With Surface Book, Microsoft targets Apple -- and OEMs

Microsoft's rollout of its Surface Book line of Windows laptops looks like a clear shot at Apple and a move by the company to insulate itself from trouble down the road should any of its big OEM partners bail on Windows 10 hardware.

The high-end Surface Book, which Microsoft executives explicitly compared to Apple's MacBook Pro and MacBook Air laptops, is a keyboard-equipped laptop that can twist into a slate or snap apart entirely to serve as a tablet.

"What if you wanted a Surface, but you wanted a laptop Surface? What if we did a laptop?" asked Panos Panay, Microsoft's top executive for its Surface portfolio, during a two-hour Oct. 6 presentation in New York that also saw the unveiling of the Surface Pro 4. "We made the ultimate laptop. We made Surface Book."

Mac-like prices

The five-model lineup starts at $1,499 and tops out at $2,699. Those are, not surprisingly, in line with Apple's MacBook Pro prices, which start at $1,299 and top out at $2,499. (Build-to-order options push Apple's prices even higher.)

Microsoft immediately began taking pre-orders ahead of the Surface Book's retail debut.

About a week after the launch, Panay was blunt about Microsoft's plans during an interview with The Verge. "Of course we're competing with Apple," he said. "Making premium devices and reinventing categories, that essentially puts us in a camp to fundamentally compete with Apple devices."

Analysts agreed that the move could mean a renewed rivalry with Apple. "They positioned everything as [compared to] Apple," said Bob O'Donnell, chief analyst at Technalysis Research, in a Tech.pinions podcast of a discussion with Tim Bajarin of Creative Strategies and Jan Dawson of Jackdaw Research. "This was clearly back to the old days of Microsoft versus Apple."

On offense and defense

Apple's strategy -- the one Microsoft seems intent on mimicking -- has been to cater to the pricier end of the PC market where virtually all profits are earned. Though Apple shipped fewer than eight of every 100 personal computers sold in the latest quarter, the higher margins on its hardware helped it snare a big chunk of the industry's profits. Most hardware is now sold at razor-thin margins because OEMs have raced to the bottom to keep volumes up.

Microsoft's Surface Book gambit serves both offensive and defensive purposes: Offensively, Microsoft is putting itself in direct competition with Apple as a hardware manufacturer; defensively, it's positioning itself to carry on should OEMs falter.

"Although the Surface [Book] is technically a detachable, it's another step in signaling that Microsoft is still not happy with what the OEMs [original equipment manufacturers] are producing," said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

Bajarin, in the Tech.pinions podcast, offered a rationale for why Microsoft is devoting serious resources to devices, especially the Surface Book. "In many ways, Microsoft is taking a stronger hardware position to be somewhat defensive, because if they start losing key partners, they have to do it themselves to continue to populate and propagate the Windows strategy that they have," Bajarin said.

In a Tech.pinions post, he expanded on the idea: "With the PC industry contracting... only the big players will probably have the staying power to keep their PC business alive," Bajarin wrote. "Companies like Toshiba, Acer and Asus could have trouble competing against the big guys as they see their margins shrink and their own bottom lines strain. If this happens, it will be an issue for Microsoft as their OEM customer base would also shrink."

John Klossner

Of the top three Windows OEMs in the September quarter -- Lenovo, Hewlett-Packard and Dell -- only HP has much interest in the consumer PC market, Bajarin argued. "Should HP flounder in their PC business, that could have a major impact on Microsoft," he said, explaining that "HP may not be able to deliver the volume shipments of PCs that would help drive their Windows franchise to a broader consumer audience."

Picking up the slack

Therefore, Bajarin added, "what Microsoft is doing is learning how to create great hardware, which will serve as a potential backup strategy." The Surface Book, he said, is "very strategic" to Microsoft.

O'Donnell agreed. "If Microsoft does pick up all the slack from all the smaller guys, then that becomes a very interesting, and probably very realistic, scenario."

Ben Thompson, an independent analyst who operates Stratechery.com, had this take: "What made [the Surface event] exciting and the various devices compelling... was the fact that [Microsoft] is fighting for itself; it is making devices not for show but for actual profit, and that makes all the difference in the world."

Gregg Keizer contributed to this story.