Microsoft CEO Steve Ballmer turned the company into a devices and services company, not just software.
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James Martin/CNET)
Microsoft wasn't taking chances.
The company was about to introduce one of its biggest operating system releases, and it needed its hardware partners to develop products that could genuinely rival the iPad and Android tablets.
Microsoft took control of partners working with the new Windows RT software that ran on low-power chips normally used for cell phones. It held regular meetings with the small group of companies in its development program and dictated to a large extent what the devices looked like. Details were everything. Microsoft even told one company to move the location of its Windows home key, the button that toggles between the Metro-style interface and the traditional desktop view.
"We were required at various points to get their approval on designs and on the development of our product," one hardware executive who worked with Microsoft on Windows RT told CNET. "We were all 'OK, OK, OK' because it was a project they were doing with us. We were kind of building a product they wanted built."
But at the same time, Microsoft was developing its own
tablet, Surface, that would compete with its partners' products. It didn't tell PC makers about the device until shortly before work on Surface was announced in June in Los Angeles.
"We were absolutely surprised they were doing that," another hardware executive said. "Compete with us if you like, but you need to provide a higher degree of clarity in where the line is drawn between the guys...who are our friends and those who are not."
No doubt, the stakes continue to be high for Microsoft. The company's key PC market is changing as consumers migrate to mobile devices. To compete with iOS and Android and maintain high quality, Microsoft wants to have its cake and eat it too. It's trying to behave more like Apple while still working with the manufacturers it has partnered with for so many years. That's no easy task.
For the PC makers, it means their relationship with Microsoft and consumers will probably never be the same. When computer companies introduce products at the Consumer Electronics Show next week, Windows 8 is sure to have a big showing. But Windows RT, the software geared at tablets, is largely expected to be absent.
Why? In part, it's because Microsoft controlled the development process so tightly that only a handful of companies have been allowed to make products so far. Also, initial timing for the products was geared for Microsoft's Windows launch in October, not CES (which notably will not include Microsoft this year). In addition, many companies are still evaluating their strategies for a second batch of Windows RT devices.
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The new relationship with Microsoft may be a tough one for PC makers, but they don't have much choice. The development of Surface was a nasty lesson that Microsoft can and will go it alone if need be. Don't forget, it already has with its own very successful gaming consoles. And a firm nudge may be what PC makers need since they've failed to come up with compelling designs consumers have craved.
CNET spoke with 13 current and former PC industry executives to understand how working with Microsoft has changed. Most of the executives declined to talk on the record, and Microsoft declined to comment for this report. Executives had different opinions on their new relationship with the software giant, but they all agreed on one thing: Microsoft has become more of a control freak than ever before.
Making Windows mobile
Microsoft's Windows software is the most used operating system in the world. About a quarter of PCs, tablets, and cell phones combined used some version of Windows in 2012, while 10 percent used
Android, and 6 percent used Apple's software, according to the research firm Gartner. But Gartner expects that to change over the next few years, with Android projected to slightly surpass Windows in 2016.
Android should gain traction against Windows.
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Gartner)
The majority of devices sold in the future will be smartphones and tablets -- products where Windows and the traditional PC vendors like Hewlett-Packard and Dell have struggled. Mobility hasn't been Microsoft's strong suit. And because the x86 processors from Intel and AMD found in Windows-powered laptops and PCs require more power, they haven't been suited to mobile devices.
To overcome that problem, Microsoft created a version of its operating system, Windows RT, that would run on chips based on ARM Holdings technology -- the same kind of processors that power the vast majority of the world's smartphones and tablets. The new
Windows 8 runs on x86 chips.
As Microsoft CEO Steve Ballmer noted during the Surface launch in June, the company designed the newest version of Windows "for the world we know, in which most computers are mobile."
Microsoft's move to support ARM caused a rift with its traditional chip cohorts, and it also forced its PC partners to figure out where to put their efforts: Windows 8, RT, or both.
Sam Burd, global vice president of Dell's PC group, holds an XPS 10, which uses runs Windows RT and uses a Qualcomm processor, in August during IFA.
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Stephen Shankland/CNET)
Windows RT, often referred to as "Windows on ARM," has some big drawbacks compared with Windows 8. Perhaps most important, it's not compatible with many older applications, including iTunes. But it also has some big benefits, like allowing thinner and lighter designs.
Because Windows RT and the processors running the operating system were so different, Microsoft knew it couldn't just set PC makers loose with the software. The most successful products, like those from Apple, have come from close integration between hardware and software, so Microsoft set out to act a little like its longtime rival.
Steven Sinofsky, the former head of Windows who recently left Microsoft, said in a blog post last February that making Windows-on-ARM PCs was "building out a new system for the first time" that would allow PC makers to "bring to life a new generation of PCs with new capabilities." He said the Windows RT devices would be focused on thin and light design, long battery life, and "integrated quality" and that the process would be a close partnership between the hardware makers and Microsoft. He added:
Our goal is to make sure that a reimagined Windows delivers a seamless experience from the chipset through firmware, through hardware, through the OS, through applications, and ultimately to the person interacting with the PC. This is a new level of involvement that brings with it a new level of engineering work across all of the parties involved. This new approach is about delivering a unique combination of choice, experiences, and a reliable end-to-end experience over the life of the PC.
