Why Microsoft is building a tablet - but won't build smartphones

Why Microsoft is building a tablet - but won't build smartphones

Summary: Microsoft has surprised everyone by developing its own tablet, the Surface. But don't expect Microsoft to be building its own phones any time soon for a number of reasons.

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Now that Microsoft is in the tablet business with Surface (I don't say 'now Microsoft is in the hardware business' because Microsoft has been in the hardware business for three decades, with mice, keyboards and Xbox), the speculation that Microsoft will buy a phone manufacturer and bring out its own brand Windows Phone has started up - again.

But although I was very surprised that Microsoft is making its own tablet, I still don’t believe Surface makes a Microsoft phone any more likely, because the situation with the OEMs is very different in the tablet space and the phone space. 

Put simply, Microsoft doesn't need to compete with its hardware partners to make a great phone because Nokia is already doing that - unlike the PC OEMs who have barely created one usable tablet PC design between them.

And Microsoft can't afford to compete with its hardware partners in the phone market, because they have too many other alternatives - unlike the PC OEMs, who have no serious alternative to Windows. 

Certainly the combination of power-hungry processors, mouse-oriented interface and generic tablet designs has left even tablet PC fans like us disappointed.

It's that kind of sloppiness that I assume drove Microsoft to build its own premium tablet. And it's been a good thing for Windows as well; making its own tablet will give Microsoft a focus on making the hardware work as well as the software, on optimising the software experience for running on actual rather than theoretical hardware and on paying attention to every step of the process from setup to troubleshooting (because every problem on a Surface is going to turn into a costly support request for Microsoft directly). 

None of that is true for Windows Phone. The limited hardware platform simplifies development and support even though there are multiple suppliers. Bundled apps can't slow the phones down like PC crapware can and you can get rid of operator and OEM apps you don't want. The hardware isn't a problem. Samsung's Windows Phones have been perfectly acceptable, even if they don't get as many updates as they should; HTC has a reasonable range of handsets covering a mix of price rnges and operators. And Nokia is making exactly the kind of innovative, well-designed, full-featured handsets Microsoft wants for Windows Phone, taking advantage of all the software features. 

So Microsoft doesn't need to buy a handset maker, or have one make a Microsoft branded phone (the way Toshiba made Zunes) to get the devices it wants.

And it can't afford to alienate all the other handset makers it doesn't buy - because Microsoft needs the phone makers more than the phone makers need Microsoft.

If they don't want to make Windows Phones in competition with Microsoft - phone makers have plenty of alternatives. There's Android, there's Tizen (the descendent of Meego and several other mobile Linux projects), there's Mozilla's Boot To Gecko - you could even make a case for picking up WebOS and making a phone with it, given that the HTML5 underpinnings are more relevant than ever now.

The desktop operating system market is far narrower. If the PC makers are unhappy at Microsoft makings its own tablet, what are they going to do? Abandon the Windows marketplace where they sell millions of PCs and switch to Linux? No: even if you loathe Windows 8 with the unjustified fire of a thousand burning suns, this still isn't the year of desktop Linux.

Android tablets have hardly been a commercial success (unless you're Amazon) and with Google prepared to give away any margin it might be getting on the $199 Nexus tablet as a credit for apps from Google Play it's going to mop up most of the buyers looking for an Android tablet that isn't the Kindle Fire. Chromebooks still aren't a serious alternative either; they're far too limited (and still overpriced compared to say, a Windows notebook of the same spec running the Chrome browser).

Like it or lump it, the PC makers are going to keep making Windows PCs. 

With no need to buy a handset maker and good reason not too, why would Microsoft saddle itself with a loss-making company like Nokia - which is already doing everything Microsoft needs it to - or RIM?

If Microsoft is really talking to RIM, I'm prepared to bet* it's about taking a licence for Windows Phone rather than buying a company Microsoft already has significant partnerships with in all the important areas (Bing and Exchange).

I'm not sure RIM is interested; BlackBerry 10 aims to take advantage of many of the same trends Windows Phone does and changing horses in midstream is a good way to get drowned. Yes, delaying BlackBerry 10 until next year is a huge blow for the company (Nokia is already putting the face replacement group shot feature RIM demonstrated in the spring onto current Lumia handsets) but they could hardly get a Windows Phone out before then anyway.

