The Windows 8 Surface Tablets

I don’t know why Microsoft recycled the name “Surface” for their new tablets. Many remember that Surface was the name they used for their Big Ass Table several years ago. Priced at $10,000, it shipped shortly after the iPhone but wasn’t even intended for the consumer market.

It’s weird that they picked a name for a critical product that reminds the world of the Big Ass Table. Whatever.

The Surprise Announcement

The big news was that Microsoft has abandoned its historic business model of licensing their operating systems and letting OEMs do all the integration. Horace provided a fascinating analysis. In the tablet market, they can’t expect the same revenue that they received from selling Windows and Office to millions. To make the money they are accustomed to, they need to build the devices themselves and sell the integrated product.

Of course, they can see that the PC business is no longer a growth opportunity; all the growth is in markets from which they are almost completely shut out.

It’s now a few days after the surprise, so cooler heads are starting to examine the announcement more critically. For starters, journalists are beginning to absorb the simple fact that the so-called “hands-on” demos were actually hands off. It’s starting to dawn on people that the units weren’t close to even being ready to lend samples to reviewers. There’s a huge number of questions that were left unanswered.

The Twilight of the Gods, part II

To celebrate America’s Independence Day, Horace posted an especially brilliant essay — even by his standards. In just a few hundred words, he explained why Microsoft now feels the crushing weight of more than 25 years of computer history.

He chose to graph the ratio of the number of PCs to Macs sold. He plotted the annual figures from 1984 to the present. This period spans the lifetime of the Macintosh computer.

The graph looks like a mountain in profile. Microsoft’s advantage increased from 6 times in 1984 to more than 50 times in 2004. But since 2004, the trend is an unbroken pattern of decline, down from the 50+ at its peak to roughly 20 today.

MS business

Yet we are talking about “only” 20 times the combined sales of PCs than Macs. No problem, you say.

The picture quickly becomes scary when you add the number of iOS devices to the number of Mac OS X computers and recompute the ratios of computing devices by year. The change only affects the years since 2007 when the iPhone was introduced, but the pattern is alarming: The rate of Microsoft’s decline accelerates rapidly.

Microsoft in decline

Instead of declining to a fairly safe ratio of about 20 to 1, it is now less than 2 to 1 and plummeting.

Horace:

If we consider all the devices Apple sells, the whittling becomes even more significant and the multiple drops to below 2. Seen this way, Post-PC devices wiped out of leverage faster than it was originally built. They not only reversed the advantage but cancelled it altogether.

Considering the near future, it’s safe to expect a “parity” of iOS+OS X vs. Windows within one or two years. The install base may remain larger for some time longer but the sales rate of alternatives will swamp it in due course.

This neatly expresses why Microsoft is in panic mode; that’s why Ballmer and Sinofsky are tearing their hair out.

In panic mode, its hard to think rationally; they know that all the growth in the computer industry is in mobile and they’re not in it!

That’s new about this Microsoft Surface?

I wrote a comment on the Windows 8 Preview release a few days before the Surface announcement, but my conclusions about the state of the company were only reinforced by the Surface. Microsoft comes across as a split personality at war with itself. That struggle is now playing itself out in both the operating system and hardware fronts. They can’t make up their mind because they have two of them.

When the news of Metro first hit, people were surprised and delighted that Microsoft is not just serving warmed-over NT in a new dress. Yep, Metro is genuinely new. Part of Microsoft now knows that they have to act decisively. But the other part of Microsoft is the the custodian of the Windows legacy and their stagnant customer base. That part of Microsoft can’t bear to let go and allow the tablet effort to proceed as an independent thread. Microsoft’s biggest problem is that that their CEO is in that group!

The upshot is that Windows 8 is a hybrid — it’s schizo. It’s the union of those two massive efforts that are now expressed in two maladaptive hardware reference designs.

Philanthropist Bill Gates recently appeared on TV to give his interpretation. He’s the guy who built Microsoft’s empire from paper tape, so I listen to him. He seemed genuinely excited by this new development, but to many he confirmed their fears. He reiterated Microsoft’s party line: That the Surface is somehow superior to iPad because it uniquely offers the best of both worlds.

“I actually believe you can have the best of both worlds,” he said. “You can have a rich eco-system of manufacturers and you can have a few signature devices that show off, wow, what’s the difference between a tablet and a PC?”

Wow! It sure sounds like he is still fixated on appealing to Microsoft’s existing customer base! How in the world will such a device appeal to post-PC users? Study Horace’s graphs for revenue and operating income over the life of the iPhone.

Microsoft should be going all balls out trying to get into the post-PC tablet game. Instead of producing a no-compromise tablet, they are going to ship two compromised devices.

  • The ARM-based Surface has no universe of third-party software behind it.
  • The Intel-based Surface is supported by the enormous base of Windows programs (That’s the disadvantage.), but it runs on an incomplete and compromised version of (historical) Windows — minus a Start button and plus a second layer of tools known as “Charms.”

Folks who are comfortable living in the post-PC era are interested (even excited) by the ARM-powered tablet. It’s that Intel brick that they’re wondering about. But it’s starting to become clear that only the Intel version can possibly realize the dream of offering the “best of both worlds.”

  • Compromise #1:The ARM reference design can’t possibly run that enormous base of productivity tools that the existing customer base uses, nor can it compete with the iPad’s library of third-party apps. And it’s limited by being Microsoft’s first shot at doing a new platform.
  • Compromise #2:The Intel reference design runs all the Windows apps, but is a mouse/pen-based OS running on a tablet! Gates already tried hard to sell the world on that when he had the decisive advantage, but he failed even then.

When you listen to both Gates and Ballmer, it’s clear that somehow the heavier and more costly Intel reference design has been morphed into a “no-compromise” device within Microsoft.

Both Gates and Ballmer sound like they want to stay inside the envelope defined the customer base that Horace graphed for us. Even as Microsoft is on the verge of introducing a new tablet, they are still being held back by the priorities of the PC generation of computers. How are the Metro and Surface experiments ever going to work?