Mundane and pointless brought to you by Microsoft Surface!

So they’ve done it.

The big announcement Microsoft was hyping over the weekend turns out to be a Microsoft tablet, which has been named after another MS product it has little relation to*.

The Microsoft Surface is an ugly tablet on steroids. Available in 32, 64 and 128 GB models, with two different operating systems available- Windows RT (which won’t run x86 code) and Windows 8 Pro (which will). The case has a built in stand and hardware keyboard. USB 3 ports. HDMI output. A camera tilted just so, to let you take properly-framed pictures of your own face.

Now I just recently had a job selling computers. Well, actually mostly selling Ipads because they are what people seem to want. So I can see Microsoft wanting to get onboard. Apple is kicking MS’s ass all over in the portable device category and nothing MS does (anyone remember Zune?) seems to make a dent. Windows Phone 7 continues to suck hind tit, although the one person I’ve ever met who has one thinks it’s the coolest thing ever.

Are there Ipad users out there wishing they could run Windows on the thing? Or is the Ipad fully and completely capable of making you forget that Windows ever existed? I’m not an Apple fan by any stretch** but I will give them credit for what they are good at, which is creating a product people lust for. And in the nine months that I was selling Ipads no one ever came up to me and asked me if they could get one that ran Windows. I would, from time to time get inquiries about being able to open Office docs on one. But that’s it!

Microsoft hasn’t given a price point for this thing yet but if it’s anywhere near the Ipad’s price, forget it. The store I worked at carried five or six different flavors of tablets (counting the various Ipad SKUs as a single product). But no one wanted the Samsung or the Sony or the Toshiba. The ASUS Transformer was cool to look at and had some awesome features and I might have maybe sold one in nine months. No one cared. Because at the price they were selling for (within $100 of the price of an Ipad) people would say if they were going to spend that much, they were going to buy an Ipad. The only tablet that ever compared was the Blackberry, after the dramatic fire-sale price cut that put the most expensive model at $250. And of course at that price, Blackberry is basically giving the things away if not taking a hit on every sale. Does Microsoft have the cajones to price this thing in such a way that it will begin to compete? I doubt it. Considering all the fancy hardware, the built in keyboard, Windows 8, Office, etc I have a feeling this turkey is going to be more expensive than a comparable Ipad. And thus, the Ipad is going to continue flying off the shelves while the Surface behaves like a surface and gathers dust.

*The original Microsoft Surface was a computer the size of a table that does all kinds of neat stuff. You can see one in (exaggerated) action on Hawaii 5-0, doing most of the crime fighting. In reality it would make a great kiosk for hotels, malls etc. I have a feeling most of the potential in Surface (the table) hasn’t been imagined yet. It was a product I was very excited about but like this new Surface, I can see how sales could be dismal at best. One does not buy an expensive piece of technology to fulfill a need one has not actually identified.

**I like Microsoft, I really do! My last couple threads on MS have been complaints because you can only really be betrayed by one you love. It pains me to see MS playing catch up like this because I have a feeling this tablet is going to be the next Zune.

“Surface?” Like where I put my drink?

No, that’s the “coaster” app.

Boy does that thing look cheap. (as in plastic, something that you’d give a kid to play with, cheap)

The keyboard cover is neat.

I’ve never used a tablet and I’ve never known what’s supposed to be so great about the iPad compared to other tablets.

It looks like a good productivity tablet. People who just want to browse, read, watch video would probably find it too heavy. But those people I see at work using an iPad with the keyboard on will probably like it. The keyboard makes work apps easier to use, but it is still awkward reaching up to touch the screen every time you need to do something with a cursor. The trackpad would make it easier to get things done, and the Surface would be running the same applications that are on the PC at home or on the desk.

They are clearly trying to solve the problem of the netbook, which was just a small, slow laptop. Maybe rather than a thick tablet, this is the next step from slim notebooks. It has the touch tablet interface, without the locked out feeling of iOS, and a better companion to a Windows computer. If I am browsing on an iDevice and run across an application, or file that I would like to download, I can’t just download it, save it, and pass it off to the PC. I have to remember to look it up later when I am at my PC and download it then.

