Is This Microsoft's Biggest Mistake Ever?


Microsoft may not know it, but it's about to serve up a whole lot of trouble.

The software giant's decision to expand distribution of its Surface tablet to third-party retailers is bold, but it may also be incredibly stupid.

Retailers are hopping on the opportunity. Best Buy started selling Mr. Softy's tablet at its online store this afternoon, promising availability at its brick-and-mortar stores by Sunday. Other chains will follow.

However, what if Surface is a flop? What if offering the tablet through merchants already selling Windows-propelled tablets and PCs rub Microsoft's hardware partners the wrong way? What if this is the end of Windows?

Each of those questions is meaty, so let's take them one at a time.

What if Surface is a flop?
We really don't know how well the tablet's been selling since its late October debut.

Surface availability is presently limited to shoppers and the roughly 70 Microsoft stores and holiday kiosks selling them.

This was actually a brilliant strategy, because Microsoft can play itself up as a success with no one there to call it out.

"It controls the supply," I wrote at the time. "It can blur the demand."

However, expanding its reach is dangerous. If Surface isn't selling at one of its pop-up kiosks, no one knows. If consumers see the Surface and choose cheaper Android tablets or the iPad's richer ecosystem at the local Best Buy, Microsoft will be exposed. This is exactly what doomed the webOS TouchPad and the BlackBerry PlayBook, as both tablets quickly saw their selling prices cut by more than half in the clearance bin.

What if this move rubs Microsoft's partners the wrong way?
The Surface not selling would be a problem, but selling well could also be problematic.

Microsoft isn't the only company putting out tablets powered by Windows RT. It won't be the only one putting out the more functional and powerful Windows Pro gadgets next year.

How will the companies paying Microsoft for operating system licenses feel if the software giant is now a direct competitor at the retail level? One can argue that Google did the same thing with its Nexus tablet and smartphone, but keep in mind that Android is freely available as open source. Google doesn't possess a cost advantage -- and it's also using one of its partners as the hardware manufacturer. That isn't the case at all with Microsoft and Windows.

Hewlett-Packard -- still stinging from its TouchPad flop -- is still the world's largest PC maker. If it has less of a reason to support Windows in either PCs or tablets, what will that mean for Microsoft?

What if this is the end of Windows?
Microsoft knows the importance of partners. It's cut big checks to Yahoo! in search and Nokia in smartphones to amplify its position.

Consumers are already turning away from Windows-fueled products. You see it in the way that PC sales have stalled as smartphones and tablets -- where iOS and Android are the operating systems of choice -- are thriving.

If Microsoft's seemingly modest move of expanding Surface distribution into the real world -- and that's anywhere outside of its dozens of Microsoft Store locations -- sends the wrong message, losing hardware partners could be the end of the iconic operating system as the industry standard.

Yes, it's just one move by Microsoft, but it's so much bigger than just pulling up a delivery truck to one of the bays in the back of your neighborhood Best Buy store.

Hard times for Mr. Softy?
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy, Google, and Microsoft. Motley Fool newsletter services recommend Google 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.

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