Sounds Of Silence: Microsoft OEM Partners Grow Quiet In Wake Of Surface5:37 PM EST Wed. Jun. 20, 2012
Microsoft officially made its debut in the tablet PC market Monday with the launch of its new Surface Windows RT and Windows Pro devices. But in doing so, the long-time software veteran may have pitted itself against some of its largest OEM partners -- which are also some of its largest customers -- according to industry analysts.
Manufacturers including Samsung, Lenovo, Hewlett-Packard, Asus and Acer have been gearing up to launch their own tablet PCs running Microsoft’s next-gen Windows OS later this year as a move to compete against market leaders Apple and Google.
But with the advent of the Surface tablet, one of their biggest competitors will now be Microsoft itself.
Microsoft's OEM partners have been uncharacteristically quiet with their reactions to the Surface tablet, a calm that could speaks volumes given the growing importance of tablet PCs as the BYOD and consumerization trends heat up. Samsung and Acer did not respond to a request for comment on Microsoft’s new tablet PC, while HP and Asus declined to comment.
Lenovo told CRN that it views Microsoft as a valued partner, and that it will continue to offer both Android- and Windows 8-based tablets down the line, as it strives to create a product portfolio that affords its customers choice.
Dell also declined to comment. But, like Lenovo, a spokesperson for the company said Microsoft is an important partner, and that Dell looks forward to delivering a full slate of Windows 8 products including tablets later this year.
Despite an underwhelming response from many of Microsoft’s biggest OEM partners, industry analysts have stepped forward with their own thoughts on the Surface tablet and, particularly, the impact it may have on Microsoft’s relationship with its partner base.
According to Gartner analyst Tuong Nguyen, for instance, the Surface tablet instills a competitive dynamic between Microsoft and its partners that wasn’t previously there.
"I think that’s going to take a considerable amount of juggling when basically your partners are competing against you," Nguyen told CRN. "A lot of people have tried it, and a lot of people are trying it, but I don’t think it will be a successful model. It puts your partners in a very uncomfortable position."
Deron Kershaw, industry analyst with Gap Intelligence, agreed that the Surface tablet could have an adverse effect on Microsoft’s partner ecosystem. While the Redmond, Wash.-based software vet most likely launched the Surface to ensure, first hand, that Windows 8 hardware will meet consumers’ expectations, it remains unseen whether the benefits of this go-it-alone approach will outweigh the potential blow it could deal OEM partners.
"I can't imagine that many of Microsoft's partners were thrilled with the Surface tablet announcement. It looks like Microsoft is responding to a trend that consumers have been aware of for a while: there has been a surprising lack of innovation from tablet manufacturers," Kershaw wrote in an email to CRN. "The Surface gives Microsoft a little more control over Windows 8's fate, adds another revenue stream and attracts some shoppers to its stores, but I wonder if it's worth the damage to its relationship with partners."
NEXT: Analysts Weigh In On Microsoft’s Intent With Surface
Richard Shim, senior analyst or the PC group at DisplaySearch, a Santa Clara, Calif.-based display analyst, wrote in a Wednesday research report that Microsoft unveiled its Surface tablet PCs in a way that was "out of character" for a company known for creating the operating system and software, but leaving the hardware to its partners.
"Microsoft’s move emphasizes a change in the PC industry highlighting tighter integration between software and hardware," Shim wrote. "Apple is the most noteworthy example of the value of controlling the hardware and software, as well as some services. Microsoft has joined a short but growing list of companies complementing their traditional businesses: Google with Motorola Mobility, HP with Palm and its WebOS. The rate of success for these companies so far has been modest."
Ken Hyers, Ezra Gottheil, and Beau Skonieczny, analysts at Technology Business Research (TBR), a Hampton, N.H.-based analyst firm focusing on IT, telecom and professional services businesses, wrote in a research report that Microsoft is making the Surface tablet PC because the vendor is "dissatisfied with its OEM partners" because of their "tepid" reaction to Microsoft’s plans.
"That response is not very surprising since most of them saw their own high‐priced tablets fail in the marketplace and they’re in low‐margin businesses," TBR wrote. "Microsoft is stealing a page from Apple by fully integrating OS and hardware development in‐house. By doing this, it controls every part of development, from OS to hardware, and makes an elegant piece of hardware that isn’t ruined by an OEM that decides to substitute cheaper components -- cheapening the feel of the entire product."
Microsoft’s approach also echoes that of Google in that Microsoft, by developing the Surface tablet itself, is showing OEMs how a Windows 8 tablet should look and feel, TBR wrote.
"Microsoft claims Surface is intended to 'jump start' the Windows 8 tablet market," the analysts wrote. "This will reassure OEMs that Microsoft wants to keep them viable in the critical tablet market. TBR believes this is accurate. Microsoft will price its Surface devices high enough to allow OEMs to compete profitably. However, once Microsoft is in the market as a hardware vendor it will stay in the market, if only to maintain strong relationships with its ultimate customers -- IT departments."
NEXT: Pricing, Functionality To Determine Surface’s Success
However Microsoft prices the Surface tablet will ultimately determine the extent to which it dips into partners’ profit pools. While details have been kept under wraps, Microsoft did say Monday that the Surface will sell at an "extremely competitive" price point.
Earlier this month, however, reports suggested Microsoft would charge its OEM partners between $80 and $95 for each copy of Windows RT provided to them -- a much steeper prospect compared to earlier reports that speculated prices as low as $35. This software charge could potentially drive up the price of other non-Surface tablets running Windows RT and position Microsoft’s tablet as being the more competitively priced.
Gartner’s Nguyen, who was quick to note that his opinion on the Surface tablet isn’t necessarily indicative of Gartner’s as a whole, told CRN that jeopardizing partner relationships isn’t the only risk Microsoft may take with the Surface. The tablet market has proved to be a cutthroat one, with OEMs ranging from HP to Dell to Research In Motion having to yank poor-selling devices from the shelves.
If Microsoft plans to carve a space for itself in the mobile PC market this late in the game, the Surface tablet is really going to need a wow factor -- or at least something that clearly sets it apart from the slew of other tablets already available. And, from Nguyen’s perspective, it’s not yet clear if that’s the case.
"I wouldn’t necessarily see anything introduced as being a game changer," he said of the Surface. "It’s more of an extension of features of whatever de facto standards the iPad has already introduced to the market."
That said, he continued, the inclusion of native Microsoft Office apps, and, in the case of the Windows Pro-based Surface devices, a full-fledged Windows 8 desktop, may make the new tablets appeal to business users who have shied away from the more consumer-focused iPad or Android-based devices.
"This might fill in the niche of people… still on the fence about getting a tablet," Nguyen said. "As great as the iPad is, work productivity has a lot to do with Microsoft applications, so there’s an opportunity there."
David McQueen, principal analyst at Informa Telecoms and Media, agreed that the Surface tablet’s ability to emerge as the industry’s flagship enterprise-focused tablet will be key to its success.
"If it has the requisite Windows office applications available from launch -- across both device types and suitable peripherals to make input easier -- at a price point that is competitive, then I do see it displacing notebooks and netbooks in the office," McQueen said in a statement.
Joe Kovar contributed to this story.