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 dell.com and other OEM websites dwarfs traffic to microsoftstore.com 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.