And while I'd love to see a Windows Phone with a BlackBerry-quality keyboard, the 4:3 format screen you'd expect to see used on a keyboard phone was noticeably missing from the lineup of Windows Phone 8 screen resolutions - and RIM is concentrating on touchscreen phones with clever software keyboards.

As for those stories about Microsoft looking at Nokia's books? Look at the significant cross-investment between the two companies. Microsoft is pinning its phone hopes substantially on Nokia and investing heavily in the company to make it happen. It's going to have been looking at Nokia's books in great detail to make sure Nokia has at least a chance of delivering. As always, following the money with Occam's razor in hand will help you work out what the smart move is. 

Mary Branscombe

* I already have a bet on twitter that Microsoft will not buy RIM, or Nokia, as a whole, functioning phone company: if either company got broken up for spare parts Microsoft would be in there for the patents, but if Microsoft buys a phone maker and makes its own phones, I’m buying the finest latte in Putney.

Topics: Smartphones, Microsoft

Mary Branscombe

About Mary Branscombe

Mary Branscombe is a freelance tech journalist. Mary has been a technology writer for nearly two decades, covering everything from early versions of Windows and Office to the first smartphones, the arrival of the web and most things inbetween.

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  • Good points...

    I agree that ticking off its mobile OEM partners could be more perilous. For now, the current model is working. The only way Microsoft would buy Nokia is if that was the only way to keep Nokia from going under or from being bought by Microsoft's competition. I also don't think Microsoft will buy RIM, although I do think Microsoft would like to ink a deal with RIM (similar to the Nokia deal), but RIM doesn't seem interested. It seems RIM would rather die, than be rescued.

    The reality is that Windows Phone 7 was a beta test, a stopgap measure. New information is revealing that Microsoft has been working on Windows Phone 8 longer than Windows Phone 7. How's that for irony? Windows Phone 8 will be a culmination of the best of (the once popular, but now retired) Windows Mobile and the newer Windows Phone 7 "metro" UI. It will be a much more powerful phone, more powerful than Android & more powerful than iOS. This should be very appealing to enterprise users (the same enterprise users who liked Windows Mobile & Blackberry a few years ago).

    Windows Phone 8 (and Windows 8) is Microsoft's big chance to disrupt the market. The sleeping giant is awake, and he's leaner and meaner than ever before. Oh, and hungry. ;)
    metromalenyc
    • No purchase

      We won't see Microsoft buy Nokia, we'll see an Apple like purchase where they buy some amount of stock to get a minority stake and keep them afloat for a few more quarters. Honestly, with Windows Phone 8, if it doesn't take off immediately, especially with the synergy with Windows 8, there's not really much more anyone can do.

      But I have hope though, carriers are interested in the product. They clearly had to know that Windows Phone 7.5 would not be upgraded to Windows Phone 8 and didn't want to deal with that ticking time bomb. Microsoft had to have known since developing Windows 8 on ARM, which was January 2010. They certainly fessed up to partners by the time people like Paul Thurrott knew, which was December 2011 (and explains why Verizon and Sprint didn't offer any other phones). However, with Apple threatening to ban practically any Android phone sold in the states and the dominance of their phone sold on those networks with a $100 more subsidy, carriers are eager for real competition to emerge so at some point they can say "screw you, we've got plenty of other options" and all collectively subsidize the iPhone less (decreased sales for Apple, better balance sheet for the carriers).

      We'll see how it goes, I guess...
      Jeff Kibuule
      • Subsidizing the iPhone less

        I live in Europe and the situation here is more or less this:

        Windows Phone: lots of these on the shelves, lots of aggressive advertising (Nokia has been the phone of choice in Europe), but these things are hardly purchased in quantity. To my knowledge, these are all sold on subsidy.

