Microsoft risks rankling its partners with Surface tablet

Article by: JANET I. TU , Seattle Times
Updated: June 23, 2012 - 4:27 PM

The company chose not to turn to its hardware manufacturers when it decided to take on Apple.

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Microsoft CEO Steve Ballmer unveils "Surface", a new tablet computer to compete with Apple's iPad, at Hollywood's Milk Studios in Los Angeles Monday.

Photo: Damian Dovarganes, Associated Press

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Knife in the back or the match that lit the fire?

That's the question after Microsoft Corp. announced last week it was breaking from longstanding tradition, choosing instead to produce its own tablets, called Surface, designed to showcase the capabilities of its upcoming Windows 8.

Was Microsoft's move a stab in the back to its longtime hardware partners, such as Hewlett-Packard, Dell and Acer, which make the PCs that run on Windows software?

Or was it a much-needed fuse to light a fire beneath manufacturers' feet, spurring them to produce better, more innovative products?

"This is a bold move from Microsoft," said Michael Gartenberg, an analyst with research firm Gartner. "They did not trust their partners to deliver on their vision of Windows 8 and mobile computing to the consumer and felt the stakes were high enough [that] they needed to do this themselves."

That's not exactly a vote of confidence from Microsoft for some of its biggest partners, who will have to compete for tablet sales not only with Apple, but with Microsoft as well.

This move is "a huge bet for Microsoft because it will upset the hardware manufacturers, but it is also likely the only way Microsoft can approach the level of experience Apple provides," said Rob Enderle, principal analyst with The Enderle Group.

Microsoft apparently gave its manufacturing partners a heads-up that it would announce something tabletlike, though not the specifics. When asked how those partners reacted, Microsoft CEO Steve Ballmer replied, "No comment," according to blog AllThingsD.

Lenovo and Dell have said they would continue to support Windows 8, according to CNet.com, which also reported that LG plans to focus on smartphones, while Acer and HP declined to comment.

How the partners end up reacting to Surface depends on several factors. Those include what price Microsoft will charge partners for Windows 8 and Windows RT (the variant of Windows 8 that will run on tablets), and what kind of support Microsoft will provide for its partners who use those operating systems.

Partners pay to license the Windows operating system that goes into their PCs. Microsoft presumably would not have to charge itself for using Windows 8 or Windows RT in Surface tablets. "This alone gives Surface an advantage," Cherry said.

There's another way of looking at what Surface means for Microsoft's partners, though.

"Microsoft is trying to bootstrap the market by taking the big risk of offering devices which [its partners] may be hesitant to embrace," said Al Hilwa, an analyst with research firm IDC. "Microsoft also wants to paint a vision for what these devices look like and control the prices at least initially."