If you have been wondering about the competence of Microsoft management, all your questions have just been answered. Yes, Microsoft is actually less competent and more self-destructive than you thought.
In case you missed the news, Microsoft just unveiled not one but two tablets, called ‘Surface’. Only one is WART based, SemiAccurate’s sources say it is a Tegra CPU, the other is x86, probably an Atom. Either way, Microsoft just did the dumbest and most self-destructive thing imaginable, and did it with their usual lack of style.
Why is this self-destructive? If you were at Computex two weeks ago, the talk of the show was all WART tablets, Android was barely mentioned. This means OEMs and buyers love Win8, right? Actually, if you asked any of the OEMs why they showcased WARTy devices, the answer was all the same, Microsoft is paying us to. Taiwan Inc being Taiwan Inc is smart enough to take the money and run, but they aren’t dumb enough to back what they feel is folly without being paid handsomely. Microsoft paid, they smiled and nodded.
So Microsoft not only subsidized the designs, but subsidized the booth space too. WART was the talk of Computex. It was a grand affair, unless you asked people what they actually thought, then you got a different story. Moral of this story, when the money flow stops, so will WART devices. Pay to play is never a good place to be when you are in an uphill battle to gain marketshare. Just ask, err, Microsoft actually, how well Windows Phone 6.0 6.5 7.0 7.5 is doing since they stopped shoveling cash at carriers.
That said, with the designs paid for and more or less complete on the hardware side, there was a good chance that most of them would get to market. Note the word ‘was’. If, for no other reason, most of the OEMs SemiAccurate talked to had the attitude of, “We want to have one on the shelves in case it actually sells”. The enthusiasm was quite underwhelming.
Step forward two weeks, Microsoft just went from monopolistic overlord to competitor. The tablet market, basically seen as the one area of growth for most Taiwanese OEMs and ODMs, just got a major competitor. Not only a competitor, but one that doesn’t have to pay the rumored $60-90 OS tax they have to pay. For an ~$500 tablet, that is more than the profit margin of the device by a long shot, not to mention the potential for future software, app, and media income streams that OEMs won’t have access to. Microsoft can undercut the OEMs by at least $50, make more money while doing so, and shut down any emerging competition on a whim if they choose.
With this in mind, any guesses how many of those dozens of devices shown at Computex, fully paid for and hardware finished, will make it to market now? Single digit percentages are probably overly optimistic. Microsoft just forced all their ‘partners’ in to the hands of Google and Android. Taiwan Inc has already been paid, so now they will save the hardware ramp and distribution costs associated with launching this turkey.
The way this was handled was rank management incompetence at best, although far better than the Nokia debacle. We all know how well that turned out. Burning platforms are sometimes preferable to sitting on a one ton bomb while hitting the detonator with a hammer, something known in military circles as the Elop maneuver.
With the ‘problem’ of partners taken care of, could things get worse for Microsoft? Sure. Without going over the inherent goodness of WART tablets, there is one thing that most people don’t realize, it is not compatible with Windows software. No, I am not kidding, WART runs none of the massive library of Windows programs, you need to code for it directly. Those new programs are incidentally not compatible with every Windows machine on the market. Please note that Windows Phone 7/7.5 is also a different and totally incompatible system, the tens of apps for that platform won’t run on WART either. See a problem?
So, with no software, no partners, and the wonderful track record of success in phones that Microsoft leverages for tablets, why would anyone code for this debacle? If there were any reasons, companies not being paid handsomely to port will be thinking very hard about soldiering on in light of the impending hardware partner exodus. To make matters happier for Redmond, the only way to sell software for a WART device is through Microsoft.
This may again not seem problematic until you realize that Microsoft takes a 30% cut of anything they sell through their app store. Before you chime in that 30% isn’t a big deal, Apple does just the same, that 30% buys you guaranteed incompatibility with every Windows device out there. If you instead code for vanilla Windows, you can control your own distribution if you choose, keep 100% of the profits, and be compatible with the hundreds of millions of Windows devices out there. Anyone think 70% on a platform with zero marketshare beats 100% on a platform with 90+% marketshare?
And that brings us to the last and most problematic point, software. As has been made painfully apparent lately, there is no tablet market, there is an iPad market and rounding error sales for ‘other’. The latest Asus Transformer, likely the best selling Android tablet out there, sold 82,000 units in the first three months. For shiny tech toys, sales tend to be heavily front loaded, and tail off with frightening rapidity. How many minutes worth of iPad sales is 82,000 units?
Apple has all the software, media, installed base, and mindshare. Google’s Android dwarfs all Microsoft mobile products ever produced, but has a hard time getting developer interest over Apple. If all of Microsoft’s WART devices hits 1% of Android’s installed base in the first year, Microsoft will likely be elated. It won’t, but lets assume it does anyway.
Microsoft is promising to be competitive on price with their unnamed tablet competition, likely Samsung and Apple. We doubt they can do so without eating margins given the massive hardware and attendant BoM costs that Windows bloat necessitates, but lets give them the benefit of the doubt. Microsoft may not have to pay the Windows licensing tax, but Android is ‘free’, and Apple doesn’t pay for iOS either.
Microsoft is left with an incompatible device, backed by no partners, all with a software base that can’t touch modern Amiga variants. It may be cost competitive to the end user, but likely not to Microsoft itself. To make matters worse, it will have the one thing consumers value above all on the back, a Microsoft logo, not a tarnished Apple one. On top of it, any faux momentum that cost so much to purchase two weeks ago not only vaporized, but turned into an OEM base energized for the competition.
That in mind, why would any sane person not buy an iPad? Microsoft management simply could not have done worse, even the Nokia debacle seems like brilliant strategy in comparison. This is a rehash of the same strategy that failed so painfully with the Zune, Microsoft is lost, irrelevant, and without hope.S|A