Why Microsoft should make its own tablets (and phones and PCs)

It looks like Microsoft plans to build and sell its own tablets, competing with its own partners. Great idea!

Computerworld - The All Things D site reported this week that Microsoft on Monday intends to announce its entry into the tablet hardware business.

While Microsoft does make hardware -- mice, keyboards, Xbox, Kinect, Zune, Surface and other products -- it has not yet made desktop PCs, laptops or tablets, opting instead to embrace a partner strategy of third-party OEM manufacturing.

Pundits will no doubt say that Microsoft has a case of Apple envy and suggest that the company is finally embracing the highly successful "Apple model," in which the operating system maker also makes its own hardware.

In fact, Microsoft's announcement will be more in line with the "Google model."

The Google model is to have it both ways -- making hardware, but also licensing your OS to hardware partners who make products of their own. Google partners with OEMs for smartphone handset and tablet hardware. But it also acquired Motorola, which makes Android hardware.

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The Motorola acquisition isn't Google's first foray into hardware sales and direct competition with hardware vendors. Google launched its Nexus One smartphone handset in early 2010. Although that phone was technically manufactured by one of Google's partners, HTC, it was sold by Google and branded as a Google phone. As it turned out, Google didn't like the support part of the hardware business and decided to exit that line of work for a while, but it had let its partners know that it was willing to compete with them.

Traditionally, the assumption has been that you must either partner with hardware companies to manufacture systems for your operating system (the Microsoft model) or not allow other companies to make hardware for your platform (the Apple model).

A hybrid approach has been considered suicidal because competing with your partners puts you in a gray area where you have hardware competition and fragmentation, but you also have a smaller number of partners who are also less committed and more distrusting.

But times are changing.

Microsoft's application of the Microsoft model to mobile hasn't worked out. A big partnership with Nokia has been a flop. The software vendor has fared badly in the mobile market, far outpaced by Apple, which uses the Apple model, and Google, which uses the Google model.

When Google announced its bid to acquire Motorola -- effectively declaring its intention to compete with its hardware partners -- many pundits predicted disaster for the company. But the disaster never happened. Google is getting away with it. Android OEMs are continuing to churn out more innovative and exciting hardware, and they don't seem vexed by the prospect of competing with the company that makes the operating system they use.

Instead of the worst of both worlds, Google appears to be enjoying the best of both worlds, gaining the benefits of a hardware company (control and patents), while also gaining the benefits of an operating system company that partners with hardware OEMs (a thriving ecosystem, broad innovation and market choice).

Apparently, Microsoft wants the same thing. And why not? Microsoft has succeeded with a variation of the Google model in some areas. The company's mice and keyboards, for example, have sold well, even though third-party hardware makers have offered similar products for the larger Windows PC marketplace. Admittedly, it's a little different because we're talking about peripheral devices that don't run Microsoft operating systems directly. But still.

Microsoft has also succeeded with the Apple model. For example, one of Microsoft's most successful products is the Xbox gaming console. In that case, Microsoft sells the operating system and the hardware, and it even created and runs the associated Xbox Live online service. Like Apple, Microsoft goes it alone, not seeking partnerships with third-party manufacturers to make competing Xbox hardware systems.

And, of course, Microsoft succeeds with the Microsoft model. Microsoft Windows can't be described as anything but a major business success story. The model is to make the operating system software and rely entirely on partners for PC hardware.

But that's the past. The future looks less rosy for Microsoft Windows and the Microsoft model.
Why the Microsoft model won't work in the future

There are two reasons why Microsoft needs to move to the Google model for all of its product lines.

First, the world is becoming increasingly mobile. The so-called PC market is simultaneously becoming more mobile (more laptops, fewer desktops) and increasingly obsolete. Apple's post-PC world is clearly the future of all computing. That's why Windows 8 is so heavily optimized for tablets and touch.

The Microsoft model worked great for the old-and-busted desktop PC world, but it doesn't work so well for the new-hotness mobile and touch-tablet world. With computing "appliances," seamless integration is the highest virtue.

The world has changed, and the model that works is also changing.

Second, Microsoft can't rely on its OEM partners anymore. If you go to, say, BestBuy, to shop for a low-cost laptop, as I did recently, it's clear that Microsoft Windows systems on the low end (sub $1,000) are garbage.

These devices are bloated with crapware (cheap software loaded on the systems by OEMs as part of negotiated deals that offset price discounts), covered with ugly, sloppily applied stickers, and made from flimsy, cheap-feeling materials like plastic or wobbly metal. They look like junk.

The Apple table at BestBuy is 10 feet away, and for $1,000 you can buy a MacBook Air with zero crapware, no stickers and the highest quality materials (unibody aluminum). Their screens look far better, and their performance is shockingly superior. They're displayed in an appealing and uniform way, with Internet running and everything ready to go and available to try (I spent 20 minutes trying to escape from a Dell system's "demo mode" so I could try the machine out myself. I eventually gave up.)

Nobody washes a rented car. Likewise, discount PC OEMs don't treat Windows machines with love and respect, as Apple does with Apple machines.

Higher-end Windows PCs offer a better experience than the low end models, but the cheap systems are destroying the Microsoft brand in the minds of consumers.

That's why Microsoft has launched its own retail stores. Microsoft is willing to invest in retail stores as a way to gain some control over its brand image. But that's not enough.

Microsoft needs to create its own premium, high-quality desktops, laptops, tablets and phones for the same reason that automakers like to have high-end car models in their lineups. The upscale models create a "halo effect" for the brand -- an aura that extends to even the cheapest vehicles.

It's a new world. Rather than viewing Microsoft as a competitor, Microsoft's OEM partners should and, I believe, will welcome Microsoft's participation in the hardware end of the business, because the company can create a halo effect that extends to the entire platform and benefits everyone. Nobody in the Windows world would benefit from an Apple takeover of the market.

There is absolutely no way Windows can compete as a tablet operating system against Apple's iOS -- unless Microsoft takes direct control by making its own integrated tablets, as Apple does with the iPad. And even then, it's a long shot.

In general, though, Microsoft appears to be waking up to the new reality. That reality is that nobody except Apple can succeed with the Apple model. And the Microsoft model is yesterday's news.

That leaves the Google model as Microsoft's one hope for success in the post-PC world.