        Android phones: lots of these on the shelves. Lots of variety. These are sold more or less at reasonable amounts, mostly because of the low price or huh-spec. There is also lots of advertising going on. Most Android phones are sold on subsidy, some as low as 1 Euro a month.

        iPhone: there is always an demo unit in the store. Almost always the iPhone is out of stock, because any quantity Apple is able to ship is sold almost immediately. Those who buy the iPhone know what they are doing. iPhones in Europe are rarely sold on subsidy.

        If US carriers don't want the iPhone, that won't be any trouble for Apple, because they have huge and untapped market outside of the US. On the other hand, Microsoft has yet to convince high-end buyers that their platform is worth their time -- many/most of those were already burned by Windows Mobile.
        danbi
  • Like it or lump it?

    I think I'll lump it...
    smdoubled
  • On the flip side of that

    a big reason that many of these smart phone manufacturers are struggling to make a sustantial profit is that they're competing with others offering the same basic product, OS and all.

    With Apple, it's the only place in town for the iPhone, so they have some pricing control, and are in much better shape for it.

    MS buying Nokia making it the only WP7/WP8 manufacturer would be a boost for it, but would they be able to churn out the products at a high enough rate? Would they be able to satisfy all consumers with enough models? Could they do it proftably? Right now they are but one manufacturer in a sea of many. Should MS buy them while leaving the others intact selling Windows phones wouldn't change anything.

    If MS were to buy Nokia they would have to pull WP8 from partner OEM's and let Nokia make it exclusively, as Apple does, let them bankrupt each other in the Android world.

    But then again, that something they can't do as many of those OEM's also sell PC's.
    William Farrel
    • Translation

      Wilie wants a one vendor world where competition is discouraged and Microsoft is the only game in town. He's bitter because Microsoft has UTTERLY FAILED when it comes to the phone market.

      Just letting you Brits know...
      CaviarBlack
      • Translation?

        Are you seriously attempting to rewrite the words of someone else, label it as a 'translation' and then pretend you didn't alter the original meaning? What a childish play. Please, retranslate every comment here, while you're at it.

        The original comment needed no 'translation' for anyone but you. You just can't handle it as it was.
        TechNickle
        • Sock puppet time, fuzzy wuzzy?

          I know where Wilie Farrell's coming from. I've dealt with him on these blogs for years so yes, what I said is pretty accurate. He hasn't defended one thing that wasn't made by Microsoft yet and I don't expect him to.

          Sounds more like you're the one that can't handle it. Felling a 'bit' rattled, are we?

          lol...
          CaviarBlack
      • Translation? Part Deux...

        "Just letting you Brits know.."

        Feel free to change location to the UK. You will not be missed. "Just letting you Brits know..." What a freakish, suck up thing to say. I suppose you'd rather celebrate "Dependence Day". I hope you sat alone in your parent's basement, finding other ways to deride the very country that gave you the freedoms of speech you enjoy daily, to post against them. I'm guessing you never travel much.
        TechNickle
        • I'm a brit!

          Change location to the UK and you'll still see our blog; Simon & I have been writing for ZDNet in the UK for quite some time - 500 Words Into The Future comes to you as part of the new redesign. I'm sure there are previous discussions that will reappear in comments to our posts. We do speak quite good American as well, spending quite a lot of our time on your side of the pond at conferences and events, but we'll probably have UK slang and we'll definitely have UK spelling. Our basement is a cellar, for example!
          mary.branscombe
        • Well we get UK articles now

          Or haven't you noticed?

          I'm just letting our Brit friends know we have some proprietary tools over on this side of the pond, too.

          Should I have been talking about you instead? Hmm?

          lol...
          CaviarBlack
    • Not so fast Will

      Google has bought Motorola and has the branded Chromebooks and Nexus lines, all the while supporting a thriving ecosystem of partners. MS has to do begin same the process of running a hybrid model like Google across all its consumer lines. MS can't rely solely on OEMs as it deeper into the ARM market. And the whole Google versus Amazon spat is a harbinger of things to come: cut throat margins. A MS buy of Nokia is guaranteed, with the only question being when. At the present Nokia's market cap is $8B.
      jjworleyeoe
    • Re; let Nokia make it exclusively.

