Why Did Microsoft Really Unveil Surface Tablets?

Speculation, once again, is all wrong. Following Apple's model, Microsoft created Surface tablets to lure people into Microsoft stores.

I was startled by a Fox News headline that read, "Microsoft will quit making tablets soon, Acer founder says." The article goes on to speculate on Microsoft's intentions for its new Surface tablets.

According to the article, Microsoft "more or less kept its partners in the dark, with some discovering the breaking news along with everyone else at Monday's event." None of Microsoft's partners have any idea what the long term intentions of the company are. Many claim that Microsoft will relent from the hardware game because of channel conflict. It would just hate to step on the toes of its OEMs.

This is baloney.

First of all, nobody is coming to bat with a Windows 8 tablet and Microsoft knows it. The iPad rules the scene and no one else will do much more than fool around with variations on a theme, mostly using Android. The closest anyone has come, it seems, is Samsung with its Galaxy Note, which isn't really a tablet, but a huge phone.

The space is moribund and so Microsoft jumped in. Does anyone seriously think that if Surface sales skyrocketed and brought in billions of dollars that Microsoft would give the product to Acer or Dell? "Here you make all the money, we have enough!"

Overlooked in all the analysis is the fact that Microsoft needs branded products to sell at the Microsoft stores. It's amazing how many people have yet to grasp the reality that Microsoft is opening storefronts left and right. Today's count indicates that there are 20 stores now open for business with five more coming soon.

These stores will fail if they devolve into a second coming of CompUSA. They need to be like Apple stores and that means they must sell branded merchandise. There are no margins in reselling HP or Dell computers, and HP has already threatened to quit the PC business once already.

While Dell's business does include a lot of sales to individuals, it is not its focus. It's part of its service strategy.

Microsoft sees the writing on the wall and it is more than competent enough to make and sell hardware. It made a point of talking about its hardware business at the press conference. It made the CP/M card for the Apple II in 1980. It made an EGA board shortly thereafter. It made a mouse, keyboards, and toys. The Xbox and the accessories were the final touch. It is a computer, after all.

So why would this shock anyone. Nobody is clamoring to build Windows RT tablets, are they?

The Apple stores, if you haven't noticed, account for the incredible success of the company over the past few years. They bring in a whopping $4,000 per square foot in annual retail sales, topping perennial sales star Tiffany & Co. The 363 stores in 13 countries move products like crazy?and Microsoft has noticed. It needs stores and branded products, period.

Will Microsoft end up competing with its customers? Not if it only builds high-end, high-margin products designed to sell at retail by a sales force. Today's PC market is a commodity market filled with low-ballers trying to sell the cheapest things they can. These folks are always on the verge of dropping Windows. Microsoft knows this, too. It's been playing a defensive marketing game for years.

Microsoft has gone too far with this Surface tablet merely to lure others into licensing some reference design that will be too costly to manufacture and then low-ball. No, this is a machine designed to be a show piece at the stores. Expect to see more products like this from the company over the next few years.

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You can Follow John C. Dvorak on Twitter @therealdvorak.

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Source: http://www.pcmag.com/article2/0,2817,2406095,00.asp?kc=PCRSS03079TX1K0000585

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