MSFT is making its own tablet …why?

the Surface tablet

Two days ago, in Los Angeles of all places, MSFT unveiled its new Surface tablet.  You can see pictures and get specifications at the company’s still-under-construction Surface website.

The tablet, slightly more oblong than the iPad but otherwise quite similar, will be available through MSFT’s bricks-and -mortar stores, as well as online.  There will be two versions, one driven by an ARM chip and a heavier-duty one driven by an INTC processor.

Although details are scanty, debut appears to be set for at least the lighter model late this year.

plusses vs. the iPad

There are some.  For instance,

–the iPad comes with a watered-down version of the Safari browser.  Ugh.  Surface will presumably let you use Chrome.

–there’s no easy way to type on an iPad.  I’m using the latest Logitech keyboard/cover on mine.  But even though reviewers say it’s the best yet, it’s still pretty clunky.  Surface has a lightweight keyboard/cover.

Of course, you can use the dictation feature on the iPad.  But try that in a library or on the train.

–you can’t create an Office document on an iPad, either.  Surface will come with special editions of Office, although whether the software will be available on Day 1 isn’t clear.

why have a Windows tablet?

Tablets are a great form factor–something MSFT knew when it pioneered the tablet almost a decade ago.  The company’s versions were just too big and clunky to be successful.

Thanks to AAPL, corporations now want to use tablets.  So do schools and colleges.  But the fact you can’t create usable documents or spreadsheets is a big drawback.  The longer this situation exists, the more pressure there is for tablet fans to create a non-MSFT solution to their productivity needs.

So the lack of a viable MSFT tablet is a continuing threat to one of MSFT’s core businesses.

why make one?

The first thing that comes to mind is that MSFT doesn’t think much of the tablet offerings by HPQ, DELL or their Asian competitors. That’s probably right.  You don’t see people camping out in front of Best Buy to be the first to own their latest models.

However, look at INTC.  To get the Ultrabook going, INTC created reference designs for the new product it wanted.  It gave the Ultrabook blueprints to manufacturers for free and promised them a lot of advertising support for any products that met its specifications.  Why didn’t MSFT follow suit?

Also, unlike the case with the X-box, manufacturing a tablet puts MSFT in direct competition with its main customers, the PC makers.  That can’t make the latter happy.

And, although MSFT has doubtless learned some tricks over the years, the company doesn’t have a stellar reputation as a device maker.  Think: the initial X-box or the Zune.

So why, then?

I think it’s to control the pricing.

Because of its high production volume, AAPL has a significant cost advantage over any maker of a competing tablet.  In addition, MSFT will likely have to price its offering at a discount to AAPL to induce buyers to give up the “cool” factor of the iPad and the convenience of the App Store.  There’s no room for a competitor to make much (read: any) money on a tablet, if it’s got to be better than the iPad and be priced lower.

In fact, my guess is that MSFT would count itself extremely fortunate to break even on the Surface in the first couple of years.  I think the company would sign on the dotted line in an instant if someone could guarantee MSFT would sell 10 million Surfaces in the first year, provided it priced the tablet at a $100/unit loss.

MSFT has done this before.  My view of Surface isn’t that far off from MSFT’s experience with the first-generation X-box.  Remember, too, that MSFT generates $1 billion in cash flow in less than two weeks.  Chump change isn’t an expression often linked to $1 billion, but it conveys the idea.

save me a Surface (the INTC one)

I’m not a particular MSFT fan.  But a successful tablet removes a perceived threat to MSFT’s core Office business, it makes the company more valuable.  In that sense, Surface is a potential big plus.  Personally, I’d prefer to buy a Surface when they come out.

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