Microsoft hardballs its partners with Surface

@CNNMoneyTech June 21, 2012: 10:20 AM ET
microsoft surface hardware

Mike Angiulo, Microsoft's head of the Windows PC ecosystem, showed off the Surface tablet this week.

NEW YORK (CNNMoney) -- So this is how Microsoft wants to play ball.

At long last, a Windows tablet has captured the world's attention -- but Microsoft itself had to do the dirty work. In a major shift from three decades of tradition, Microsoft is blowing off its hardware partners and manufacturing the Surface tablet itself.

Historically, Microsoft (MSFT, Fortune 500) has left it to companies like Dell (DELL, Fortune 500) and Hewlett-Packard (HPQ, Fortune 500) to produce its PCs and Windows devices. Though those manufacturers have been making Windows tablets for a decade -- long before Apple's (AAPL, Fortune 500) iPad set the tablet field on fire -- none of their gadgets made a blip on the consumer radar screen.

Part of the fault lies with Microsoft itself. Windows has never been touch-friendly, and its enormous profit margin leaves manufacturers with little financial leeway to innovate on the hardware side.

But PC makers have also been embarrassed by the iPad, a runaway success that is eating away at their core business. IPads are even making their way into workplaces, once a mainstay of Windows.

Microsoft's Surface move seems in part a dismissal of its partners' ability to develop an iPad-killer.

Microsoft, of course, swears that there's no drama afoot. Mike Angiulo, the company's VP of PC ecosystems, scoffed at the idea that Microsoft is snubbing its hardware partners, calling it "just completely wrong" at the Surface's launch event in Los Angeles on Monday.

Angiulo, who works with outside partners like component vendors and hardware manufacturers, said Microsoft will be just one of many to offer Windows 8 tablets.

The tablet is simply meant to show "what's possible," he told CNNMoney. In his view, the hardware players don't have the research capital or the "willingness" to spend on developing something like Surface. Microsoft does, so it took the vanguard.

Still, that puts vendors like Samsung, Toshiba, Acer and Asus -- which all have Windows 8 tablets in the works -- in the unenviable position of trying to top the high-profile Surface. It's now the standard against which all of their efforts will be judged.

If they're irked, none of Microsoft's usual partners are saying so publicly. HP declined to comment, while Acer and Samsung didn't reply to a request for comment on the issue. Dell said simply that "we look forward to delivering a full slate of Windows 8 products -- including tablets -- later this year."

They probably can't afford to shun Microsoft, even if they wanted to. Windows 8 appears to be their best consumer option if they want to battle the iPad.

Google's (GOOG, Fortune 500) Android hasn't made a significant dent in the tablet sphere outside of Amazon's (AMZN, Fortune 500) Kindle Fire, a low-cost, heavily customized "tablet lite" device. Linux, Ubuntu and other open-source operating systems have never taken off with the general public.

And despite the Surface move, Microsoft needs its partners, too. The company considers Windows a "partner-driven business," Angiulo said, and it doesn't want to miss out on the scale outside vendors can bring.

As Angiulo put it: "There's no way Windows gets to 1 billion devices," Microsoft's stated number of total Windows devices out there today, "on its own."

That's a track record Microsoft wants to maintain.

Top secret: Still, Microsoft wasn't exactly forthcoming with its partners about its plans for Surface.

The development was so top-secret, Angiulo said, that he had to convince suppliers to send him parts without spilling any details about the device.

It was even a surprise to most Microsoft employees. Although Microsoft Surface was in the works for years, Angiulo says most of the Windows team found out about the tablet just last week.

Only Angiulo's hardware team, a handful Windows engineers, and a smattering of people from the Xbox and "old" Surface (renamed the PixelSense) groups -- plus, of course, Microsoft CEO Steve Ballmer and Windows president Steve Sinofsky -- knew about the tablet.

Microsoft's head of corporate communications, Frank Shaw, told CNNMoney that Microsoft didn't buy any company to acquire talent for Surface. It truly was an internal project.

Why all the secrecy? Sometimes when you want something done right, you have to do it yourself.

But if it's going to upset one of the most profitable business models in the tech field, you're going to want to keep that hush-hush. To top of page

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