Microsoft Surface Tablet: the new rules of the market game

Microsoft has made more than a single attempt to find a way to deal with tablets. It's enough to remember it was them who created the first tablets with the help of their partners – there had been over a hundred models even before we saw iPad. The company adapted Windows XP for tablets, but no success followed. The main drawback of those devices was obvious: Microsoft was considering the demands of the laptop and desktop markets. Yes, we could call a laptop with the keyboard torn away and with a touch sensitive screen a tablet. But it was much more difficult to call it a mobile device. The evident drawbacks were the short battery life, presence of a cooling fan and the case becoming hot. All those things were the results of the use of the x86 architecture. It's enough to take a look at the sales shown by tablets in 2011 to see that Windows-based tablets didn't succeed in this market. They were ranked among the "miscellaneous" devices, accompanied by WebOS that became popular due to the clearance sale.

Of course, we should always consider any forecasts presented by research companies with a good share of skepticism, as they don't reflect the future but only give their predictions. And it's quite probable today that if the MS Surface rises high, this chart will change drastically. Mainly, those predictions only reflect the market expectations. The majority believes that the smartphone story will repeat with Android and it will eat off some market share from iOS. This is the most probable scenario. But it doesn't consider any other players, as they are not believed to be able to compete with iOS or Android. So is there any room for another ecosystem?

Windows as a mobile operating system: new OS reincarnation

At the presentation of the Surface tablet, Steve Ballmer said that Windows 8 is not just another new OS version, but an attempt to create an absolutely new OS for mobile devices, to lay the groundwork for the future. A lot of things are hidden behind these words. For example, the fact that tablets are eating off a share of the sales of regular desktops and laptops, i. e. they are directly affecting the Windows market and reducing it. This threat became obvious long ago, and Microsoft tried to react to it by using their standard methods – not much earlier than the iPad appeared they announced their Slate project that never won any popularity. The reasons are described above.

• The official MS Surface website

Microsoft's strategy in the past decade is protecting what has been achieved before and saving what the company has accumulated earlier. First of all, protecting the operating system, MS Office, and the groundwork for the corporate sector. The game consoles and the unexpected Kinect originated from this strategy too. The developing game consoles by Sony and Nintendo were threatening the market for PC games. Affected by the external factors, Microsoft decided to enter the market for game consoles and got the Kinect, which I believe is a very promising platform capable of living a separate life, independently of the Xbox. But the company's activities seem passive to certain extent, and the same situation is observed in the market for tablets. It's a reaction caused by the competitors that are actively entering the new market niche and trying to outrun Microsoft in the curve. Microsoft's strategy is winning though, which is proved by the fact that Apple, during a long period of time, still hasn't been able to change the alignment of forces in the market for operating systems in any considerable way, and MacOS still remains quite a niche product.

The task Windows and Microsoft are facing is to consolidate their positions in the mobile space. And this task is actually much broader than just manufacturing a tablet or even a family of products. There must be an ecosystem consisting of mobile phones, tablets, operating system and services. Microsoft is doing perfectly well in the OS field and in applications for desktops and laptops, but it's difficult to use the same applications in the mobile space: different performance, battery life, etc. The company understands that this intention – to run desktop applications on mobile devices – is incorrect. In particular, this is exactly what the special Windows 8 version named Windows RT and assigned for ARM devices has been created for. Taking account of the new Windows 8 interface, the existing applications will have to be re-designed. As for the RT version, the task is even more complicated due to the absolutely different capacities of the system itself. As for me, I don't see any problems about it as the major part of the well-known applications and their developers are supported by Microsoft, which means those applications will still be available when Windows RT comes. The question that is still open is if there will be a single license for the tablet and laptop versions or they will decide to offer a combined license with a discount for the second version. But these are the details that we will come to know shortly before the sales start.

Introducing their own tablet, Microsoft was certainly intending to outrun Google that is going to announce the Nexus. A lot of people thought, for some reasons, that exactly the tablet itself was the main product of this announcement. But that is not true. The main product introduced at the Microsoft Surface presentation is Windows RT.

