create the PC hardware ecosystem. They jumped into one already in motion and took it over until OEMs started coming to them.

      Joe

      • FalKirk

        I enjoyed and agree with the vast bulk of your post. But I will disagree with one small thing that you said:

        “With tablets they (Microsoft) are doing this at the right time.”-jfutral

        I’d say that they are doing this at least two and a half years late.

        Apple is hitting on all cylinders right now. They made a radical turn in tablet philosophy when they introduced the iPad. One needs to either be an extremely fast follower or one needs to go somewhere where Apple has not yet arrived. Microsoft is doing neither. Instead, they’re chasing Apple’s iPad after giving Apple a 30 month head start. That’s not a very promising proposition.

        • jfutral

          That line definitely reads stronger than it sounded in my head as I typed it.

          If they are “chasing” the iPad, then they have an up hill battle. The final release better be something special or at least have a strong promise of the next iteration being strong to at least build a solid base. MS does not have a strong track record with this strategy, however, for anything but Windows.

          Amazon and the Kindle, for instance, did well as long as they weren’t chasing iPad. I think the people who bought the Fire wanted a colour Kindle, not really a tablet, per se. I think that is why sales have supposedly dropped.

          But consumers can be a fickle bunch. Facebook over took Myspace, Google over took Yahoo and everyone else out there (Dog Pile, Alta Vista, et. al.). Target and Walmart over took K-Mart. Toyota over took Ford. So far, though, Apple shows no signs of succumbing to the Lotus 1-2-3/Word Perfect syndrome.

          Surface is still somewhat vaporware until it is finally released for sale. Now THAT is a strategy MS knows well.
          Joe

          • FalKirk

            “That line definitely reads stronger than it sounded in my head as I typed it.”-jfutral

            Yeah, I know the feeling. Everything I write sounds better in my head than it does on paper. 🙂

            “Amazon and the Kindle, for instance, did well as long as they weren’t chasing iPad.”-jfutral

            I think that Microsoft’s problem is that they think too narrowly. They want to be in the market with the hottest devices and they want to differentiate themselves, so they look at what the market leader is doing and then try to do it “better”.

            But “better” doesn’t matter once the market leader has traction. You’ve either got to be MUCH better or WAY different. I think one could easily argue that the Zune and Windows Phone 7 were better than the iPod and the iPhone. But they went nowhere.

            Microsoft needs to stop creating better iPods and better iPhones and better iPads and start creating better MP3 players and better smart phones and better tablets instead. That’s what Apple did.

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