What that meant, as one hardware executive noted, was that developing a Windows RT device "was not like any process we'd been through in the past with Microsoft."
Microsoft instituted an "Integrated Development Program" that paired ARM chipmakers (Nvidia, Qualcomm, and Texas Instruments) with a maximum of two partners to make new Windows RT designs. The IDP program applied to Windows 8 as well, with Intel also initially paired with a couple of companies. However, Microsoft ended up letting Intel work with more partners on tablets because developing for Windows 8 was essentially the same as for all previous Windows systems.
The computer makers, meanwhile, had little say in which chipmaker they worked with. Nvidia ultimately paired with Asus and Lenovo, while Texas Instruments partnered with Toshiba. Qualcomm initially worked on products with Samsung and HP.
It wasn't clear which designs would be most favored by consumers, so each company had to make something different to see what sold well. One executive compared the process to "a horse race where you put everybody in a stall and see what comes across the line first."
Microsoft was closely involved through the entire device development process. Along with "many, many, many e-mails," one hardware executive said, it held formal calls to monitor progress about every week and called in-person technical meetings about every other month. If a company was struggling, the checkups would be more frequent.
Typically, a handful of Microsoft executives -- usually Steve Guggenheimer, then head of the original equipment manufacturer relations, and his team, as well as various specialists like wireless and networking teams -- would gather with each PC maker and its chip partner at Microsoft's Redmond, Wash., headquarters or each hardware company's home base to assess device readiness. The meetings generally would be a mix of presentations, discussions, and hands-on working sessions.
Microsoft also set guidelines for what components could be used, giving RT developers a narrow list of approved chips for things like wireless LAN modules, gyroscopes, and ambient light sensors. It also set strict requirements for the size of the LCD bezel, one hardware executive noted.
The Asus Vivo Tab has a detachable keyboard.
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Sarah Tew/CNET)
Mike Angiulo, vice president of Microsoft's planning and PC ecosystem team, said in a blog post in August that working together on everything from the chips to the apps enabled "a new level of mobile experience and performance" that wouldn't have been possible without the new technology and engineering collaboration.
"In order to improve success and quality, Microsoft didn't want people to go and use 30 different audio chips that they'd need to ensure worked," a hardware executive said. "We had to agree with Microsoft on each and every component that had a software impact, that had a device driver."
PC makers sometimes had to use more expensive processors and materials than they would have liked, which some complained limited their abilities and resulted in products different from what they originally wanted. As one partner noted, Microsoft's requirements also made its device pricier than it anticipated.
In addition, the testing process was more extensive. Typically, PC makers go through a "Windows Hardware Quality Labs" evaluation to make sure drivers are certified for Windows. That process didn't apply to Windows RT. The PC makers gave devices to Microsoft to be evaluated for certain features like battery life and to see how well they actually worked, and the hardware partners also sent feedback to Microsoft about the OS.
One executive, whose company shipped about 250 samples of its Windows RT device to Microsoft, liked the fact that the software company was "spending as much time involved in looking over the product and testing as we're doing on our side because they're deep into how the OS works."
But Microsoft decided that something more needed to be done.
Steven Sinofsky talks up Microsoft's Surface tablet at an October event at Chelsea Piers in New York.
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Seth Rosenblatt/CNET)
Beneath the Surface
Work already was well under way on the first batch of Windows RT products when Microsoft sent out invites for a mysterious press event in June, where it revealed it was working on its own Surface tablet, the company's first push into making computer hardware.
The news shocked Microsoft's chip and PC partners, who weren't notified about Surface until days before the announcement. Some had been told earlier that Microsoft was working on its own hardware to sell in its stores, but as one executive noted, Microsoft didn't say anything about a tablet or using Windows RT. The executive said:
At the time, our reaction was -- we wish you wouldn't do that, but if you want to compete, we think we can compete well. As we learned later on that it actually was Windows RT, that made things much more awkward because it's managed within their Windows business group just like they deal with us within the Windows business group ... Without the clarity of when we are competing and when we are collaborating and working together against the Apples and the Androids of the world, it creates a degree of hesitation in almost anything you do or any discussion you have.
Microsoft, for its part, has said it created Surface as a model for what Windows tablets should be like, not because it wanted to usurp its PC partners. However, Microsoft acknowledged in a regulatory filing in July that Surface will compete with the other device makers and may hurt PC makers' commitment to Windows.
Of course, Microsoft isn't alone in wanting to set the standard for devices using its OS by releasing its own products. Apple controls both its hardware and software, and Google has done essentially the same thing by releasing its Nexus products and buying Motorola. However, in Google's case, it doesn't just work with Motorola but also collaborates with various hardware makers to create its Google-branded devices rather than building them on its own. For example, LG worked with Google on its Nexus 4 phone and Asus partnered with Google for the Nexus 7 tablet.