      I wish they could, but Nokia is now in big problems thanks to the Elop "burning platform" speech, that very efficiently kill Nokia's biggest earner, the Symbian phones.
      At the time just before this speech, Nokia shares was at Euro 8.40; they are now below Euro 1.70.
      Nokia's credit rating at the same time went from top rating then and down to junk status now.

      It will take a lot of good fortune to turn Nokia back into the top again, and they used to be number one in the world.

      The fact that Nokia started making WP7 phones could have been a very good idea, but to scrap everything else the had, INCLUDING their biggest earner, Symbian, was definitely an utterly [b] stupid idea. [/b]
      They went into red very shortly after, so when Microsoft decided to make Lumias hard to sell by making them obsolete, Nokia had NO chance of getting back into the black.
      Now Nokia has next to nothing to sell apart from already obsolete WP7 phones.

      Some other company than Nokia must be chosen to make anything exclusively.
      hkommedal
  • With Windows XP, Vista and 7!? Has Windows 8 even been RTM'd yet?

    From the article:
    "unlike the PC OEMs who have barely created one usable tablet PC design between them

    I expect to see OEMs, especially those of ASUS's caliber, exceed whatever Microsoft can do. In fact, the ASUS chief, when interviewed about the Microsoft Surface, was amused.

    Besides being chained to the past, there might actually be a practical reason for Microsoft's Surface form factor (more laptop than tablet). One has to wonder how quickly ISVs will modify their software to support multi-touch on Windows 8. Will they wait to see if Windows 8-based tablets take before overhauling their software or will they lead the charge? Or, maybe, port their software to the iOS-based iPad while waiting for a sign?

    P.S. The Windows 8 release date will roughly correspond to the iOS 6 release date. That's version 6 for iOS!
    Rabid Howler Monkey
    • Windows 7 has multitouch

      I've been using it on an HP convertible for 2 years, give or take, and since January on a Samsung tablet; the design of both is clunky compared to even Android tablets and they hardly impress compared to an iPad - the OEMs should stop being smug and start trying to do their job properly ;-) Supporting multitouch in Windows 8 is very simple for a developer - far less effort than rewriting entirely in Objective C; using it intelligently for a good touch interface is more the issue, and it will be interesting to see which ISVs are up to it.
      M
      mary.branscombe
      • RE: Windows 7 has multitouch

        But, not Windows 8 multi-touch:

        http://www.pcworld.com/article/240045/windows_8_will_take_laptop_touchpads_to_the_next_level.html

        Windows 7 multi-touch is quite limited compared to iOS and Android. Windows 8, like the article states, will take it to the next level.

        Microsoft is blaming the OEMs when Windows 7 multi-touch capabilities were behind the curve. Otherwise, why didn't Microsoft create the Surface two years ago using Windows 7?
        Rabid Howler Monkey
        • Touch or touchpad?

          That link is about using gestures on a touchpad; I'm talking about multitouch on screen - pinch, rotate and so on. I've been zooming with my fingers in IE9 for a year on Windows 7, for example; I just wish it had been on a sleeker tablet that didn't put my back out if I carry it with the extended battery all day long.

          Microsoft started work on Surface at the same time as it started work on Windows 8 (possibly even back when it started work to run Windows on ARM; the EXIF data of the photo of Windows running on an ARM phone dates it to before the launch of the iPad). Why didn't it start even earlier? My assumption is a combination of the ARM chips not being fast enough and Intel/OEM promises for thin & light machines sounding more believable back then...
          mary.branscombe
    • The surface is not more laptop than tablet. It''s a completely touch

      centric tablet device that will largely be used minus the keyboard, despite what people think when they buy it.
      Johnny Vegas
      • If it is touch only

        Why is there the built-in stand and the always attached keyboard?
        (yes, I know you could possibly remove the keyboard if you didn't want to have a cover for your Surface)

        It is an tablet with keyboard. A "safe" bet for Microsoft, if there is not enough touch-centric software written for Windows 8/RT.
        danbi
      • Re; . . will largely be used minus the keyboard . .

        So you are saying that the keyboard AND the backstand is just in the way.
        The backstand is of NO use for that purpose.
        hkommedal