Reality Absorption Field: A slow rise to the Surface
After all the teasing and secrecy and controversy around its launch, the recent announcement by Steve Ballmer that Surface with Windows RT (the only chip-defined flavor of Microsoft's debut branded tablet that's currently shipping) was off to a "modest" start might have seemed like a shocking admission of failure. Did consumers not appreciate its VaporMg exterior? The crisp, car door-inspired snap of its kickstand concealing an SD slot? Its USB port? Extended range Wi-Fi? Angled rear camera? Elaborate choreography-inspiring click?
Of course, some consumers have appreciated these points of differentiation, but Windows RT has now become the fourth tablet operating system to get off to a slow start versus the iPad (joining webOS on the short-lived Touchpad, Playbook OS on the sputtering Playbook, and Android). Google's Android OS has has been the only one to make significant gains on Apple's tablets, primarily by employing the familiar tactic of undercutting on price. In the case of products such as the Kindle Fire HD and Google Nexus 7, all profit margin on the razor (hardware) has been sacrificed in the name of trying to use the device to build up sales of blades (content).
Ballmer was quick to divert attention away from the slow start out of the gate while also risking further turning off potential customers from the current offering by heralding the arrival of the Surface with Windows 8 Pro. That Intel-based version of Microsoft's tablet will embody the tradeoffs that sent Microsoft looking to support ARM processors in the first place -- among them, a thicker frame and shorter battery life. However, Microsoft believes that Intel-based tablets can leverage their backward compatibility with Win32 applications and PC industry momentum to help build the base for tablet-optimized apps, one of the shortcomings not only of Surface or other Windows RT devices, but of all the tablets that have failed against the iPad.
The ideal situation for Microsoft and (other) PC hardware makers would be to extend the tablet or at least minimize its cannibalization of primary PCs -- similar to what the netbook did in the Windows market (albeit more profitably) and what the iPad has done in the Mac market. Of course, in Apple's case, that's easier to pull off because of what had been the $500 entry price difference between the first iPad and lowest-price MacBook (and what is now the $670 delta between the iPad mini and the baseline MacBook Air).
Paradoxically, though, despite all the tablet hardware support in Windows 8 and Microsoft itself investing heavily in slow-selling hardware, it's an understatement to say that Microsoft doesn't care about the tablet market. Hence its lack of cognitive dissonance in describing Surface as both a tablet and a PC. It doesn't want to believe that a distinct tablet market exists, and if it does, it wants to make sure that it doesn't continue. That appears to be the only way to stop the iPad, or at least the potential of iPads to grow into a more credible threat to PCs.
And so, in contrast to the sales pop that occurs when Apple introduces a new iPad, sales of Windows-based tablets, hybrids and convertibles will follow the more mellifluous mature sales cycle of PCs. It's a slow-growth replacement market, but one that ultimately results in hundreds of millions of devices with baseline capabilities. To Microsoft, the touchscreen of the 2010s is the sound card of the 1990s, slowly but surely penetrating the installed base until it's taken for granted.
For Microsoft, there really is no "PC-Plus" scenario. It is the "PC" scenario, the "Plus" a grudging nod to a form factor. As that scenario plays out over the coming years, though, Apple will have a great opportunity to build on its momentum. To seize it, it will need to start thinking more about iPads used in scenarios where iPhones are not. The key to that won't be adding SD cards, kickstands, keyboards and other geegaws to its tablet, but by making the software ever more powerful and capable to create Microsoft's worst nightmare.
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