A lot of reviewers were able to see the alleged contradiction: the company starts competing with its own partners – with those producing Windows laptops and tablets. Quite a lot has been said about it, but the competition between Microsoft and other hardware manufacturers is only imaginary. The same way the Google Nexus tablet is not a competing product for all other manufacturers in the end. It's not that both companies are trying to go the Apple's way creating their tablets, as this is unnecessary, and impossible either.

It's easy to understand the arguments presented by those standing up for this competition. The price for partner's license for Windows RT is $85. This means that any tablet by Microsoft will be cheaper by default and its primary cost will be lower than that of the license itself. From the common sense point of view, all other manufacturers should give up producing such tablets, as they will never be able to compete with Microsoft with their prices. Isn't it that Microsoft is shooting itself in the leg? No, absolutely not! Unfortunately, the general arguments are not applicable here, as the arguing parties are too far from the reality of this market and from its proper understanding.

So, the first thing that matters is the manufacturer's name, the aggregate specifications of the device and its price. Let's start from the simplest end. There are lots of people all over the world who prefer buying Apple products and don't like Microsoft ones, and vice versa. There are those who like Asus, Acer, or Samsung. And by default, they are oriented at the products offered by those companies. Therefore, any company that will start producing a Windows RT device will gain its small share of this market (a share expressed in the small number of the pieces sold). Of course, Microsoft will earn a bigger margin if somebody wishes to manufacture exactly the same tablet as the Microsoft Surface. But, excuse me, why does a man's or a company's choice have to be limited to a single tablet only? The Microsoft DNA itself contains the desire to offer a lot of various versions and configurations of devices running their operating systems. This is what the company's partners do, and this is what their power consists in. Even the fact that initially we are offered the regular and the Pro versions is an argument in favor of a richer diversity in forms and subjects. We have been shown only the first Windows RT devices, but not the last ones, of course. Moreover, there will be nearly ten such devices introduced later this year, and a few dozens of them, manufactured by various companies, including Microsoft, will follow next year.

Those who stand up for Microsoft entering the competition with their own partners are trying the cram the company's strategy into the Procrustean bed of Apple's ideology: one product being the locomotive and the sales builder. Microsoft's strategy is different. It's the same as Google's strategy about Android: lots of various devices, different in their form factors, prices, and positioning – to meet every taste and for every wallet. In the Apple case, you can buy one or two devices, their price being quite stable. You can't spend less money: either you have 500 dollars to buy the new iPad with the minimal configuration, or you don't. In the world of Google and Microsoft, there are dozens of such devices – the prices are not fixed, and neither are the manufacturers' profits.

We'll start with mentioning that there are three partners chosen for Windows RT and for the first production wave in October: Texas Instruments, NVIDIA and Qualcomm. Each of them, in its own turn, has two manufacturing partners offering one form factor each, and they don't intersect with each other. For instance, Asus will introduce the Windows RT version of the Transformer Prime with a detachable keyboard. These restrictions are produced by Microsoft, as the company wants to show different products right from the first days when they start selling Windows RT. They want to show that it will not be a single product, but a whole universe of new devices. This is an absolutely different approach from the one used by Apple. And it seems to be a winning strategy, according to the sales of Android smartphones.

I hope after reading this explanation you will not be disseminating the delusion that Microsoft is going to compete with its own manufacturers, as this is not true. We'll talk about the technical specifications of the Surface tablet later, but I'd like to mention that this is a kind of minimal configuration. Probably, even more inexpensive models will follow, but the company has shown the minimum so far. It would be the right position if we considered the Microsoft Surface a reference device. However, the Google Nexus is of the same kind.

Sales of a device as a yardstick of its success: another delusion

I'm not sure whether Microsoft did it on purpose or it just happened that way, but the company has not given any explanation about the role assigned to the Microsoft Surface tablet. I've already said that this is going to be a reference device. But whom is it planned for? Is it for end customers? The obvious answer is yes. But it's a mistake.

No doubts, all present day communications are aimed at customers. No doubts either that every regional headquarters will be given plans regarding the Microsoft Surface sales (these plans will not be very much ambitious – they will be quite moderate) and will start selling the device. But we shouldn't get deluded with such activities. This device is meant to promote the sales of Windows RT and to make it popular. Neither more nor less.

