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Microsoft saw its partners were needy, unwilling and unable to push the envelope in the tablet space

As the picture surrounding Microsoft Corp.'s (MSFT"Surface" tablet fleshes out via interviews and leaks, one thing is for sure -- Microsoft would love to see its third-party partners succeed with their Windows 8 tablet designs, despite the fact that it's now competing with them.  But the decision to compete is also a big vote of no confidence in these third-parties' ability to compete with Apple, Inc. (AAPL).

According to a new report in The New York Times, which uses a former Microsoft executive as a source, Microsoft's decision is deeply rooted in a fallout with Hewlett-Packard Comp. (HPQ) regarding the Slate tablet and subsequent disappointments from other OEMs.

I. Microsoft Predicted Tablet Market Early, Had High Hopes

In 2007 Apple shook up the market when it released the iPhone, the first multi-touch smartphone.  To be fair, the market was already trending towards touch-screens, but suddenly the trend was summarized with a singular iconic device.  Microsoft, which had played with touch technology in its labs and mobile products for years, took note of the increasing convergence between mobile devices and the personal computer (PC).

It baked basic touch capabilities into Windows 7, which launch in late 2009.  To Microsoft's disappointment, partners expressed little interest in taking advantage of these capabilities.  Initially Microsoft played with idea of a dual-screen tablet called Courier.  But internal disputes and hesitance to become a first-party PC maker caused Microsoft to shelve the plans.

Then rumors of an Apple tablet picked up, and suddenly the touch-plans went from an expansion effort, to an essential effort.  Microsoft was determined to not let Apple gain a monopoly in this market, which it had long recognized the merit of -- perhaps even before Apple.  It contacted HP, the world's largest maker of personal computers, and what Microsoft considered a trusted partner.

And HP delivered at first.  Prototypes of the Slate 500, like the one presented by Microsoft CEO Steve Ballmer at CES 2010, were relatively attractive.

Ballmer Slate
A prototype of the Slate tablet, demoed by Microsoft CEO Steve Ballmer at CES 2010, looked attractive. [Image Source: Bloomberg]

II. Slate Design is "Completely Ruined", Subsequently Flops

But both the former Microsoft executive and a former HP executive comment that the Slate 500 was "completely ruined" when it was handed over to HP's manufacturing organization.  The tablet ballooned in size.  To make matters worse, HP poorly integrated the touch screen with Windows 7.  Users would touch the screen and face a lag before the tablet would respond.  Describes the former HP executive, "It would be like driving a car, and the car not turning when you turn the wheel."

Three weeks later late Apple CEO Steven P. Jobs showed off his slick iPad, which had none of the awkward lag of the HP Slate.  While the original Slate prototype was relatively good looking, it was outshone by the iPad, which featured a slick aluminum case.

Steve Jobs iPad
Steve Jobs's iPad was a hit, while the Slate flopped. [Image Source: Reuters]

The case was no small feat.  Apple had to procure a large amount of high quality aluminum to make it, so it entered a large bulk purchase agreement with a mine in Australia.  The former executive recalls shock at Microsoft meetings regarding just how deep Apple would dip into global supply chains to produce Mr. Jobs' "perfect" device.

And if the early Slate prototype was a bid homely compared to the original iPad, the final bloated design was downright unsightly.  Microsoft was frustrated.

And it didn't help that HP blamed Microsoft. HP saw its tablet shortcomings as primarily in the software department.  It complained how Microsoft's small icon size made icons hard to click and it was not a fan of Microsoft's Windows 7 touch keyboard.  HP felt that the licensing fees it paid Microsoft for Windows should have been applied towards making better OS software/firmware support.

Seeing that the Slate was destined to flop in sales (and it did, after almost being cancelled), Microsoft tried to reach out to other partners.  But it faced disagreements regarding price and features.  "Faith had been lost," the former Microsoft executive recalls.

III. Microsoft Focuses on Surface and Windows 8

Ultimately, Microsoft decided not to devote significant resources to cultivating a Windows 7 tablet from any of its partners.  Instead it focused on perfect Windows 8 for touch devices.  But this time around it knew better than to trust third-parties.  It was sick of their failure to compete with Apple in the tablet space, and it was sick of taking the blame for that failure.

Evidence of just how much Microsoft has learned was on display at the Surface announcement.  Much like Apple bragged of its iPad's unique aluminum case, Microsoft's belated counter was built on a material it went to great lengths to secure bulk purchase agreements on -- magnesium.  It argues that magnesium offers many advantages over Apple's aluminum, including superior scratch resistance.  Comments Windows President Steven Sinofsky, "The case is one-of-a-kind."

Notably, nary a partner delivered that kind of dedication to their supply chain and innovative case design at Computex 2012.  They instead relied on their Chinese partners to build more standard designs, although they expect to price them at similar points to the iPad and Surface.  This lack of ambition is all too familiar to Microsoft and a validation of why it made a smart move with Surface.

With "Surface" Microsoft controls its own fate. [Image Source: Microsoft]

Microsoft may say its decision to make Surface was not a slight to its third-party partners.  Comments Steven Guggenheimer, a Microsoft corporate vice president, "Microsoft has tremendous respect for our hardware partners and the innovation they bring to the Windows ecosystem.  We are looking forward to the incredible range of new devices they are bringing out for Windows 8."

But no matter what words it chooses, Microsoft can not hide the unspoken message -- it is dead-determined to beat Apple -- with or without its partners.

Source: The New York Times

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RE: x86
By Tony Swash on 6/25/2012 7:40:35 PM , Rating: -1
You do realize this article is about an x86 tablet/pc/ultrabook

...that doesn't exist yet.

