Microsoft's foray into notebooks with the Surface Book is certain to tick off its computer-making partners, but there's little recourse for the latter except to grin and bear it, analysts said today.
"If I'm an OEM, I'm not happy," said Jan Dawson, chief analyst at Jackdaw Research. "The big difference between [the Surface Book] and the Surface Pro three years ago is that the Surface Pro was claiming to be a new category. Now Microsoft is saying the Surface Book is the best, thinnest Windows PC, not the best from Microsoft. It's unqualified."
Microsoft device boss Panos Panay certainly didn't qualify his boasts about the Surface Book. "Ounce for ounce, pound for pound, this is the fastest 13-in. laptop ever made anywhere on any planet," an energetic Panay said Tuesday as he unveiled the device. "This is the ultimate laptop."
To make sure everyone got the point, Panay used ultimate laptop four times in his time on stage to describe the Surface Book, while CEO Satya Nadella tossed it into his remarks one time more.
Dawson and others were reacting to Tuesday's surprise introduction of the $1,500 Surface Book, Microsoft's first device touted as a laptop foremost. The Surface Pro -- refreshed to a fourth-generation model this week -- has been touted by Microsoft as the tablet that can replace a laptop, a message that's been widely adopted by buyers, who predominantly use it as a notebook substitute. But the Surface Book is clearly a laptop, albeit one that can serve as a slate or when the display is pulled from the keyboard, a tablet.
The difference is significant, analysts argued.
"It's a huge deal [because] it's encroaching on the OEMs' prime territory," said Patrick Moorhead, principal analyst at Moor Insights & Strategy, referring to the partners' bread-and-butter of laptop sales.
Sturm und Drang between Microsoft and its OEMs (original equipment manufacturers) won't be new. In 2012, when Microsoft first entered the personal computing hardware market with the original Surface Pro (and the ultimately-doomed Surface RT), the company strained relationships with the partners who build the mass of desktop and laptop PCs that run Windows and dominate sales. Most of Microsoft's Windows revenue comes from the licenses it sells to these OEMs for pre-loading on their systems.
At the time, Microsoft acknowledged the potential problem. "Our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform," Microsoft said in filing with the U.S. Securities and Exchange Commission (SEC) in mid-2012.
Microsoft continues to walk that line. "Surface devices face competition from Apple, as well as other computer, tablet, and hardware manufacturers, many of which are also current or potential partners and customers," the company pointed out in a July filing with the SEC.
But the tension between Redmond and OEMs eventually leveled off. "Everything settles out at some point," said Stephen Baker of the NPD Group. "You either make peace or go to war."
OEMs and Microsoft did not kick off a hot war, so peace it is.
But the Surface Book will reignite the skirmishing, even if in the end a truce is declared.
"There are clearly a lot of strange bedfellows in the business," Baker said. "Microsoft seems to want to be the premium Windows device maker, but that skims a lot of value off the top. And at the same time, Microsoft is enabling the lower-class devices, and letting the OEMs fight it out among themselves for the mass market."
Ultimately, however, the OEMs will have to accept Microsoft's newest encroachment. Several of the analysts pointed out that for OEMs, there is no alternative because there's no viable surrogate for Windows. "What are their options? Google's Chrome OS is not at the place yet, not ready to compete directly with Windows or OS X," said Ryan Reith of IDC.
In the months after Microsoft stepped into the personal computer business three years ago, many OEMs introduced Chromebooks powered by Google's OS. But while those devices have sold well in the educational market, they have by no means materially downgraded Windows' importance.
In the meantime, OEMs will stew. "I think there have to be some upset boardrooms over this," Reith said, referring to OEMs.
Microsoft's stated purpose, of course, is not to upset its partners, which it needs more than the revenue -- realized or potential -- the Surface line brings. But its message to OEMs was clear to the analysts.
"This is what we think the industry needs," said Reith of Microsoft's thinking. "No one else is selling something like [the Surface Book], so we're going to do it."
Dawson agreed. "It feels like they're saying, 'The current notebooks are not lustworthy, so we have to create one,'" Dawson said. "In that sense, Microsoft feels that Windows OEMs are not getting the job done. That's an indictment, and none of the OEMs will be happy about that."
Most unhappy, Baker opined, will be what he described as the mid-tier Windows OEMs, like Acer, Asus and Toshiba. "It put a lot of pressure on them," Baker said. "The bigger guys like HP, Dell and Lenovo, they have some other places to go to find some dollars."