Although at the presentation they showed a video demonstrating that Microsoft has its hardware products – mice and keyboards, Xbox and Kinect, they didn't manage to convince me of anything. This video was rather meant to be a diversionary move than demonstration of any serious intentions concerning a certain product. The business of the Microsoft Corporation has always been software sales, and this is what they have always been strong at. In 2012, the company is making a very daring step – they are dividing their lineup of operating systems into the mobile version (RT for ARM) and the regular one (Windows 8). There has never been this kind of division in the company's history, as we can't consider it a division when different versions of Windows were offered for workgroups or for different environments – the basis of the system was still the same x86 architecture. Now that Windows RT is coming, ARM is added to x86. Thus, Windows 8 and its sales are targeted at the already existing and well-developed market dominated by Microsoft. At the same time, Windows RT represents an essentially brand new product, and they are going to start selling it in the niche that has never been open for Microsoft so far. And this is not only the market for tablets, but also for a great variety of other devices, including car navigators, all-in-one desktop computers, and so on. Of course, some portion of this market will be eaten off from the existing Windows versions, but the lion's share of this market doesn't just exist for Microsoft today. Judging by this paradigm, Windows RT is a cheaper product targeted at a bigger audience and oriented at the new market sectors. Without ruling out the possibility that its sales will outrun those of Windows 8 in due course. And actually, it may happen much sooner than we expect.

What's more important for Microsoft: MS Surface or Windows RT sales? I think the answer is obvious: selling their own operating system is what really matters. Distribution of the OS and making it popular is what matters, as it builds the environment for the software and services developed by the company. Therefore, we shouldn't judge about the success of the MS Surface basing on the number of the pieces sold. Even if the sales are really minimal, this product will be playing its role. It's meant to demonstrate the opportunities provided by Windows RT and to give a clear sign to the partners: hey, we are serious in our intentions to promote this OS quite actively, so it's not a toy at all. By the way, practically all OEM manufacturers have already received this sign. In 2013, when the second production wave of Windows RT devices comes, we will literately observe this madness – dozens of models to meet every taste and for every wallet.

No software developer can keep its partners manufacturing hardware under a full control. Hence, it becomes impossible to keep lots of the software aspects a secret, and to have any marketing campaigns either. Google has been tormented a lot with Android due to the same reasons for the past five years, and so they came to the same decision as well: manufacturing "their own" Nexus devices to show the advantages of the new versions of the OS on them. The major marketing activities are aimed at the device running the latest OS version. So, no one feels offended and there is no competition with other companies. This competition only lives in the minds of those who write about it in various media, but this is nothing but a delusion.

Hence, you should remember that sales of the MS Surface tablet do not matter at all as this device is used for demonstration of the Windows RT system only. And it has already coped with the task.

MS Surface specifications: what is the PRO version?

The company uses the name "Surface" – the same used previously for the touch sensitive desk by Microsoft. The desk was renamed right after the tablet presentation, so now the desk (or the technology of such a smart desk – it's not quite clear so far) is called PixelSense.

The Pro version of the Surface tablet uses the x86 architecture by Intel. In practice, this is a continuation of Windows 7 tablets – the hardware specifications are updated, and that's it. Obviously, these Pro tablets will compete with ultrabooks but not with the ordinary tablets (no matter if we speak about Android devices or the iPad here). I don't find this kind of product really interesting as it has already shown its inconsistence. Few customers are interested in a big heavy tablet, with the absence of a keyboard being the only difference from a regular PC. Since we have ultrabooks now, such products don't seem to be promising a lot.

In Microsoft, they seem to realize it well, and so they position such solutions for the market sector where decisions are made by companies, not by individual customers – the corporate segment. Here, the cost of the software adaptation really matters (the software will have to be considerably re-designed for RT, which is practically the same as re-developing it from scratch), but the bigger weight and shorter battery life do not matter that much. What is much more important is the compatibility with the existing corporate networks and software. The Pro version features the full-blown Windows 8, as well as the full version of the regular MS Office, while the Surface (the non-Pro version) runs Windows RT and the RT version of MS Office (it's a light version, but I never use all the rich features of MS Word though, and there are few people who need all of them actually).

