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Microsoft's New Surface Tablet Takes On Apple, Hardware Partners

Microsoft's new Surface tablet PC, even as it takes on Apple's iPad head-on, raises questions about whether Microsoft will work with or cut out its traditional hardware OEM partners and channel partners.

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Microsoft's unveiling of its new Surface tablet PCs, which includes both consumer-focused and business-focused models, is not only an opening shot in a new war with Apple and its iPad, but also a potential shot across the bow of the company's hardware OEM partners.

Microsoft Monday unveiled two versions of the Surface tablet PC , a model for the Windows RT operating system based on an ARM processor, and one for the Windows 8 Pro operating system based on an Intel Core processor.

However, while Microsoft mentioned an extensive ecosystem of software and hardware partners for the Surface tablet PC, the company was not forthcoming about how it would work with those partners or its channel partners.

[Related: Microsoft Enters Tablet Arena With New "Surface" Devices ]

"Microsoft is not just taking on Apple,’ said Martin Tarr, CEO of Tiburon Technologies, an Independence, Ohio-based solution provider. "They are taking on Dell, HP, Lenovo and the entire PC market as well as the tablet market." Microsoft has a good shot at grabbing share from the iPad if the Surface tablet effectively runs business applications, Tarr said.

"Organizations can’t convert their business applications to the iPad fast enough," he said. "This may provide Microsoft a window of opportunity. The iPad is phenomenal as a consumer device, but most of the iPad applications are consumer oriented. The key is going to be how well the Microsoft Tablet runs business applications."

Rick Chernick, CEO of Camera Corner Connecting Point, a Green Bay, Wisc. solution provider, said he believes Microsoft is making a big mistake by jumping into the tablet market.

’I am confused and bewildered as to why Microsoft would get into the hardware business,’ he said.’I think they are wasting their time if they are competing against the iPad. My advice would be: play the game you know how to play. It is not easy to be in hardware today. To make money selling hardware is just not easy. A lot of the big hardware companies are looking to software and the cloud to make money to raise their margins and now Microsoft is coming out with hardware.

’Even if they offered it to resellers I am not sure all the resellers would take it,’ added Chernick. ’The bottom line is, it would have to be a pretty compelling case in terms of features, benefits and price point. I question why anybody at this late stage of the game would go into hardware.’

NEXT: Giving Apple New Competition, But What About Microsoft's Partners


Another solution provider and Microsoft partner, who wished to remain anonymous, said Microsoft's move into the hardware business would actually be natural given what is happening elsewhere.

"Look at Google buying Motorola, or Intel buying McAfee," the solution provider said. "Companies want to do everything."

The real problem, according to that solution provider, is that Microsoft is late to the market. "At the Computex show in Taiwan, we saw Intel with a lot of mobile devices using its Atom processor. We saw AMD with its APU, and Nvidia with its Tegra. But nothing from Microsoft."

Microsoft Surface will give the Apple iPad a serious run for the money in the tablet PC market, said John Convery, executive vice president of vendor relations and marketing at Denali Advanced Integration, a Redmond, Wash.-based solution provider and partner to both Hewlett-Packard and Apple.

"Time will tell," Convery said. "Let the battle begin with the Big Apple and the Big Windows giants. The customer will decide and time will tell just how the partner plays. Our play with Apple is all about the services, the integration, .and making sure the customer has a great experience."

However, Convery and other solution providers said how Microsoft interacts with its hardware and channel partners is a key determiner of not only how well it will do in the business market, but also whether it can successfully compete against Apple.

Tiburon's Tarr compared the Microsoft Surface tablet announcement to Oracle’s blockbuster acquisition of Sun Microsystems as Oracle moved to tightly integrate its database software on a new line of hardware products.

’This is right out of (Oracle founder and CEO) Larry Ellison’s playbook,optimizing the software technology stack with hardware,’ said Tarr. ’This is Microsoft’s software running on their own hardware completely integrated and optimized hand to glove.’

Tarr said in his 30 years in the technology business he has never seen as big an industry throw-down as Microsoft’s Surface Tablet bet. He said there is a lot at stake if Microsoft does not do a good job supporting business applications on its new Tablet.

