Microsoft Surface Fuels Fear and Loathing in PC Land

when I was a young construction worker with a big mouth and smallish muscles, I got a bit of advice I've never forgotten: "Don't let your mouth write a check that your butt can't cash." Someone should have told that to JT Wang, CEO of Acer, who mouthed off to Microsoft the other day.

"We have said [to Microsoft] think it over. Think twice," he said in an interview with the Financial Times.

Wang, of course, was referring to Microsoft's plans to build and sell its own tablet, the yet-to-ship Surface, an unprecedented move that has computer manufacturers wondering how they'll compete with their most important partner. Acer is the fourth-largest shipper of PCs, but launching vague threats against Microsoft is a bit like tossing spitballs at the train that's about to run you over. It's a losing tactic that underlines the panic spreading through the industry.

Microsoft shifts its course with Surface
Microsoft's Surface announcement has been viewed as a tacit admission that the company doesn't believe the OEMs will produce a decent Windows 8-based tablet on their own. If history is any guide, they probably won't. Case in point: Acer, HP, Dell, Asus, and Samsung all tried and failed to produce a tablet that could compete with the iPad, says IDC analyst Bob O'Donnell.

Microsoft knows that, and having made a huge gamble with the radical redesign of Windows, it's taking tablet matters into its own hands. If that upsets the OEMs, it's simply too bad. "They [the OEMs] simply have to live with this. They have no other option," O'Donnell told me.

Microsoft's internal deliberations on this matter are unknown, but the writing is on the wall. The Windows franchise is in trouble, as users increasingly turn away from PCs to today's more powerful tablets and even smartphones. It is, as Apple's ads used to say, time to think different.

Panic in PC land
Not convinced that the PC market is in dire straits? One short paragraph in Gartner's report on the second quarter of this year says it all:

"In the second quarter of 2012, the PC market suffered through its seventh consecutive quarter of flat to single-digit growth," said Mikako Kitagawa, principal analyst at Gartner. "Uncertainties in the economy in various regions, as well as consumers' low interest in PC purchases, were some of the key influencers of slow PC shipment growth. Despite the high expectations for the thin and light notebook segment, Ultrabooks, shipment volume was small and little impact on overall shipment growth."

Microsoft experienced its first-ever loss as a public company last quarter, and though delayed revenue for Windows 8 pushed it into the red, it was still a sobering event. Intel, the other huge pace setter, drove the Ultrabook push, and since that effort has failed to goose sales of PCs, Microsoft was left with little alternative than to make a radical course correction.

The manufacturers' fear of competition by a partner is fairly obvious, but there's another layer here. Although Microsoft has not yet announced a price for the Surface, the company has indicated it will cost about as much as an Ultrabook, which could mean $900 to $1,000. That sets expectations on the part of the buying public that Windows tablets will be as expensive as iPads or more so.

If the OEMs want to price their tablets more competitively, they'll look like "second-rate also-rans," says O'Donnell. But if they maintain a high price point, they'll need to compete head-on with the iPad. That's a very tough sell, as the makers of Android tablets have learned.

Windows 8 worries
Making all of this even more nerve wracking for Microsoft and its PC partners is anxiety over Windows 8 itself. The new OS has garnered generally poor reviews (to put it mildly) from those who have tried it out on standard PCs. The interface that Microsoft used to call "Metro" simply doesn't work very well on a device that is not touch-enabled, and most PCs are not. Some have even called the Windows 8 experience on the desktop "nauseating."

You might think that Acer CEO Wang was just mouthing off when he made his remark to the Financial Times. But one of his chief lieutenants made a similar statement to the same publication, which makes me think it's corporate policy.

Campbell Kan, Acer's president for personal computer global operations, said the Taiwanese company was debating internally how to respond to the Surface and any further challenges that could arise if Microsoft expands further into hardware. "If Microsoft ... is going to do hardware business, what should we do? Should we still rely on Microsoft, or should we find other alternatives?" Kan said.

I don't like to call people dumb, but that's a really dumb remark. For companies like Acer, there are no alternatives to Windows or to Microsoft. Pretending otherwise is plain foolish. When Windows 8 ships, tens of millions of dollars in co-marketing funds will flow from Microsoft's coffers to the OEMs' grateful hands -- unless guys like Wang and Kan let their mouths write those uncashable big checks.

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, "Microsoft Surface fuels fear and loathing in PC land," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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