When Microsoft (NASDAQ:MSFT) launched the Surface in October 2013 the move was essentially a slap in the face to its OEM partners.The tablet was not only a competitor to Apple's (NASDAQ:AAPL) iPads and machines running Google's (NASDAQ:GOOG) Android OS, it also competed with tablets and laptops running Windows.
Though the Surface has only won limited market share, it can be argued that every one sold takes a potential sale away from the companies Microsoft relies on to manufacture the bulk of the products running Windows. Anger those partners and maybe they decide that Android or Google's Chrome OS -- which are both open source and free to use -- make more sense as operating systems for some or even all of their machines.
Mass defections from Microsoft's OEM partners did not occur after the Surface launch, though Dell, Lenovo (NASDAQOTH: LNVGF), Samsung (NASDAQOTH: SSNLF), and Asus all launched -- then quickly abandoned -- tablets running Windows RT, the slimmed-down version of the OS that powers the original Surface. HTC (NASDAQOTH: HTCXF) didn't even get that far -- it canceled plans for a large-screen tablet running RT before reaching the launch stage.
No companies dropped Microsoft overall, but the Surface launch made it clear that if the Windows-maker entered a category it might deter its partners from doing so. As such, it always seemed odd when rumors of a Surface Mini began to appear on various technology websites. If Microsoft wants to compete at the bottom of the market in smaller devices where price matters, discouraging its partners from creating lower-end tablets seems like a bad idea.
Microsoft looks to have taken that message to heart. There's no sign of a Surface Mini, and the company just announced the first 7-inch Windows 8.1 tablet. Instead of being a Microsoft-branded device, the tablet is a Toshiba (NASDAQOTH:TOSBF) product. That does not mean however that the Microsofties did not play a hand in its development.
"It turns out the company has been working directly with Toshiba, and hand-in-hand with Intel, on a different device that will give Windows users a new option in the market for small tablets," GeekWire reported.
What is the new device?
Introduced at Computex in Taiwan, the new tablet is called the Toshiba Encore 7. In a post that transcribed his keynote at Computex, Microsoft Vice President Nick Parker explained that the tablet is "being co-developed by Microsoft and Toshiba and in close collaboration with Intel, Goodix, and AMI." The tablet won't be a Surface Mini. It likely will be an answer to the many sub-$200 7-inch tablets running Android or Android variants, including Amazon's Kindle Fire.
This is a new Microsoft
Under former CEO Steve Ballmer, Microsoft operated as if it still held a virtual OS monopoly. Back before Android and Chrome were options, any company that wanted to sell computers had to use Windows as its operating system. That allowed Microsoft the freedom to do pretty much whatever it wanted.
New CEO Satya Nadella has a lighter touch and he seems to understand that the world has changed. It seems unlikely that Nadella would make a move that provokes the company's partners, even if he could do so without consequences. By working with its partners instead of against them Microsoft is also giving itself more chances to succeed. There are dozens of 7-inch Android tablets in the marketplace with some even costing less than $100.
The Toshiba Encore 7 might be the answer to those devices ... but it might not be. Partnering with many companies should allow Microsoft to have a broad portfolio of smaller tablets running Windows 8.1, including low-end devices to battle with Android and nicer ones to challenge the iPad Mini.
That could be very important going forward as International Data Corporation reported that 55% of the tablet market in 2013 was for devices with screens under 8 inches.
Setting the right tone
Whether Microsoft can crack the 7-inch tablet market or not remains to be seen. It seems likely that some PC users will want to stay in the Windows 8.1 ecosystem and not have to use an Android or iOS tablet. The real boom for devices like the Toshiba Encore 7 may be in developing markets where demand for tablets has not yet peaked and Microsoft has made inroads with its Windows 8 phones.
In many ways though the success or failure of Windows 8.1 in the small tablet market is less important than the company showing it can learn from its mistakes. The Surface launch was arrogant and it showed a business that had not adjusted to changing market conditions. The announcement of the Toshiba product shows a company that's embracing those changes.
Not trying to dictate terms will serve Microsoft well going forward and give it the best chance to win back market share lost to Android and iOS.
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Daniel Kline is long Microsoft. He really likes his original model Surface. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.