Microsoft: Surface Tablet May Compromise OEM Partner Loyalty (MSFT)

Posted by · July 27, 2012 11:21 am

Just a month after unveiling its first-ever homemade tablet, Microsoft appears to be backing away from its originally confident posture regarding the Surface’s affect on the company’s relationships with OEM partners. Submitting its annual report to the Securities and Exchange Commission on Thursday, Microsoft admitted that the Surface may serve to rattle some of its longstanding partnerships.

In the section of the SEC report entitled “Risk Factors,” the company made the following disclosure:

We derive substantial revenue from licenses of Windows operating systems on personal computers. The proliferation of alternative devices and form factors, in particular mobile devices such as smartphones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users may increasingly turn to these devices to perform functions that would have been performed by personal computers in the past. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform.

Such an admission stands in stark contrast to the confidence that CEO Steve Ballmer displayed during a sales conference last month, where he said that “the importance of the thousands of partners that we have that design and produce Windows computers will not diminish.”

And that wasn’t the only time that Ballmer attempted to placate concerns about OEM disillusionment with Microsoft because of the Surface.

In an interview with The Verge, the Microsoft exec reasserted the new tablet’s was supposed to “prime the pump” for the release of Windows 8, spurring the adoption of the imminent operating system across other devices. Doubling down on his remark, Ballmer described the Surface as “an important companion to the whole Windows 8 story.”

“It’s an important piece; it’s not the only piece.”

To say that such a confession comes as a surprise would be a bit misleading. While such an acknowledgement might not have been expected until after the Surface started rattling partner relations, the potential for such a point of contention was obvious as soon as the tablet was introduced.

To some, the idea of a relatively untapped tablet market on the part of Microsoft provided sufficient reason to conclude that the Surface would be able to make up for any ground not covered by its partners. However, it appears that even Microsoft isn’t so sure about that logic anymore.

“Competing with your customers is a delicate matter,” observes Nick Wingfield of The New York Times, writing on the newspaper’s Bits blog. “It’s no surprise Microsoft wants to dodge this topic. Still, it’s nice to see Microsoft at least acknowledge one of the central risks in its Surface strategy, rather than pretending it doesn’t exist.”

Of course, actually dealing with such a “delicate matter” is going to take more than simply acknowledging the problematic nature of this situation. As “nice to see” as it might be, that’s only the first step.

For more news on the Microsoft Surface tablet…