I can’t see owning an iPad without a computer, since the file system is inaccessible, or hidden behind the apps. I could see having a Windows tablet stand alone, especially with cloud storage and the ability to attach external media when needed.

If it runs Windows 8, does this mean it just runs regular programs like a PC?

If so, I think it’s awesome and has a ton of potential.

The fancy/expensive one does. The RT version will not, as it will be running Windows on ARM, which cannot do x86/x64 code.

However, the fancy one doesn’t come with Office, so assume an extra $129 on top of the unspecified cost if you want to do any actual work with it.

I want one. Will I pay for one? That’s a different question. But it’s not necessarily relevant.

MS doesn’t need to make a hit product out of this, really. They just need to make a product people want. Magnesium and glass construction, a clever keyboard/case, and the kickstand/camera balance all make this look pretty damn polished.

If the Surface is a breakaway product, all the better. If it ISN’T, it’ll still be a way to get consumers to look at Windows tablets, which will be coming from numerous partners.

Pricing will be the big test. I would wager they’ll position the RT aggressively against the iPad, either matching price points or aiming $50 less.

Did they verify the x64 version won’t come with the touch version of Office?

LibreOffice or or even Google Docs will presumably be options.

Are you referring to the keyboard? It’s a flexible cover. It’s meant to look lightweight.

The tablet itself is glass and metal.

Now I am slightly annoyed because I’ve known this as Surface for a few years now. Guess I have to recalibrate.

I am an iPad user - have both the 1 and the 3 - and I would prefer a tablet that I can do more on. One that runs Office would be sweet. I would like to acquire a Surface, without a doubt.

I’d be interested if it could be jailbroken to run a flavor of Android.

I want a brown one.

I think I want one, looks like it fits my needs better than an iPad.

I will buy one when they are available, at least to develop on.

Not to put too fine a point on it, but this seems odd. Unless you have some very specific app needs, there’s really very little if anything that Android tablets would do better. If your life is entirely tied in to google services, maybe I can see it.

The worst part of most Android tablets is that they run Android.

Office for iPad might ship before the SurFace…

My life is slowly becoming tied to all Google services, and I’m okay with that… And anyway, I’ve played around with a computer running the Windows 8 OS, and hate its living guts. I want no part of it in my life.

I don’t expect the Surface to seriously compete with the iPad, but I can’t agree that this is a dumb business decision.

Microsoft really isn’t a consumer products company, really. Of the major Microsoft divisions, “Windows & Windows Live” earns around $12.2bn in operating income–that’s the crown of the Microsoft crown jewels; and 75% of the entire division’s profits are not from direct consumer sales. The Server & Tools Division earns around $6.6bn in operating income (virtually 100% of which is not in the consumer market.) Online Services, which is basically Bing, loses money every year (around $2.5bn.) The Microsoft Business Division (basically the core office suite and a few other more specialized programs like Visio and etc that are part of the general office family but typically sold separately) earns $14.1bn in operating income (note that is more than Windows & Windows Live division. Microsoft sells a lot more copies of Office to consumers these days (as a share of the division’s operating income) than it does Windows (which is mostly not sold direct to anyone aside from special case consumers), but Office like Windows sells a lot more copies through volume licensing agreements and etc with business customers than it does shrink wrapped copies sold by retailers.

With Office, the consumer market does not even appear to be terribly important to Microsoft anymore. A huge share of the consumer market can actually get office for extremely cheap. Just about anyone whose employers has a volume licensing agreement for Office (which is a huge number of employers) is eligible for the “Home Use Program” which lets you buy a copy for $10. Just about any student or anyone tangentially associated with a school can also get a vastly discounted copy of office. Microsoft mostly seems to care about the Office consumer market because they want people using the same productivity software at home as they do at work–on the thought that if enough people are using stuff like OpenOffice at home they may start thinking “hey, why not use this to replace Office at work?”

