Sorry But Your Next Apple Thing Will Be Made by Microsoft

This is a story about software, but it begins with hardware. On Monday, Microsoft unveiled its first ever Windows PC that it built from the ground up, the new Surface tablet. It's a bold move for a company that built an international monopoly on the backs of its partners, relying for decades on guys like IBM, Dell, and HP, to now focus on actual moving parts. Growing increasingly frustrated and impatient on the sidelines, the company is finally taking destiny into its own hands. Watch out Tim Cook. Microsoft builds stuff now.

It's a big deal because Surface, at first glance, looks like at least a half-decent product, one that more or less matches Apple's latest iPad pound for pound — the RT model is actually a tad slimmer — and, despite its universal form factor, still exudes plenty of personality. This is no mere clone.

As an owner of the original iPad, I’ve often felt like a flailing newborn on a tablet. (First world problem? Sure.) Yeah, it’s great for reading emails, but for responding? Not so much. Yes, I could more easily browse Reddit on the toilet or secretly read Twilight during the morning commute, but it's not like I was ever going to do serious business on the thing. The iPad was, and in many ways still is a luxury device; more oversized phone than stripped down laptop. It’s certainly convenient but not entirely necessary. About a year ago, mine stopped charging. I forgot about it quickly.

The centerpiece of Surface is Windows 8, due out in the second half of this year. Reimagined for the future, the revamped operating system features Metro, an interface built around touch. But unlike the stripped down iOS for iPad, it still has a Windows heart. That means support for full-fledged productivity software: Photoshop; Office; hell you could even play Civilization V, if that's your kind of thing (but maybe not for ten years.) Windows division chief Steven Sinofsky, who helped present the device at its Hollywood event, described it as a "tablet that's a great PC – a PC that's a great tablet."

But not everyone is convinced and Microsoft is already way late to the party. So far in 2012, 63 percent of all tablet sales went to Apple. "I don't think Surface is a big hurt on the iPad," said Ezra Gottheil of Technology Business Research, who believes the device might only appeal to businesses. Brian White of Topeka Capital Markets agreed: "We found little in yesterday's presentation that would convince us that a consumer would prefer Surface over an iPad," he said.

Could this be a classic example of PC feature bloat vs. Apple's "work with what we give you because we know best, this thing is perfect as-is?" How much do ordinary consumers really care about USB 3.0 and the ability to use enterprise-grade software? For some, the nifty new keyboard case just isn't enough. “While we believe Surface will appeal to users looking for a Windows tablet capable of running Windows-based productivity software, we do not see it altering competitive dynamics in the tablet market,” said Brian Marshall, an analyst with ISI Group, in an email Monday.

For others, like Slate's Farhad Manjoo, this may represent the first real step in the post-PC era, when he inadvertently prophesied the arrival of Surface in his review last week of the new Retina-equipped MacBook Pro:

The mystery is what will happen to Apple's laptop line as it picks up more and more features that we associate with the iPad. Like Apple's tablet, the new MacBook has a Retina display, and it boasts seven hours of battery life, which is closing in on the iPad's 10-hour mark. At some point Apple's laptops will add touchscreens, too—touch will be too widely embedded in the computing culture for laptops not to have it. At the same time, the iPad will get faster and faster, in time matching the power of today's laptops. And all the while, the Mac OS will keep picking up more and more features that Apple first showed off on its mobile OS. What happens when these trends collide? In three years' time, what will be the difference between a $499 iPad and a $999 MacBook? Will they be essentially the same machine, except that one will come with a keyboard and one won't? The same question applies to Windows PCs, too, as Microsoft's upcoming Windows 8 is meant to enable the convergence of tablet and desktop operating systems. Will there soon be no difference between Windows tablets and Windows laptops, either?

With Windows 8 and Surface, Microsoft has gone a long way in blurring those lines. Of course, without pricing information, it's impossible to say how Surface tablets might actually compete. Microsoft has dabbled with hardware before to mixed results, like the ill-fated Zune music player and forgettable Kin phone. What they do possess however, is a fiery determination, willing to eat heavy losses as they did with the original Xbox, if they know the big picture makes sense – and Microsoft is unquestionably all-in on tablets.

In a sense, this is Microsoft back to its old-school best: ripping pages out of Apple's playbook. Surface is by all means an elegant product, a testament to the company's newly fine-tuned, even Jobsian, attention to detail. According to Microsoft, inside the tablet are 200 custom parts crammed so tightly that an extra piece of sticky tape would cause the device to bulge. During the presentation, they constantly channeled legendary iPod designer Jonathan Ive: “When you talk about the hardware fading to the background, it needs to not get in the way.” Microsoft is learning.

But that’s mainly because its had to. More than anything, Surface is an act of desperation. “It was always clear that what our software could do would require us to push hardware, sometimes where our partners hadn’t envisioned,” said Ballmer of the decision to design and build the Surface. “With Windows 8, we did not want to leave any stone uncovered.” In other words, Microsoft had to take ownership because no one else was. It's a telling indictment of the big hardware players at large, who for years fumbled with various Android tablets that failed to launch. Even in the laptop space, they needed Intel to hold their hands by pushing for Ultrabooks after the chipmaker lost confidence that the industry itself could create a suitable competitor to the MacBook Air.

Guys, the race to the bottom is officially over. The final winner? Certainly none of the contestants. With the public no longer fazed by faster and cheaper, consumers want a cohesive product, something OEM specialists like Dell and HP are ill equipped to handle. IBM dumped its PC biz long ago. These guys aren't about fine lines and seamless integration, they're about big volumes and cutting costs. Microsoft, on the other hand, has all the right resources. Software is king.

The biggest loser of all, however, might be Google, who suddenly finds itself the awkward third wheel, banished temporarily to tablet irrelevance in what now looks to be a two team race. The company will be under enormous pressure to impress at its I/O conference later this month when the search giant is expected to show off its first Nexus branded tablet. If history is any indication, Google may continue to struggle. I still don't know anyone who uses a Chromebook, and the Nexus phones, while compelling, haven't made much of a splash. Who knows, if Nokia continues to struggle, Microsoft might be forced to build its own really cool phone. And that can only be a good thing.

Follow Alec on Twitter: @sfnuop.

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