Microsoft did it's Apple tribute band presentation fairly slickly given their track record but let's not forget the following:

None of the invited attendees were allowed to test any surface device hands on

The much touted keyboards were nonfunctional

No software was shown running except for a quick glimpse of a few static apps. The Lightroom demo was noticeable for not actually showing any image manipulation etc. Office was not demoed

There were no prices announced

Battery life was not announced and is unknown

The release date was not announced.

Surface is an anagram of Courier (I made that bit up :)

What was shown was a prototype product. A mock up. Before Surface can be discussed as an actual product not only does Microsoft have to actually get all that hardware and software working smoothly together it has to do so within a technical and design spec that can actually be manufactured in large numbers and for a profit. That's a tall order for a company that so far has only made mice and keyboards at a profit (the Xbox given the billions invested has never made a return on capital).

For Surface to succeed as a business they have to hit the ground running, and set up, in record time, the production pipelines, supplier chains and distribution channels needed to ship tens of millions of Surface devices and make a healthy profit doing so at a price that at the very least matches (and probably has to beat) the price of the iPad. I do not believe that on balance that that is likely, especially given that based on the curiously staged and artificial launch event they clearly do yet have a functioning product.

RE: x86
By marsovac on 6/26/2012 4:17:14 AM , Rating: 2
You are lying or are uninformed on three statements.

RE: x86
By Tony Swash on 6/26/12, Rating: -1
RE: x86
By Calin on 6/26/2012 4:53:36 AM , Rating: 2
The price doesn't have to beat the iPad - this will sell more as a laptop with physical keyboard and a touch screen (running Windows 8) than as a tablet. So, I think this would compete against the Sleekbooks/ultraportables/netbooks out there, not against the iPads (it might take market share away from the iPads, but this Surface demo is primarily a laptop, not a tablet).

RE: x86
By Tony Swash on 6/26/12, Rating: -1
RE: x86
By Helbore on 6/26/2012 7:48:06 AM , Rating: 3
The Apple zealots are running scared.

RE: x86
By Tony Swash on 6/26/12, Rating: -1
RE: x86
By ritualm on 6/26/2012 2:29:55 PM , Rating: 2
Tony Swash is scared that his Apple stocks will go into freefall now that Microsoft has taken its gloves off.

What Microsoft did was no different than what Apple did after Motorola's disastrous ROKR E1. The OEMs are incompetent. The OEMs don't take risks. The OEMs care more about copying the competition than exercising their ingenuity. Steve Ballmer had enough of OEMs screwing up on every opportunity, and simply decided to go into the hardware business itself, the only way to guarantee a certain level of quality.

Your anal buddy won't have your iPhones if Steve Jobs continued to have Motorola make phones for him. Shush.

RE: x86
By Tony Swash on 6/26/2012 6:54:31 PM , Rating: 2
Let the games begin!

I have to say watching the Surface initiative unfold over the next year promises to be stupendously amusing.

What Microsoft did was no different than what Apple did after Motorola's disastrous ROKR E1. The OEMs are incompetent.

I think it's utterly different because unlike Apple the Windows ecosystem has been founded on a diversity of OEMs for over two decades. Until the Surface launch the party line was that Apple's 'closed' integrated approach would founder before the awesome power of the multitude of OEMs unleashed by Android because apparently 'open' always beat 'closed'. The common view (hope) was that the Android Apple saga would be a rerun of the Windows Apple saga (it was actually the MSDos saga but that's another story).

In fact Android is going nowhere as a business. Other than Samsung no Android hand set maker can make a profit, the poor saps. Even Google can only stack up loses on Android. Meanwhile the gold standard of 'open' beats 'closed, the Windows ecosystem, has been quietly bleeding for quite a while as Apple eviscerated the OEM's already razor thin profit margins and with the App revolution has started to pull the rug from under Microsofts high price and high profits software model. Does anybody think Microsoft can ever charge $50 or more for an OS license on a tablet let alone a phone? Or a $100 for Office on a tablet? Microsoft's move to betray it's OEMs is a typical gutsy and ruthless move to grab the last remaining reservoir of value in the Windows food chain.

By the way the homophobia in your comment was really classy.

RE: x86
By ritualm on 6/27/2012 3:51:29 AM , Rating: 3
In fact Android is going nowhere as a business. Other than Samsung no Android hand set maker can make a profit

Yeah, because profit alone determines the success and failure of a product. Microsoft ran XBox at a loss for years simply because it could. Likewise, it's running Bing at a loss simply because it can. Apple wouldn't dare keep making 17" MBPs because it only moved 50,000 of 'em in the latest report, and subsequently axed that model.
I think it's utterly different because unlike Apple the Windows ecosystem has been founded on a diversity of OEMs for over two decades.

Pray tell what part of OEMs screwing up is utterly different? Apple going into the smartphone business instead of letting Motorola try to correct its mistake and you hail it as the best thing since forks were invented. Microsoft going into the tablet business itself because OEMs were too busy sucking each other off and you claim MS made a colossal mistake.

The egg really does come before the goose, doesn't it, Tony?
Does anybody think Microsoft can ever charge $50 or more for an OS license on a tablet

Until you can install OS X outside a Mac, shut your mouth kthx.
Or a $100 for Office on a tablet?

When MS Office is the standard for a massive majority of business documents worldwide, yes they can. Even Mac fanboys like you use them for compatibility sake.
By the way the homophobia in your comment was really classy.

Why you mad bro?

If Tim Cook stops by your house unannounced and creampies in your cute ass, you would lick his tool clean and thank him for the surprise buttsecks. Your deluded comments are proof of that.

Why don't you go and spread your cheeks open for him right now.

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