Surface Changes PC Market Forever

The big story for me this week is the Microsoft Surface tablet launch.

I’ve been thinking about the development ever since the first announcement. My first reaction was that Microsoft is mad – really undermining its business model which depends very much on the PC brands that resell its Windows operating system and Office applications. I then thought about the issues of having two different Surface tablets. Finally, I had a close look at the specifications and ‘execution’. However, I’m going to look at the announcement in the reverse order to that.

At the hardware level, the Surface is something of a ‘tour de force’. Although not radically different in concept than every other tablet out there, one of the lessons of Apple’s success is that every aspect of the product is very important. Small innovations that really improve things for users (such as the magnetic power connector that Apple uses) are important. Microsoft seems to have taken this on board and has developed some clever keyboard options that will appeal to a lot of those that would like to use a tablet for data entry or content creation. The choice of keyboards and the connection system are very cool. The simple stand is really useful and obviously carefully designed. There is real innovation in the materials of the case.

Although the RT version doesn’t have a really high resolution display and the Intel version has only two megapixels to Apple’s three megapixels on the latest iPad, the display looks competent and the optical bonding could be an advantage in bad lighting conditions. 1920 x 1080 makes office applications more usable than a traditional netbook display. The inclusion of an HDMI or DisplayPort connector is a really good decision (especially for monitor makers) and there has been a positive response to including a full size USB port that supports USB 3.0. The Pro version supports pen input without the cost, weight and power downsides of earlier versions.

So, the hardware looks very good – I even found myself wondering whether I could use a Surface instead of my ThinkPad. In the end, I suspect the processing power is a little less than I need and the storage is well below what I use. Add an SD card so that I could trade up in memory and the Intel Surface would be a real option – and very welcome on my frequent overseas trips.

So, I’m impressed with the hardware and specification of the Surface – especially the Intel version.

That issue of ‘the Intel version/ the RT version’ seems to be one of the big problems for Microsoft. It seems to me that the appeal of the Intel version to corporates and business users is very clear. For corporate users with IT professionals that want to maintain security and support, the tablet looks like a ‘no brainer’, compared to the challenges of integrating iPads. The hardware is good enough and desirable enough that it should be perfectly acceptable to the CEO (although the CMO will still probably pine for an iPad). The pen support for annotation is a clear advantage in corporate applications.

The Windows RT version has much less obvious appeal. The Intel version (and I already dislike having to keep identifying them this way) will run your old Windows apps, the RT one won’t.

This has the potential to cause huge confusion. Some applications will run on one or the other Surface, but not both, while others will work on both. That’s manageable on a store website that can know which type of Surface is being used, but is bound to cause irritation to users who won’t understand why they can’t just use the same apps everywhere as they can with iPads.

Microsoft could have done a better job on naming the two versions – the naming and positioning seem to have come out of a committee (I’m reminded of the saying in the UK that ‘a camel is a horse designed by a committee’).

Microsoft has done work to make the Windows 8 APIs for RT and Intel the same, so that apart from a compilation issue for developers, cross platform apps should be possible, that could even be used on Windows phones. However, the user experience from phone to tablet to PC is probably too different. The apps won’t work at their best in the same way, even ignoring issues such as the fact that pens are only available on the Intel tablet, but not on phones or PCs.

I can see why Microsoft wants to get to a single API, but I’m not convinced it will ensure that users with the full range of devices will get a great experience and that is the key long term predictor of success.

Finally, there is the issue of the impact of Microsoft getting into the system hardware market. Although analysts have said that Microsoft has a hardware business with the XBox, it has always been clear that in the game console market, the need to subsidise hardware by controlling and licensing software is the only way to make it work. The Surface brings Microsoft into direct hostile competition with its biggest customers. This week, we report on Dell’s forecast that it would sell a million Windows 8 tablets in the next year. That forecast was created before the Surface appeared and seems unlikely now. Of course, to some extent, PC brands have no real alternative in the short term. They have to buy Windows and Office for their PC businesses. However, in the long term, PC makers will have to try much harder to ‘break the Wintel habit’.

I have seen reports that the Surface will only be sold in Microsoft stores and online. That also puts Microsoft in direct competition not only with PC brands but with retailers and resellers too. It stops those corporate systems houses that could take the Surface, combine it with some special software and services and sell it as a complete system.

That means that there could be a market for some PC vendors to still attack the market, but with Microsoft ‘creaming off’ some of the market, it will make the tablet opportunity even less attractive than it has been. (We also report this week that LG has given up on tablets – an amazing development considering the importance of the segment). It’s really hard to see how to even break even as a branded tablet maker, let alone make a profit (although that’s not new). Apple is taking most of the premium consumer business, Microsoft will take the cream of the business opportunity and Amazon should be able to take most of the low end with its Fire that’s subsidised by content sales.

In the long term, I think this week’s events will be a very, very significant point in the development of the PC and computing industry, as significant as the Microsoft/IBM OS/2 break up. Things will never be the same again, but how they will change will depend partly on the reactions of HP, Dell, Lenovo, Acer and the rest. We’ll be watching carefully!

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