Are OEMs creating a self-fulfilling prophesy?

Having just written about the paucity of Windows Tablets in the retail channel I have to wonder if Microsoft’s OEMs are creating a self-fulfilling prophesy.  Microsoft came out with the Surface because the OEMs weren’t creating the kinds of products necessary to move the PC concept forward.  In particular Microsoft feared that OEMs would fail to create a tablet that was a viable alternative to the iPad.  OEMs decided to go slow on Windows Tablets, perhaps because of the Surface but more likely out of their usual conservatism.  Now it looks painfully obvious that the OEMs are failing to fill the retail channel with tablets, which sends the message to Microsoft that they were right to have come out with the Surface.

ASUS is the only OEM who seems to have gone full steam ahead with a Windows Tablet, and a Windows RT Tablet at that.  But even their offering is basically just a tweaked copy of one of their Android tablets.  It’s a nice device, but not something with the kind of innovation needed to stand out in the crowd.  Microsoft developed new technologies, ordered custom parts, and built new factories in order to bring the Surface to market.  OEMs seem to be sticking largely to the business of system assembly.

Despite lots of announcements, no other OEM has a tablet (be that pure, or one of the detachable convertibles,) sitting in stores where you can see and touch it.  And the only tablet maker doing any mass media advertising is Microsoft.  The broader take away may be that Surface is the Windows Tablet.  And if OEMs leave that notion unchallenged for long then they will find themselves locked out of the Tablet market.

On Tablets in general we very well could be heading towards a world in which the iPad, Surface, and Nexus along with the Kindle Fire and Nook Tablet dominate the market.  The OEMs, from mobile giant Samsung to PC giants like HP and Lenovo to the new tablet entrants from China will then battle it out for the crumbs.  And most of the crumbs will likely go to Samsung.

The wildcard here is the Surface, but not because there is really any question of its ability to succeed.  Microsoft left a huge gaping hole for OEMs to fill by restricting Surface distribution to its own retail chain and website.  The Microsoft Store has a retail presence about equivalent to a single mite on a herd of elephants.  Really, it is a near meaningless presence.  The entire rest of the retail channel is open for OEMs.  Best Buy, Walmart, Costco, Staples, Office Depot, OfficeMax, Radio Shack, mobile carrier stores, etc. (and their international equivalents) are, so far, reserved for the OEMs.  Amazon and other online retailers are reserved for the OEMs.  And one has to imagine that the traffic to and other OEM websites dwarfs traffic to by a few orders of magnitude.  The OEMs have an unfair distribution advantage, yet they are failing to press it.

Microsoft may have limited Surface distribution to protect its OEMs (as well as to avoid the dangers of ramping up Surface manufacturing too quickly), but they won’t hold back for long.  If Surface is hot, then struggling Best Buy would undoubtedly want to carry it.  Moreover, it might be a perfect signature product for the Best Buy Mobile stores.  And it wouldn’t surprise me at all if Staples executives are already all over Microsoft to let them carry the Surface Pro when it launches.  Or how about Barnes and Noble stores carrying the Surface as a big brother to the Nook line?  2013 could see the Surface line broadly available in retail channels.

I will bet a lot of the OEMs decided to concede the consumer tablet space as that isn’t where their strength lies.  And of course the holiday season is about consumers, not about sales to the business customers the OEMs rely on.  But the OEMs are making a mistake.  Pent-up demand for the Surface Pro, is large and growing fast.  Every Surface ad Microsoft runs is implicitly an ad for the Surface Pro.  A lot of people have looked at my Surface to reassure themselves about their plans to purchase a Surface Pro.  One IT Director is buying one himself to use at work, with plans to use it to convince his CIO that they should broadly commit to the Surface Pro.  Any reservations he had before disappeared as he examined and played with my Surface.

What is happening in the Holiday 2012 consumer market for Tablets will strongly influence what happens in the 2013 business market for them.

Without a distribution advantage, without name brand recognition (in the tablet space), without particularly innovative products, and without any clear advantage at all how will OEMs succeed in the tablet market?  The opportunity for them to stake out a piece of the market is now, and they don’t appear to be doing it.  Twelve months from now, perhaps only six, it will be too late.  It may be worse, missing this holiday season may be all it takes to lock them out of the market permanently.  They will cry that Microsoft pulled the rug out from under them with Surface, but in truth they will have done 99% of the damage themselves.  Surface will just be filling the void.