What matters again is the license for the RT version of MS Office supplied for the Surface: we get Home and Students license versions. In practice, it gives up for lost any corporate use of these tablets, as it is less expensive to buy the Pro version (with the corporate discounts, maintenance and etc. kept in mind). Thus, we shouldn't think of the Surface Pro tablets as of something planned for the mass market. Of course, they will be available on the shelves and some people will buy them. But no one can say this is going to be a big market share. As I said earlier, Windows 8 is aimed at preserving the current sales and the existing market sectors. The task assigned to the Surface Pro tablets is absolutely the same. Microsoft can afford not to give up this idea even though ARM devices have come to stay.

Let's have a look at the MS Surface as an example of the essentially new devices based on Windows RT (I haven't had an opportunity to play with the gadget yet, as practically no one knew anything about it before the presentation, but I have worked with its analogue, unannounced yet, for a week, and I guess the impressions will be quite similar, as the OS is what matters here).

I suppose the table shows all the essential differences, and I don't feel like talking about them anymore. It's obvious that the regular Surface is of the greatest interest. It uses the updated version of the Tegra3 platform (I don't know if they will call it Tegra3+ in the end, but the internal code name won't tell you anything). In October, when the MS Surface comes, this platform will also appear on a series of other products – for instance, it is used in the Google Nexus that will cost $199 but will have a 7-inch screen. The interesting fact is that both Google and Microsoft, when developing their reference devices, were bound by the price they wished to have at the end. This is why both companies gave up 3G and SIM card support. On the other hand, it also serves a sort of differentiation from what other manufacturers do.

The battery life is the most topical issue. Certainly, it depends on what kind of load there will be and what you will be doing with your tablet. Unfortunately, the prototype I have played with didn't have the power consumption optimized, so there's no use giving any estimation. But I do know that the latest versions of the device provide about ten hours of video playback at the screen brightness set to 50%. I'd like to remind you I'm not speaking of the Microsoft product here. But its specifications are almost identical to what the company has shown, and are even a bit higher. I'm saying it as openly as possible: this fall there will come new Android devices on the same platform, and their battery life will increase. I guess there will be a total parity in battery life between Windows RT and Android 4/5. And of course, we shouldn't forget that the device doesn't practically get hot at all, unlike the latest version of iPad.

Another interesting thing: the backside cover of the tablet has a hinged leg, and the tablet can stand on it. And the main camera is positioned under a 22-degree angle, in order to match the inclination when the tablet is standing on the leg.

Let's make a break and watch the advertising video made for the Surface by the manufacturer.

The body of the Microsoft tablets is made of the material called VaporMG: it's a magnesium alloy processed with a special technique. It ensures the body lightness and durability. The screen is covered with Gorilla Corning Glass that has already become a tradition for the industry.

I really liked the original Touch Covers. They have a thickness of only 3 mm and are made of leather. The internal side accommodates the keyboard. The cover can be attached to the tablet body with six magnets – just like the iPad SmartCover. The charger also has magnets, like Apple products, too. The 5-mm version of the Touch Cover has the cursor keys. There are a variety of colors available for the two versions of the Cover. They support pressing and gestures as well. We'll have to see how they will work in the real life, but the accessory certainly produces a positive impression anyway.

Pricing. Microsoft hasn't revealed this issue officially. But there was a birdie from the company that blabbed it out by telling me that the price would be $499, taxes excluded, for the simplest model with 32 GB of internal memory – and this is about October. I'm not sure whether I should believe that birdie or not, but anyway this price looks quite expected and corresponds to this internal storage size. Microsoft is not going to practise any dumping, as it may damage the partners' sales, while the number of the Surface tablets that will be sold doesn't particularly matter, as we said before.

As for me, I really like that they managed to do two critical things about the Windows RT tablets: active cooling (fans) has been eliminated and the battery life has become longer and comparable to other tablets. Of course, we should make any kind of practical comparison in October, only when other manufacturers upgrade their tablet lineups. But anyway, Windows RT performs quite well. The ultimate issue that should be considered when speaking about Windows RT tablets is their unique feature – MS Office support out of the box.