Microsoft has tried to reassure its PC partners that it has a strict separation between the employees who oversee the IDP program and the team working on Surface. Nonetheless, partners worry that's not always the case, and some worry that selling Surface is the priority, and everything else comes later. And Microsoft isn't expected to stop with the first Surface tablets. It reportedly is working on phones, as well as future iterations of Surface.
RT troubles
RT development has been far from smooth. Few products were ready for launch when Windows RT was released in October, and those on the market have been difficult to find. In addition, the reception to Windows RT has been tepid, which has caused some PC makers to rethink their strategies.
Microsoft has not yet provided details about Windows RT or Surface sales, but most indications are that demand has been modest since launching in late October. According to IHS iSuppli, Windows RT tablet sales likely totaled 1 million in 2012, and other estimates peg shipments well below that figure. By comparison, Apple sold 3 million fourth-generation iPads and iPad Minis in the first three days they were available. The company is estimated to have sold about 25 million iPads in the December quarter.
The number of Windows RT and Windows 8 tablets is expected to soar over the next few years -- to 34.4 million in 2016, according to Gartner -- but it should still fall well short of Apple and Android tablets, which should total 219.3 million and 109.2 million, respectively, the firm said.
Android and Apple tablets will continue to outnumber Windows tablets for at least the next several years, according to Gartner.
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Gartner)
Even before the Surface hit the market, HP, an original IDP program member, said in June that it had scuttled its immediate plans for a Windows RT device after receiving feedback from customers that they preferred Intel-powered tablets for business use. And Toshiba in August said it canceled its initial RT products because of development problems that would have delayed launch. The company believed its devices would be handicapped if they weren't introduced with the first wave of Windows RT products.
Damien Cusick, general manager of Samsung Electronics UK, holds the Windows RT-based Ativ Tab in August at the IFA trade show in Berlin. Samsung hasn't yet released the device.
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Stephen Shankland/CNET)
The rest of the Windows RT market has been equally shaky. Asus' Vivo Tab RT was the only Windows RT product, besides Surface, available in the U.S. at the time Windows launched in October. Lenovo introduced its IdeaPad Yoga 11 in Asia first and only started selling the device in North America shortly before Christmas. And Samsung hasn't yet launched its Windows RT product, dubbed the Ativ Tab, saying that it was still formulating its strategy.
Dell, which initially was slated to be part of a second batch of Windows RT devices, ended up taking HP's place in the IDP program. As a result of its later start, Dell didn't ship its Windows RT device, called the XPS 10, until December.
And shortly after Toshiba scrapped its Windows RT plans, its chip partner, Texas Instruments, decided to go in a different direction with its mobile processor business. That left the program down one ARM chip provider.
A "second wave" of Windows RT products was expected to hit the market early in 2013, but it's unclear how big that wave will be or if it will really happen at all.
Microsoft considered limiting the new devices to companies not included in the first batch, such as Acer and Dell, one person said. However, Dell was moved to the initial group, and Acer said in October that it wouldn't release its product as soon as it had planned because tepid Surface sales made it more cautious.
Meanwhile, handset makers used to working with cell phone chip providers may introduce Windows RT products in 2013. Nokia reportedly is preparing a Windows RT device for early this year, while HTC may launch products later in 2013. Microsoft is expected to maintain relatively tight control over the second batch of devices, executives said.
"In general on systems that are very small, that want to have long battery life, instant on, always connected environments, there's going to be a necessity of more and more close collaboration between the hardware and software," one hardware executive said. "Windows RT is going to loosen up a little bit as Microsoft and everybody else has more experience, but [almost] everything else is going to tighten up more."
Microsoft CEO Steve Ballmer talks about the company's strategy during the Windows 8 launch in October in New York.
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Sarah Tew/CNET)
Microsoft as a devices and services company
Microsoft seems determined to maintain its tablet strategy, with plans to launch the Intel-powered Pro version of the device this month. Ballmer, speaking during Microsoft's annual shareholder meeting in late November, made it very clear that the company should now be considered a devices and services company, not just a software maker.
"Sometimes getting things right with hardware and software is hard to do unless you're doing both of them," Ballmer said.
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Microsoft is counting on its new strategy to help it stave off competition, but it's unclear how well it's actually going. Few people really expect the first round of Windows RT devices to have blockbuster sales, but some say Windows RT could be the future for Microsoft.
"People didn't get it at first because it's not fully enabled, but you have to see down the road," said Roger Kay, of tech research firm Endpoint Technologies. "I think this is the future. It's what allows Microsoft to get into high mobility."
While closer integration of hardware and software should ultimately help Microsoft compete with Apple and Android, it frays nerves among traditional PC partners. Many executives said they'd like more clarity on when Microsoft is a rival and when it's a friend, but Microsoft isn't likely to share details about its future products with the computer vendors. And even if PC makers wanted to move away from Microsoft, there aren't a lot of options. Their best bet, it appears, is to to play nice with Microsoft and hope the closer integration helps them compete with the iPad.
"This partnership model with Microsoft can work for you or against you," one executive said. "If you really get in bed and work closely, it can be very successful. If you're vocally against it, you could stall it or make the market unsuccessful. That's betting against Microsoft succeeding ... and I generally don't bet against them."
