Analysts challenge Microsoft's commitment to Windows RT

Minus major changes in Redmond's strategy, including slashing the price of licenses to OEMs, experts doubt Windows RT's survival

One of Microsoft's top Windows executives this week said the company remains bullish about Windows RT and has no intention of dumping the limited-feature, touch-enabled tablet operating system.

Analysts accepted that at face value, but remain suspicious of Windows RT's chances unless Microsoft makes dramatic changes, including dropping the price of the licenses it sells to OEMs.

"Microsoft's strategy to portray Windows RT as for both work and play is not working," said Carolina Milanesi in an interview. "They need to change their tactics to position RT as the OS for consumption devices, to make the hardware a companion to the full Windows experience, not a replacement for it."

On Tuesday, Tami Reller, CFO of the Windows division, went on a mini-PR spree, granting interviews to several media outlets to tout Windows 8 license sales, talk vaguely of changes it will institute in the Windows "Blue" update slated for release later this year, and in some cases, offer mea culpas for mistakes the company made with both Windows 8 and Windows RT.

In one of those interviews, Reller defended Windows RT, the operating system designed to run on ARM processors. "We are very committed to the ARM platform," she told the Geekwire technology blog. "We certainly know that's a question in the marketplace. We want to leave no doubt about our commitment to ARM."

Although some analysts have questioned Microsoft's commitment to Windows RT -- largely based on the tepid reaction it's received from OEMs -- others have said it would be too big a blow to the company to yank the OS so quickly, and that it would press on.

Reller signaled that Microsoft will do the latter.

"They will stick with RT for now," said Milanesi, who nevertheless argued that without major changes in its strategy, Microsoft faces huge problems making Windows RT a successful alternative to Google's Android and Apple's iOS. "They were hoping that Office on Windows RT would be enough," she said of Microsoft's bundling Office RT, a scaled-down version of the suite, with the OS. "But it wasn't enough. Not that many people want to run Excel on a tablet."

In the enterprise, tablets like the iPad have made inroads, Milanesi acknowledged, but their role is generally not as a replacement for a personal computer. Rather they act as a companion device, one with specific functions in many cases.

From her perspective, that's why Microsoft should give up on the idea that Windows RT is suitable for both content consumption and creation, and focus on the former.

Even then, Microsoft's operating system is at a disadvantage when pitted against either Android or iOS, since Microsoft's business model as a software seller -- even though it's trumpeted a switch to services and devices -- means that it must charge OEMs for a Windows RT license.

Google gives away Android, so manufacturers of Android tablets don't incur a comparable expense, and Apple limits iOS to its own iPad, absorbing the cost of development in order to pull in large profit margins on the hardware.

All things being equal, then, an Android tablet will always be less expensive for an OEM to build, and less expensive at retail.

"But it's not just the licensing costs that are a problem," said Bob O'Donnell of IDC. "Windows RT breaks the core value proposition of Windows. People use Windows because it's compatible [with legacy software]."

Windows RT, unlike its bigger brother Windows 8, cannot run traditional Windows software, only the apps created using the WinRT API and distributed through Microsoft's app store.

O'Donnell said that Microsoft would, if it hasn't already, cut the price of Windows RT licenses sold to OEMs in an effort to entice them to manufacture tablets powered by the OS. "But that leaves the fundamental problem around compatibility," he observed. "RT implies compatibility because it's using the 'Windows' name, but [the fact it doesn't offer compatibility] has been lost in the noise."

Confusion ensued, he said, and continues.

Milanesi declined to bet that Microsoft would slash Windows RT license prices -- or make the even more aggressive move of giving away the OS -- but said Microsoft has to do something to cut OEM costs.

"Unless [Windows tablets] can match the $199 price of Android tablets, it's going to be really hard for [Microsoft and its OEMs]," said Milanesi. Tablet pricing is polarized, she added, with Android at the bargain basement end and iOS at the top. That gives Microsoft a tough choice and less maneuvering room than it would have had had it entered the tablet market a year or year-and-a-half earlier. "From an app perspective, Microsoft can't get a premium for Windows RT," she added, referring to the relatively small size of the Windows Store and the lack of what she, and others, see as must-have, high-quality apps.

Wes Miller, an analyst with Directions on Microsoft, agreed that Windows RT faces a bumpy road because of its app inventory. "If you're going to have someone buy a device that requires all-new apps," Miller said, of Windows RT, "than you need to have an amazing collection of apps."

That is something Windows RT and the Windows Store does not have, Miller argued. "There's still not a huge collection [of apps] that pull you into the platform. But like a lot things Microsoft does, Windows RT is a long-term bet."

Long-term or not, Miller isn't enthusiastic about Windows RT's chances. "I've been concerned about Windows RT from the beginning," he said. "I don't see a long-term viability for Windows RT as a value-driven strategy."

While Windows RT has languished -- according to IDC, Microsoft and its hardware partners shipped 200,000 Windows RT devices in the first quarter -- Windows 8 tablets have gotten some sales traction, and more importantly, support from OEMs. IDC estimated first-quarter shipments of Windows 8 tablets at 1.6 million units.

Acer, for example, recently said it would wait until Windows Blue before deciding whether to build tablets running Windows RT. Meanwhile, it's keen on Windows 8 tablets, as a leak of an 8.1-in. Acer Iconia tablet last week showed, even though its $380 price is higher than that of the entry-level iPad Mini.

"This says that OEMs believe customers would rather have application compatibility than hardware efficiency," said Miller, contrasting battery life between devices running ARM processors and Windows RT against others powered by Intel CPUs and Windows 8.

"And as [Intel's] Atom moves down market, for the same cost [as ARM] it will provide better power efficiency. That will threaten Windows RT on an ARM processor," Miller said.

O'Donnell countered, saying that Windows RT -- designed to run on processors created by Nvidia and Qualcomm under their ARM licenses -- was important strategically to Microsoft. "There's some validity to the strategy, because a lot of the future is in ARM," he said, citing IDC's estimates that 75% of tablets will be powered by ARM, with the rest relying on Intel's x86 architecture.

O'Donnell would have liked to see Microsoft make what he called a "clean break" from Windows with RT, including giving it a different name to make it clear the tile-based OS wouldn't run older Windows software. But Microsoft took a different path.

"Microsoft might have to show the way, like it did with the Surface, for Windows RT from a content perspective," said Milanesi, referring to a smaller, less-expensive tablet running the lighter-weight operating system. "They need to show the way where they want RT to go, because as it is now, it's all very confused."

Patrick Moorhead, principal analyst at Moor Insights & Strategy, was of the same mind. "I'd like to see some candor," he said of Microsoft's plans for Windows RT.

This article, Analysts challenge Microsoft's commitment to Windows RT, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

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