Emboldened by the success of the Surface and Surface Pro Microsoft will expand the product line.  Oh I suppose that a Surface Phone and a Surface Xbox (or other player in the 7″ space) seem inevitable and aren’t what the traditional OEMs should worry about anyway.  What about a Surface Pro 12 (something I’m totally making up)?  Based on my usage of the Surface I realized that the Surface Pro is going to be a much more serious competitor against Ultrabooks (and similar devices) then I’d originally suspected.  Except for screen size I can totally see my Toshiba R705 being replaced by a Surface Pro.  Come out with a Surface Pro variant with a 12-13″ screen and a matching (improved) Type Cover and Ultrabook manufacturers will tremble.  Even the Macbook Air will be in retreat.

Can OEMs change this story and reassert their place in the PC ecosystem?  Yes, if they move quickly.  They need to get their products into the retail channel ASAP and start promoting them as heavily as Microsoft is promoting the Surface.  They need to make sure the mindset that consumers walk away with is “Windows Tablet” rather than “Microsoft Surface”.  Microsoft, with its much larger Windows 8 promotion efforts, will actually help with this.  But only if the OEMs do their part.  We are one week away from Black Friday and the full intensity of this shipping season.  For OEMs, the window of opportunity is closing fast.

Charlie Kindel makes a good case for why Microsoft won’t ever truly become a hardware company.  But OEMs may be leaving them no choice.  Moreover, with Surface I think Microsoft smells blood in the water.  It may be Apple blood and it may be Android blood, but there is definitely OEM blood mixed in.  And we all know how sharks react to blood in the water.

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10 Responses to Are OEMs creating a self-fulfilling prophesy?

  1. Paul says:

    Yeah, very concerning. And the interview given yesterday by HP’s head of PCs illustrates this problem in spades.

    I frankly find it shocking. Not only does he publicly disparage one of HP’s major partners and virtually all their new offerings, but he also seems to have his head up his ass about the traditional PC industry’s need to get in front of where the market is going or face extinction. If I was Ballmer, reading that interview would make me livid and I’d be on the phone to Whitman immediately, explaining how it’s counterproductive for both MS and HP. It would also further convince me that many traditional PC OEMs just don’t get what’s happening and can’t be relied on in the future.

  2. Nat Brown says:

    You reflect that OEM’s have a wide-open channel, but the reality is they don’t on many fronts. For one they are each given limited shelf space in each category at each store, and they have to put forward, many months in advance of the holiday season, the products they think will flow through all the way without being returned by retailers. The OEM efforts in tablets have been focused on Android, as they lacked choices from elsewhere – they have mostly filled the channel with Android tablets this season. For another, they were mostly blindsided by Windows RT and Surface – they did not have enough time to truly get products done and into production and into their slim retail slots. But probably the most important factor is the sales staff (or as you noted – lack thereof). Even if retail channels were wide-open for OEM’s, the sales staff don’t have the time or training to help consumers differentiate between so many products. The complete CE retail experience of confusing specs based on MB and GB and MHz and PPI (and LOW PRICE!) being the only characteristics which inexperienced staff can help customers differentiate thousands of otherwise identical products is the reason Apple created their own retail spaces with highly trained staff focused on their small selection of products.

  3. Eric the Red says:

    Have you seen that Surface is showing up at Verizon apparently?

  4. I have to wonder though, Hal, how much of the initial sales are attributable to the enthusiasts. Did Surface’s marketing cut through all the noise? After all, as you said, it was very difficult to get one. Without a meaningful retail presence, the Surface can’t fail because it simply hasn’t even attempted to sell them in any quantity.

    • halberenson says:

      It’s more than enthusiasts, but indeed so far the audience seems to be technical people because they follow the technical press, blogs, etc. and know about the device. But literally 100% of the people who’ve seen me using the Surface have had the same “ooooh aaaah” reaction that I experienced when they first saw me with a Sony Reader, then a Kindle, then an iPad in the early days of each of those. I’m talking in-depth discussions with the owner of a Japanese Restaurant who had seen the ads and lusted after the device, not just IT guys with the obvious knowledge.

      Back in the 1970s the way new blockbuster movies was introduced was completely different than today. They would pick one theater per major city and debut the movie there. People would wait in lines for hours to get in. A bunch of us snuck out of the DECUS conference to head over to the only theater in the Boston area showing Star Wars 🙂 And I have fond memories of traveling into Manhattan to line up to see the latest Woody Allen movie. Only once they had milked the artificial shortage of distribution did they expand to a broad set of theaters. Didn’t live near one of theaters that had the movie? Sorry, you can travel or you can wait. Microsoft is basically following this script with the Surface, although for somewhat different reasons than movie distributors used it in the 70s.

      Once distribution of Surface widens we’ll get a better feel for its true success. But right now the signs are mostly positive.

      • My perspective is somewhat skewed because I live in a large center in regional Australia, and distribution matters.

