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With Surface, Microsoft Stands Little Chance of Competing With Apple in the iPad Market

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Microsoft announced its new tablet device yesterday, and it has a tough road ahead.

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The only problem with Microsoft is they just have no taste. They have absolutely no taste, and what that means is -- I don't mean that in a small way, I mean that in a big way. In the sense that, they they don't think of original ideas, and they don't bring much culture into their product.
--Steve Jobs

Yesterday afternoon at an event in California, Microsoft (MSFT) announced the Surface, its first real attempt to take on Apple's (AAPL) iPad, which is far and away the only real force in the iPad market.

And yes, I meant to say iPad market because there is no evidence to suggest that any other company is making real money in tablets.

(For more info on this topic, see these two articles: IDC's 1% Tablet Forecast Increase Masks a Huge Decrease in Expectations for Google Android and Why the Google Android Tablet Market Is Far Weaker Than It Seems.)

So what is Surface?

Well, in its official press release, Microsoft called it a "New Family of PCs for Windows" and "PCs built to be the ultimate stage for Windows."

Immediately, this has me asking myself, "Is it a tablet? A PC? Both?" That's not a good sign in an era where simplicity rules in consumer electronics.

But for all intents and purposes, it's a tablet.

On a related note, I doubt Microsoft's wording will please its historical hardware partners like Dell (DELL) and Hewlett-Packard (HPQ).

Microsoft specifically said that Surface was "Conceived, designed and engineered entirely by Microsoft employees" while referencing its 30-year history of making hardware That had me rolling my eyes as Microsoft's most successful hardware product -- the Xbox 360 -- was an absolute engineering disaster.

Remember the Red Rings of Death?

Oh well... they do make some nice keyboards and mice.

Now, Microsoft made a big deal of the Surface's hardware specs, including the 10.6" screen's 16x9 aspect ratio, the full-sized USB port, the integrated kickstand, and what it calls a "touch cover."

The touch cover actually looks fairly interesting as it functions as both a case and a touch-sensitive keyboard.

Interestingly enough, Microsoft's presentation took blatant influence from Apple by focusing on tiny design details like the sound of the kickstand closing and the angle of the device's edges.

Two versions will be released, one called Surface for Windows RT, and one called Surface for Windows Pro.

The RT model will run Windows RT on ARM Holdings (ARMH) processors and will be thinner and lighter, while the bigger Pro will run Windows 8 on Intel (INTC) Core processors.

Microsoft did not announce pricing, except to say that Surface "is expected to be competitive with a comparable ARM tablet or Intel Ultrabook-class PC."

ARM-powered tablets with 10"-or-so screens can be had for about $400. However, Ultrabooks start around the $1,000 mark.

OK, so why did Microsoft make its own tablet?

Well, it's pretty simple from a financial perspective.

Last quarter, Apple brought in $558 in revenue per iPad unit sold.

What could Microsoft get for a Windows software license on a tablet? $40? $50? $60?

At those rates, starting at pretty much 0% market share, it would be awfully tough for Microsoft to move the needle on its $74 billion revenue base.

Therefore, regardless of the chances for success, it makes sense to go for the whole shebang.

Now will it work? Will Surface be a hit? Can it knock the iPad off the top spot in the iPad market?

My initial inclination is to say no.

From a purely functional standpoint, Microsoft had to come out and explain what Surface can do that iPad can't.

Instead, it showed off Netflix (NFLX) and Office. Netflix functionality is something we already expect in a tablet, while Office is boring and something we associate with our lackluster work computers.

Furthermore, by introducing different versions of the Surface running different editions of Windows software, Microsoft is making the shopping process far more confusing than it needs to be.

And from a branding perspective, Microsoft suffers from its age-old problem -- it's just not cool.

In fact, the biggest disadvantage of buying a Surface is dealing with the inevitable question, "Why didn't you just get an iPad?"

Whether you like Apple or not, you have to admit that it's built a consumer following that is excited about every little thing it does, and that bleeds directly into the bottom line.

Microsoft just doesn't have that outside of a small, specification-obsessed techno-geek minority that doesn't represent the mass market, which values ease-of-use and snazzy design.

Strategy-wise, Microsoft is making a predictable mistake by skating to where the puck is now, rather than to where it's going.

Let's face facts. People don't want the Microsoft version of Apple's past innovations.

The Zune was a belated reaction to the iPod and never really took off.

Windows Phone was a belated reaction to iPhone, and has less than 2% market share, according to Gartner.

The Ultrabook category is a belated reaction to the MacBook Air. I've never heard a person use the word "Ultrabook" in normal conversation. Have you?

And Surface is a belated reaction to the iPad, which is already handily swatting down the attack from the Google (GOOG) Android complex.

If Microsoft really wants to win, it has to throw caution to the wind and try to leapfrog Apple with an all-new product category.

(See also: Microsoft Unwraps Its 'Surface' Tablet.)

Twitter: @MichaelComeau

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