Microsoft unveiled Monday it's response to the iPad. At an event shrouded in secrecy and speculation, CEO Steven Ballmer stepped to the stage to reveal "Surface", a tablet with the same size, weight and look as the Apple blockbuster. The similarities are so striking that even the way Microsoft announced its launch was taken directly from the Apple playbook: Sending an invite last week to selected reporters, without revealing the purpose or even the location, only that it would be an event they "will not want to miss."
Despite all of mystery, the reveal proved most of the early rumours right. The tablet market was just too big to ignore, even for a company such as Microsoft that had steadfastly stayed out of the computer-making business.
And Surface is very much a computer in the traditional sense. Running on Windows 8, Microsoft's marque operating system due out this Fall, the device is intended to be a productivity tool for the corporate market, rather than primarily an entertainment device such as the iPad.
The one criticism of the iPad: As great as it is for consuming content, it is significantly limited in producing it, particularly business-focused documents such as spreadsheets, word documents and presentation materials.
It's this weakness that Microsoft intends the Surface to exploit. To underline the point, Ballmer showcased Surface's detachable keyboard yesterday; an accessory Apple has yet to deem necessary. (He remained mum on whether the keyboard would be bundled or sold separately)
If inevitable, the move remains extremely risky for Microsoft. It's empire was built on software not hardware. Indeed, no other company comes close to being the software juggernaut that's defined Microsoft for most of its existence. Its Windows program is, as The New York Times writes, "One of the greatest franchises the technology industry has known, accounting for US$4.6 billion in sales during the most recently reported quarter."
Microsoft's success in hardware, however, is decidedly mixed. While the Xbox has been a hit amongst gamers, its Zune MP3 player was absolutely crushed by the iPod, and was finally put out of its misery this month. The Kin phone proved even less popular, and was mercifully aborted immediately after launch.
Although costly and embarrassing, neither flop made a material impact. They didn't impact software sales, and almost equally important, they didn't antagonize Microsoft's key partners: the computer makers that bake Windows into every machine.
The Surface changes all of that. Although Ballmer wouldn't touch that issue in Los Angeles yesterday, it's understood that the company will be competing directly against its most valuable allies, such as Samsung and Dell, which are in or eying the tablet market.
For Microsoft though, it's not simply that there's money to be made in tablets, it's that the devices appear destined to completely revolutionize all facets of the tech space. Even still in their infancy, they beggar belief. Apple drove US$6.59 billion in revenue off of iPad sales in the last quarters. That's 43 per cent more than Microsoft made from Windows.
Microsoft knows that it's not going to drive its next billion from creating a copycat iPad. If the consumer market isn't lost forever, it's definitely out of reach at the moment. Apple's head start is so overwhelming that it's not clear that second place is even worth the effort.
Hewlett Packard didn't think so, giving up on its Touchpad - a device it spent US$1.2 billion buying Palm to even be able to produce - within days of its launch. As usual, it took RIM somewhat longer to accept reality, but it too has opted to scrap its entry-level PlayBook recognizing that it could never compete with the iPad. And yesterday, immediately after the Surface launch, LG announced it would be abandoning its tablet efforts. Ken Hong, a spokesperson for the Seoul-based company, told reporters "We've decided to put all new tablet development on the back burner for the time being in order to focus on smartphones." Left unsaid, but widely acknowledged, is that LG, like HP and RIM before it, realized it couldn't compete against the iPad.
Microsoft can't either. That's why they've targeted the corporate crowd, the audience it has spent its entire history producing software for. Not only is the office set relatively untapped, it's also the least brand loyal, according to a NPD In-Stat survey this winter.
The sweet spot is clearly the market low-end laptops, much of which has already been eroded by iPad sales, and high-powered computers, which can't be swapped out for tablets just yet.
Left unsaid yesterday was the retail price of the Surface. Microsoft did, however, say that it would initially be sold only in the company's retail outlets on its website.