’If Microsoft doesn’t do a good job supporting business application on its Tablet, the score is going to be 600,000 applications for Apple and one for Microsoft,’ he said. ’Microsoft has to be careful that this doesn’t up as Zune II.’

NEXT: Possible Surface Tablet PC Damage Microsoft's Partners


The possibility that Microsoft will go it alone with the manufacturing and integration could damage its partner relationships, Convery said.

"It would damage Microsoft's relationship with its hardware partners," he said. "As a channel partner, we have a stake in the success of our hardware partners. And getting into a new market is not easy. Just look at HP with its TouchPad."

HP in August exited the tablet PC market by ending development of its TouchPad tablet.

There is more to partnering than just having a product, Convery said. "You also need partner profitability and ease of partnering," he said. "Microsoft is in the top four or five (in this regards). But Microsoft has many alliances, including with HP. I'm not sure it would make a lot of sense for Microsoft to go at it alone. We've seen too many cases of what happens when strategic partnerships change."

Microsoft's introduction of the Surface tablet is different from its normal new product introductions in that the vendor gave no advance notice to partners, Convery said.

"I haven't seen anything non-disclosure from Microsoft on this," he said. "It's unusual for them."

Todd Swank, vice president of marketing at Nor-Tech, a Burnsville, Minn.-based system builder who like all system builders depends on partnerships with Microsoft, said he is not too concerned there may be no hardware play for partners.

"I can't iimagine Microsoft will jump into hardware just like that," Swank said. "I can't believe Microsoft will stab partners in the back. This has to be more of a software or application play."

However, Swank said, the Surface tablet PC is something Microsoft had to do to respond to Apple's iPad.

"Microsoft has to respond to what Apple did for people who use its devices or who increasingly bring them to the workplace," he said. "The iPad has Microsoft worried. It's a reaction to the iPad. And Microsoft realizes it can't rely on OEMs to fight Apple."

There is the possibilitly that Microsoft will cut out hardware partners like HP and Lenovo, Swank said. "But Microsoft has to protect itself," he said. "In any event, the tablet PC is not always a channel play. For us, the Microsoft tablet is just another tablet to offer customers."

NEXT: Microsoft Tight-lipped About Partner Plans


Microsoft will most likely wrap some kind of channel program around its tablet PC, Swank said. But even it it does not do so, solution providers will still benefit from the ecosystem needed to support more mobile devices like the Surface tablet, he said.

"We're seeing a shift from PCs to notebooks to other mobile devices," he said. "So we are concerned about how the shift affects our core business in PCs. But if this means a shift to the cloud, customers will still need to servers and storage to handle it."

Microsoft for now is being tight-lipped about its partnering plans. The Microsoft public relations team, in response to a question about those plans, was unable to provide more information.

In the press release for the Microsoft Surface tablet PC, Microsoft wrote, "One of the strengths of Windows is its extensive ecosystem of software and hardware partners, delivering selection and choice that makes a customer’s Windows experience uniquely their own. This continues with Surface. Microsoft is delivering a unique contribution to an already strong and growing ecosystem of functional and stylish devices delivered by original equipment manufacturers (OEMs) to bring the experience of Windows to consumers and businesses around the globe."

Later in the release, Microsoft wrote, "OEMs will have cost and feature parity on Windows 8 and Windows RT."

However, no mention was made about who its hardware and software partners are, or how much integration of the Microsoft Surface hardware and software will be done by Microsoft and how much will be done by those partners.

As for the channel, the closest Microsoft came to mentioning that aspect to the business was to say that both devices will eventually be sold in the Microsoft Store locations in the U.S. and through select online Microsoft Stores.

Businessweek reported that, in an interview after introducing the Surface tablet PC, it asked Microsoft CEO Steve Ballmer whether his company's PC partners had been made aware of its plans.

Ballmer, according to Businessweek, said he used "very precise language on stage," and would not go into detail about Microsoft OEM partners or Microsoft's sales plans for Surface. "That’s all we are going to announce today," Ballmer told Businessweek.

Steve Burke contributed to this story.


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