Finally, Entertain & Devices earns around $1.3bn in operating income a year. So it’s a profitable, billion dollar business (primarily selling Xboxes, Microsoft keyboards/mice/other hardware and etc), but it’s obviously not really Microsoft’s core business. If you were to compare Microsoft and Apple and gave Apple the same sort of internal business segments, almost all of Apple’s income would come from device sales, with a small number from its share of online sales through its iTunes stores and another small share from sales of Apple created software (iWork, OSX etc.)

So in all reality, Microsoft could get rid of its Entertainment & Devices Division and its Online Services Division and focus all of its resources on Windows/Server & Tools/Office, and it’d basically be a company more like Oracle or Cisco in that its a technology company who mostly only sells to the enterprise. Microsoft would be profitable indefinitely under that approach, in reality based on income that’s almost what they are today.

So that does beg the question of why Microsoft even bothers with stuff like Bing (which loses money) or the Xbox (which costs a ton of money and barely makes a profit)?

Well, with any technology company you have high margins. Technology companies, especially software companies like Microsoft, do not require a huge amount of capital (in comparison to other businesses) to produce their products. This generates a lot of free cash flow. A normal business can make capital investments with cash. For a software company like Microsoft, that makes less sense. You can only do so much capital investment. If you’re an energy company that’s all you ever do, the more money you make the more you invest in new drilling equipment, new land contracts to get at more oil/gas, so that you generate more revenue so you can buy even more drilling equipment and more land contracts etc etc. The technology business doesn’t work that way.

You can basically save it, leave it sitting as cash or treasury bills. It’s not a bad idea to do that with some amount of money, but it’s questionable how far you should take that. Apple’s huge cash war chest for example is questionable in terms of what it does for shareholder value. Obviously it makes Apple attractive in that it has some real book value to validate its share price, but at a certain point the war chest is actually far bigger than it should ever be. That’s because there is an opportunity cost to not doing something more with that money.

You can use it to acquire other companies (which Microsoft is famous for doing.) This actually

Finally you can use it to develop new products and services, which is what Microsoft also does and is doing with the surface.

If you look at a company like Proctor & Gamble, they have some 26 “billion dollar brands” that are solidly profitable and insure P&G long term profitability. However, P&G is also always developing new brands. Most of them do not become as successful, some just become mild successes and stay around, and some fail outright. However P&G isn’t dumb for trying, just keeping their business focused on the existing brands (each of which individually could falter over time) would expose P&G to long term risks. I think it’s the same with Microsoft, it essentially doesn’t have anything else to do with its money other than buy other companies and develop new products.

Even if most of those acquisitions don’t turn out to do much, and even if most of their new products fail, it still makes sense to try. Some Microsoft acquisitions do generate profit right now (Dynamics and Visio for example), and some new Microsoft products also are part of Microsoft’s profits (basically the entire Entertainment & Devices Division.) Obviously the lion’s share of Microsoft profits are still in the OS and the Office Suite, but to me it only makes sense to try and continue to diversify.

With the Surface I think there are two possibilities. One is that it’s just a gamble, Microsoft didn’t feel its hardware partners (who mostly do not have the best and brightest, and who basically sell boring commodity products) were going to create a very polished Windows tablet and Microsoft basically feels it could generate significant profits from Surface. That’s definitely one possibility.

The other possibility is that it’s more of a “Bing” investment. I don’t think anyone at Microsoft thought, when they launched Bing, that it was going to knock Google off the throne. Bing is a “defensive” activity, undertaken for business strategy reasons that only Microsoft execs really know and I don’t, but I’m guessing it’s basically just to try and keep Google from having an outright monopoly on search for whatever reason Microsoft finds that kind of thing important. So the Surface may not be designed or intended to be a major new part of the Microsoft empire, it may just be designed to get Microsoft tablets out there to some degree and serve as a template for its hardware partners to aspire to, who will hopefully be able to sell a lot of their own devices.