Surface appears to be a success, in fact it is the first product, outside of the Xbox, since Windows 95 that I’ve actually seen folks line up for.    Priced well, generally far better than expected, this thing is trending to be a hit, but if it takes off it will dramatically change the market. 

Winners

Microsoft is the clear first winner.   Even though they were successful with the Xbox, their history with hardware has been relatively negative with the catastrophic failures of the Zune music players and the Kin camera. Folks doubted whether Microsoft could have a successful hardware product that wasn’t a game system.   Well it looks like they can and a success here drives traffic into the Microsoft stores helping out that effort which had been struggling.   The stores needed something to get people in and, until the Surface tablet, often you’d walk by the paired Apple and Microsoft stores and see tons of folks in the Apple store and lots of empty space in the Microsoft store.    Surface put Microsoft back on the hardware map and made the stores more interesting as well. 


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NVIDIA Tegra 3 is the core platform for the initial product and their win here made them the dominant non-Microsoft brand during this product roll out.   The Tegra 3 system has performed surprisingly well and while there were concerns that the Surface tablet would be underpowered, these concerns have largely proven unfounded. NVIDIA is suddenly the dominant Windows 8 tablet platform and that is a huge increase in their relative status.

Software Developers are also potentially big winners. The Windows application market was all but dead, particularly in the consumer space, but the Windows market provides faster and cheaper access to users than retail ever did. On top of being able to get to users more easily and cheaply, the success of this tablet means there are more paying users. 

Users have another choice and this tablet can replace your laptop so it dramatically cuts your carry weight for traveling. The ability to have a tablet product you can also work with is handy, but the fact that this will drive the rest of the tablet platforms to be more useful is an added bonus.   Competition is generally good for users and that is no different this time.

Losers

Intel was massively dominant in the PC space only occasionally challenged by AMD.   This tablet fully establishes ARM in space and now Intel faces a more powerful NVIDIA as a result.   ARM is more than a company, it is a consortium, and now Microsoft is supporting this architecture with both of their high profile new products, Surface and Windows Phone, and they are rumored to have their own branded phone and revolutionary ARM servers coming.  

AMD is long the number two to Intel and the emergence of ARM as a major player creates the risk that as ARM and Intel fight it out AMD could drift to number three.   AMD has recently announced their own ARM strategy on servers, but it won’t be able to showcase results until 2014.   AMD’s move to get out from under AMD’s shadow couldn’t have come too soon.

The PC OEMs are now faced with worsening choices with Microsoft doing Surface and Google doubling down on their Nexus line of Google branded phones and tablets. If Apple, Google, and Microsoft divide up the market with their own platforms and software, the PC model that sustained most of them will be extinct.   Even in the back off, both Google and Microsoft are moving toward IT services as service and while this will take longer, the trend suggests these companies will have to evolve to address this challenge or die.   This is the old school IBM model, where entry cost is subsidized and switching cost is impossibly high.   

Cell Phone OEMs, if the PC companies are at risk this same model faces the cell phone makers, as success in Surface had emboldened Microsoft to go after their own handsets.   They follow Google who bought Motorola and sells Nexus Handsets now, and of course, as with PCs both are following Apple into vertical integration. 

Apple is on this list because they owned the future of tablets until Surface launched and subsequent to that they are now behind Microsoft in this latest move.   More important their latest tablet is priced at a 65 percent market premium suggesting that when the Apple fans are saturated (Apple fans will pretty much buy anything Apple) they’ll have to dramatically drop the price and upset those initial buyers.    Surface appears to have heralded in a time when not only doesn’t Apple lead the market, they can’t because they lack the necessary productivity skills and they will not want to cannibalize PC sales with tablets (they want their customers to buy both). 

Wrapping Up: Changing of the Guard

This is still early for Surface and it could still hit a wall.   However, users generally seem to be happy with their Surface purchases and if sales volumes hold through the quarter we could have a very different market than we have today.    Folks were complaining that the PC market was boring and largely unmoving, well file this under “be careful what you hope for” because it isn’t boring anymore.   A lot of folks were betting Surface would be a failure; a lot of folks are clearly very surprised.