        However, it does makes sense that getting the device into the hands of enthusiasts and early adopters is an excellent way secure free evangelism. I had a bit of a hands on with the Surface last week, and I was surprised as to how heavy/dense the device felt. Perhaps the device is too thin for gripping with one hand, or it might be due to the width of the device that it doesn’t feel as “balanced” as touted.

        That said, Microsoft has spent enough on Surface ads that they probably are the new owners of the colours magenta and cyan. Plus those touch covers are going to stand out in the crowd the same way white headphones stood out on iPods. Combine that with self-imposed scarcity, I can understand why the word “lust” would come into mind.

  5. Brian says:

    I realize that MSFT has held back on distribution in deference to the OEMs, but it wouldn’t take much to expand it greatly and quickly.

    Even ignoring the normal big-box channel (to protect the OEMs), it would still be possible. I was in Costco the other day. My wife was looking at something and I was standing between their display of (mostly) HP PCs and the cell phone booth. I was thinking how easy it would be to have a Surface-only Microsoft store right there (similar in size to the little cell phone booth). Think of how many units Costco could move with minimal floor space and one person in a Microsoft Store shirt there to answer questions.

  6. Michael says:

    You’re right about the OEMs being conservative when it comes to Windows RT as only a few announced products run that, but disagree when it comes to Windows x86/x64 as there have been a number of announced products. There are a number of reports on the net that the no show of tablets is due to Intel having last minute problems with the power management software for the Clover Trail CPU which most of the tablets use and so Microsoft has not approved any of those tablets yet.

  7. Sent from my Windows Phone ________________________________

  8. MarcSilverTriple says:

    We are now about one month after WIndows 8 launch. I’m leaving in France, and I expected to be able to see and touch some tablets before making a decision of buying one. I really see an interest in Windows 8, as it would allow me to replace both tablet (Android) and laptop. During the last few weeks, I took time to see what was on the shelves regarding laptops and tablet. The situation looks like no one want to sell Windows 8 products. During the two first weeks after the launch, i saw basically one Windows 8 laptop with a touch screen on a corner with lot of of Windows 7 laptops. Not a single tablet. Some boxes for the upgrade of Windows 8 but that’s all.

    During the third week, I saw an Asus Vivotab RT, lost between Asus transformer tablets and Galaxy Note tablets, and not a single mention of it specificities… When you play with it and start to open Word or Excel, you clearly see the eyes around. Average people simply don’t know, and until they see, they would not even consider paying 100 to 200 bucks more for a WinRT tablet… And that is pretty concerning as there is no way they sell that to people if they don’t make it more visible. I was able to play with it, I made my own opinion. I’m looking for a tablet with an Atom Clover Trail, but this experience was enough to confirm me it is what I’m expect from a tablet and that I was not able to make with my Galaxy tab… I played 10 minutes, but a customer (initially the guy came to replace his iPad (1st gen) by something more productive with a keyboard dock) got sold by what he saw when I was playing with it. The guy thanked me, he was not aware at all of this possibility… It shows people needs to see and experience, otherwise they won’t get it.

    This week, it went even worse. Went to the same shop again, as they are supposed to get the Samsung Ativ SmartPC with an Atom Clover Trail. What I saw is even more discouraging: First: no clover trail tablet. Second: the Asus Vivotab RT is no longer with the Android tablet, it is now lost in the middle of the Windows 7 cheap netbooks. And the lid was not even lighted. I have to switch it on. It is locked. With a password. No way anyone can even play with it…

    The problem here is even worse that what you can think: OEM like Asus and Samsung are full of Android tablets they made for the end of the year (there is shelves full of them in each and every shop here), and until they sell those inventory (and it looks like the iPad mini is cannibalizing both Android tablet and full size iPad), they won’t even push the windows 8 products. I’m quite sure of this, as the commercials are pushing people to Android when people are incoming with Windows 8 will (they won’t even mention the lost Vivotab RT)… So far, except the Asus VivotabRT, all the announced tablets or hybrid look from here as an handful vaporwares.

    In final, Surface and Surface Pro might be a very clever way, having a premium product, to push shops to dedicated room for Windows 8 and WinRT products… And unless they do that, Windows will remain a pure desktop OS, as noone can see and play with it. But they will definitely need more :
    – a dedicated space for windows 8 / WinRT products (and separated from Windows 7 products that will remain in inventory at least until the next sale period)
    – products with demo mode and ability for the customer to see/play and explore and with accounts that show the possibilities of Windows 8 in less static way that it is
    – real products that people which are not vaporwares and that they can touch (and not only Surface, as people would like alternatives most likely)

    Sounds that some people in Microsoft need to consider and fix this…

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