Microsoft tablet follows rocky ties to hardware makers Company feared Apple’s big lead
Microsoft will compete directly with PC makers that are the biggest customers for the Windows operating system.
Microsoft learned through industry sources that Apple had bought large quantities of high-quality aluminum from a mine in Australia to create distinctive cases for the iPad, according to a former Microsoft employee involved in the discussions who did not wish to be named talking about internal matters.
The executives were stunned by how deeply Apple was willing to reach into the global supply chain to secure innovative materials for the iPad and, once it did, to corner the market on those supplies. Microsoft’s executives worried that Windows PC makers were not making the same kinds of bets, the former employee said.
The incident was one of many that gradually pushed Microsoft to create its own tablet computer, unveiled last week. The move was the most striking evidence yet of the friction between Microsoft and its partners on the hardware side of the PC business. It is the first time in Microsoft’s nearly four-decade history that the company will sell its own computer hardware, competing directly with the PC makers that are the biggest customers for the Windows operating system.
For hardware makers, the PC market has long been a struggle because Microsoft and Intel, maker of the microprocessors that power most computers, have long extracted most of the spoils from the industry, leaving slim profits for the companies that make them. Manufacturers pay hefty fees to license Windows from Microsoft, putting pressure on them to make computers as cheaply as possible. That, in turn, has limited their ability to take risks on hardware innovation. Furthermore, with the iPad, Apple has proved there are significant advantages to designing hardware and software together. When separate companies handle those chores, integrating hardware and software can be more challenging.
‘‘You’ve got this sclerotic partnership structure where the partners don’t have any oxygen to be innovative,’’ said Lou Mazzucchelli, an entrepreneur in residence for a venture capital fund backed by Rhode Island and a former technology analyst. ‘‘I believe Microsoft was painted into a corner. If they’ve didn’t move soon, Apple would have so much of a lead, it would be almost impossible to catch them.’’
Steven Guggenheimer, a corporate vice president, said hardware partners were not a factor in Microsoft’s decision to create a tablet. ‘‘Microsoft has tremendous respect for our hardware partners and the innovation they bring to the Windows ecosystem,’’ he said.
One of the best illustrations of how Microsoft came to create its tablet, the Surface, is its sometimes rocky relationship with Hewlett-Packard, the biggest maker of PCs. Even before the iPad, Microsoft understood computers were on the verge of a transformation, to touch-based controls. With rumors swirling about the iPad, HP and Microsoft scrambled to create a new tablet computer, a prototype of which Steve Ballmer, Microsoft’s chief executive, showed in Las Vegas on Jan. 6, 2010.
When it came to making a finished device though, the HP tablet — later named the HP Slate 500 — began to change for the worse, according to the former Microsoft executive and a former HP executive who worked on the project. While its early visual designs impressed many, the product was “completely ruined” as HP’s manufacturing organization began to procure parts to power the device, the former Microsoft employee said.
In the end, the HP tablet was thick, the Intel processor made the device hot, and the software and screen hardware did not work well together, causing delays when a user tried to perform a touch action on its screen.
Microsoft worked with other hardware partners to devise products that would be competitive with the iPad, but it ran into disagreements over designs and prices.
“Faith had been lost” at Microsoft in its hardware partners, including by Steven Sinofsky, president of Microsoft’s Windows division, the former Microsoft executive said. HP fumed at Microsoft for not doing more to create Windows software that was better suited to touch-screen devices. Microsoft refused to commit significant resources to help HP, partly because the company was devoting its energy to Windows 8, a new version of its operating system being tailored for touch-screen devices.
Some still believe Microsoft will get out of the business of selling its own tablet as soon as it can persuade hardware companies to build compelling devices. ‘‘I think once they jump-start it, they plan to make money the way they always have — from licensing software,’’ said Michael A. Cusumano, a management professor at the Massachusetts Institute of Technology