Microsoft announced two new tablets on Monday, the Surface for Windows RT and the Surface for Windows 8 Pro. The Windows RT device will run an Nvidia Tegra ARM processor while the Windows 8 Pro device will use an Intel Ivy Bridge processor. Both will have a 10.6” screen with Corning’s Gorilla Glass 2.0 and come with a keyboard. Pricing and availability were vaguely discussed but not specifically revealed. The Windows RT device will be price competitive with Android tablets and the Windows 8 Pro device will be competitive with Ultrabooks, the company said.

The announcement was out of character for Microsoft who typically creates the operating system and software allowing PC partners to build devices around Microsoft products. The software giant is now essentially competing with its partners in the hardware space but reportedly said it will only sell its tablets online and in its Microsoft retail stores.

Microsoft’s move emphasizes a change in the PC industry highlighting tighter integration between software and hardware. Apple is the most noteworthy example of the value of controlling the hardware and software, as well as some services. Microsoft has joined a short but growing list of companies complementing their traditional businesses: Google with Motorola Mobility, HP with Palm and its webOS. The rate of success for these companies so far has been modest.

Hardware partners had initially been enthusiastic about Microsoft’s new tablet operating system, especially Windows RT. However, brands have privately said they are less encouraged based on the pricing of the operating system. The price of Windows RT would make it difficult to be competitive in the short term at launch, some brands noted. Microsoft is likely to face similar pricing challenges if they don’t want to upset their hardware partners with an aggressively low price point.

With the pricing guidance given by Microsoft for the Surface for Windows RT tablets and feedback from the OEMs, it is likely that Microsoft’s ARM based tablet will be targeted for the high end of the market. This will also likely mean that volume shipments of the Surface for Windows RT tablet will be a long term proposition. Bundling of Office with the Windows RT will likely push the bill of materials for the tablet up to the point where it will not be price competitive at the low end of the tablet market. However, the lack of a comprehensive app library at the launch of the tablet will likely limit its appeal at the high end of the market. It will likely take a year or two for a critical mass of useful and appealing apps to be developed for the tablet before it can be competitive at the high end of the market.

Whether the Surface for Windows 8 Pro will reach high volume shipment levels is likely to depend on the price, its distribution, and the appeal of the 10.6” screen size as a PC. Unlike mini-notes which used a similar 10.1” screen size, the Surface for Windows 8 Pro is less likely to have performance issues given its Intel Ivy Bridge processor instead of an Atom part. Its detachable design is expected to join a short list of emerging form factors that are expected to come out toward the end of the year with the expected launch of Windows 8.

While it is a positive that there is a new entrant in the market that will raise the level competitiveness and the level of innovation by its participants, it will likely be a slow build to significant influence for Microsoft in the tablet category.

Richard Shim is a senior analyst for the PC Group at DisplaySearch. As an expert in the PC industry for more than 15 years, he provides detailed research and analysis of PC markets.He has also worked closely with a number of leading PC and PC-related companies, including AMD, Dell, Intel, HP, Lenovo, Panasonic, and Toshiba. Richard has a bachelor’s degree in biology and environmental studies from Bowdoin College in Maine.


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