Is Microsoft becoming a hardware vendor?

Summary:At least for the foreseeable future, Microsoft will be building the software, services and the hardware that will make the first Surface coffee tables and kiosks tick. Does this signal that Microsoft is looking to be not just a software company, but a hardware one, as well?

Microsoft for years has been building keyboards, mice and joysticks. More recently, it started building Xbox gaming consoles. Then Zune MP3 players. Now, with the company's official unveiling of Surface, a k a Milan/PlayTable, Microsoft is mamufacturing large-screen, multitouch, gesture-recognizing computing devices.

Does all this mean that software vendor Microsoft is looking to hardware as a slow-but-steady growth engine for the company?

After all -- at least for the foreseeable future -- Microsoft is building the software, services and the hardware that will make the first Surface coffee tables and kiosks tick. Company officials said that they ultimatly might encourage and allow hardware makers build some Surface systems, but there are no timetables or firm plans for non-Microsoft-built Surfaces.

(The official statement, regarding why Microsoft is providing the end-to-end Surface systems, courtesy of Kyle Warnick, Senior Marketing Communications Manager: "At this time, we're following a strategy similar to the Xbox model. We want to insure interactions that consumers will have (with these Surface devices) will be consistent.")

I asked Matt Rosoff, an analyst with Directions on Microsoft, whether he thinks we might see a more hardware-centric Microsoft in the future. Rosoff pooh-poohed my theory.

MJF: "Is it wise for MS to become more and more of a hardware maker? Isn't it kind of like a digital/Web based publisher suddenly saying: "Let's do print!" It seems like there are a whole new set of fixed costs/risks if you make hardware and not just software and services?"

Rosoff: "Actually, I don't think Microsoft is becoming a hardware maker. In general, they make hardware where they feel they need to in order to drive an important technology. This goes way back to keyboards and mice--Microsoft got into the business because it was necessary for the GUI to take off. They stayed in the business because they found it was profitable.

"That's not always the case--recall their quick exit from the 802.11 wireless router market, for instance. With Xbox, they had to make the hardware because it's so heavily subsidized. With Zune, they had to make the hardware because they saw that customers preferred convenience and experience over choice (of stores and devices)."

MJF: "Is the 'end-to-end' hardware-software-services solution -- like an iPod or an XBox -- an anomaly? Or something you're expecting to see more of from Microsoft and others?" Rosoff: "Fundamentally, Surface isn't the table--it's a new (and pretty impressive) UI. They probably felt they had to make the first Surface hardware to seed the market. I'm guessing they're subsidizing the cost of the hardware first, but if demand takes off, they'll open it to OEMs and that will create price competition, eventualy getting the price down to where this could become a consumer category. I'm also guessing that they want to have tight control over initial application development to ensure a high-quality bug-free experience, but once they feel more confidence in the stability of the platform, they'll open it up to application developers.

"If they don't open the platform, I personally think Surface will be an interesting footnote, but little more. To get the unit numbers up to where this is an interesting business for Microsoft, they have to create a partner ecosystem."

What do you say, readers? Do you agree with Rosoff? Or do you expect to see "closed" hardware-software-services platforms, like Surface computers, Xboxes, Macs, etc., become the rule rather than the exception?

Topics: Microsoft, Hardware

About

Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network. Got a tip? Se... Full Bio

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