With New Tablet, Microsoft Faces a Balancing Act

BY NICK WINGFIELD/NEW YORK TIMES, OCTOBER 25, 2012

Microsoft, the world’s best-known software company, is now in the business of making its own computers. That could get complicated.

The delicate balancing act Microsoft must now perform was apparent at two events it held Thursday in New York to mark the introduction of two major new products. At the first, Microsoft showcased devices made by Samsung, Dell and many other important hardware partners that run Windows 8, a version of its flagship operating system redesigned to accommodate touch-based devices like tablets.

An hour later in a different area of the same venue, a huge pier in the Hudson River, Microsoft focused entirely on Surface, a Windows tablet of its own design and the first computer the company has made in its 37-year history.

The split allowed Microsoft to spotlight devices made by others without awkwardly upstaging them with Surface. But Microsoft executives left little doubt as to which computer was their favorite. At the Surface event, Steven Sinofsky, president of Microsoft’s Windows division, described the product as the best tablet and laptop he had ever used. (The company is selling a magnetically attached cover for Surface that doubles as a notebook-sized keyboard.)

“We decided to do Surface because it’s the ultimate expression of Windows,” Mr. Sinofsky said. “It’s a stage.”

Microsoft’s move into the hardware business has perturbed many of its traditional partners, with implications that are still unclear. The company was to start selling Surface at midnight at about 60 Microsoft-operated stores around North America, a move that has annoyed retailers who will be deprived of a high-profile electronics device backed by a big marketing campaign.

There’s grumbling, too, a lot of it private, from the company’s hardware partners about Microsoft competing with them for sales. But there aren’t many compelling software alternatives to which Microsoft’s partners can jump.

Michael Gartenberg, an analyst at Gartner, said Windows 8 was too critical for the company to leave just to its partners, who often churn out uninspired designs. “This is Windows the way Microsoft wants you to see it,” he said of Surface, which has an eye-catching magnesium case. (The first version of Surface will run a variation of Windows 8 called Windows RT that cannot run older Windows applications.)

Things could get even trickier for Microsoft and its partners in the future. Steve Ballmer, Microsoft’s chief executive, has left open the possibility of making more hardware products, with analyst speculation focusing on a possible smartphone.

In a rare joint interview on Wednesday, Mr. Ballmer and Michael Dell, the chief executive of Dell, one of Microsoft’s oldest partners in the PC business, played down any fallout from Microsoft’s move into hardware. Mr. Ballmer said Mr. Dell was the first person he ever showed a Surface device to, prior to the announcement of the product in June. He said he flew to Chicago with one of the devices to meet Mr. Dell, who was on his way to Lagos, Nigeria.

Mr. Ballmer said it was important for him to show the device and explain it to Mr. Dell in person because he expected his initial reaction to be: “What the heck? This is different.”

Mr. Dell, for his part, said he did not have a problem with Microsoft making Surface. “As I’ve understood Steve’s plans here, if Surface helps Windows 8 succeed, that’s going to be good for Windows, good for Dell and good for our customers,” Mr. Dell said.

Of course, if Surface flops, its partners will likely find it easier to ignore. The company still has to convince customers, including businesses, that the product is as compelling and reliable as Apple’s iPad, a product that has had several years to develop.

Rich Adduci, chief information officer of Boston Scientific, a medical devices company, has more than 20,000 PCs at his company running older versions of Windows. But Mr. Adduci has also deployed more than 5,500 iPads to salespeople and other employees.

“Candidly, Surface is going to have a long hard road ahead of it, given the marketplace and how it has matured with iPad and Android devices,” he said. “There’s a very high bar for Surface that it’s going to have to hit initially for it to have a real chance.”