MS Office as Microsoft's competitive advantage

Microsoft's main product, which is spread wider than Windows today, is the office suite. And the company is trying to use it as a competitive advantage. For example, when they were introducing Windows Phone 7, it was emphasized as one of the major opportunities.

Tablets featuring the same specifications as their Android colleagues but offering the original and fully functional MS Office on board will become the missing link for a rather big audience, and now they will admit that tablets have finally become well established and mature. You can laugh or cry, but a huge number of people still need MS Office, and the sales statistics serve proof for that.

Microsoft gives a free copy of the MS Office Suite with every new tablet out of the box, with the only difference in the license type. And this is a serious advantage that should not be underestimated. People don't care about dozens of thousands of programs – they only need some certain functions. The iPad story can serve proof for this thesis: when it only appeared, it had practically no applications at all, but they started appearing as mushrooms after rain. Microsoft has a huge number of developers, so the majority of the known applications will be ready for Windows RT as soon as by the time of its launch. I wouldn't stick to the belief that absence of applications will be an obstacle for a lot of customers – or maybe for some of them, but the majority will find MS Office a huge advantage, a really critical one.

Unfortunately, Microsoft can't be offering the office suite for their own devices only, as this will be considered a violation of the antimonopoly law. I can't find any other sound explanations why the company is going to provide versions for iOS and Android (probably, the reason is much simpler and they just want to eat off a share of that market, too, and to be represented on the popular platforms). The fact MS Office is introduced for these platforms automatically means that the MS Surface and similar tablets running Windows RT will lose their competitive advantage. But any manufacturer always has its fly in the ointment. And here, Microsoft has two scenarios. We may call the first one "pricing" for convenience. For instance, they can set the price of the iPad version at $99 and reap their rewards from those wishing to use the device. In practice, it will produce a pressure on those who need MS Office. The customers will have to think what would be the better bargain.

But there's also another scenario, and it looks more probable: they could offer a less expensive but a curtailed MS Office version for the other platforms. Doing so, they could not only get some extra revenues but also the opportunity to declare openly that other devices aren't as good for working with Office as their original tablets. You can believe me this will also be a serious argument for a lot of customers.

I don't know which scenario Microsoft will choose, but there are no other ways. We are going to see the MS Office version for the other platforms in November – I suppose we have every reason to believe this rumor.

Brief conclusion

I hope I have managed to explain to you in this quite a detailed article why Microsoft needs to have their own tablet or a set of devices. This is not about competition with other manufacturers, but an opportunity to show their original devices and make the maximum use of marketing. The main focus is made on Windows RT – this OS is the major character of this story, not the tablets. But a lot of people tend to interpret the events too literally and lose the view of the cause-and-effect relations. A tablet announced? It means Microsoft wants to defeat iPad. The company may not have any other wishes. Hence, one shouldn't think of WinRT as of a system working on various devices, as iPad is one-of-a-kind device actually. The narrow-mindedness of this approach can be seen with the naked eye.

For the first time in many years, Microsoft is trying to write a big new story – to introduce a new ecosystem for the future world dominated by mobile devices. I'm leaving Windows Phone 8 aside for now; there will be some news on it in just a few days. But all Microsoft's efforts are not aimed at promotion of the devices, but the liaison between the devices and the operating system. And that's where the company uses its strong points. It would be stupid to believe that Microsoft intends to compete with their partners by means of offering original devices. Before jumping to any conclusions, one should sometimes get deeper into the question why companies make these or those steps and what goals they are pursuing.

P. S.: Did you like this article? If yes, press Like, retweet and discuss. Thanks and good luck!

Full version of the presentation

For those who want to see the way it was, we offer the full version of the presentation – in English, as usual. Starring – Steve Ballmer.

Do you want to talk about this? Please, go to our Forum and let your opinion be known to the author and everybody else.

Eldar Murtazin ([email protected])
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Translated by Serge Gomelsky ([email protected])

Published — 29 June 2012

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