Microsoft Finally Has A Tablet Business Model With Surface

Microsoft just unveiled its new tablet, Surface. It actually looks pretty nice, though I obviously have no idea if it works well or is worth buying. You can find the details, as they become available, here. But the shift in strategy is most interesting to me. Why is Microsoft making its own Windows tablet? Isn’t its decades-old business model to sell OS licenses to companies like HP and Dell, and rely on them to make and sell the hardware?

Yes, but times have changed.

Apple has proven that the best computers — which rely on tight software integration more than ever before — are made when one company is in charge of designing both the hardware and the software, so they’re built in harmony and just work. Microsoft seems to have figured this out, too, via the Xbox and now this Surface tablet. That’s why the Surface is able to ship with a cool cover with a built-in keyboard. Could you imagine if Microsoft left that integration to a company like Acer to perfect?

But Microsoft has also learned that the best business model in today’s mobile industry — tablets and smartphones — is to the sell the actual hardware to consumers, not just license an operating system. Given today’s economics, the only way to potentially earn a profit of more than $100 per tablet is to sell the actual tablet. There’s no way Microsoft could earn that just selling Windows licenses to HP. Especially as it’s primarily competing with Android, which is sort-of free.

Will this thing be a hit and make Microsoft a lot of money? Enough to compensate for any potential decline in the Windows-for-PC business? Who knows. I don’t see any reason yet why most people would buy this thing instead of an iPad. Perhaps some will, especially if they think Office means something to them. But I expect the iPad to continue its dominance of the tablet industry.

But it sure looks like a better strategy for Microsoft than only trusting the Samsungs of the world to design great Windows tablets, and only trying to generate mobile revenue from Windows sales.

Sure, Microsoft may now alienate some of its Windows partners by competing with them. But as those partners have gone into the mobile industry, they’ve already strayed from Windows to Android, anyway. (Although the future of Android is anything but certain, too, as Google swallows up Motorola.) Plus, competition or not, as long as Dell wants to make PCs, it’s not like it has any real OS alternatives to Windows. Chrome OS? Please.

Microsoft is unquestionably late to this market, though it didn’t intend to be: Recall Steve Ballmer showing off those lame HP Windows “slates” at CES 2010, weeks before Apple announced the iPad. But give Microsoft credit for evolving with the times, both in terms of product design and business model. It may fail, but it’s at least learning to play the right game.

I wouldn’t be surprised if Microsoft did Surface phones next, especially if this thing is even remotely successful.

Disclosure: Late last year, I performed a brief, unrelated consulting gig for Microsoft. It hasn’t affected my opinion on Microsoft’s mobile comeback, which has been mostly skeptical. But you might want to know.