There has been much discussion on Seeking Alpha and elsewhere about the new Surface tablet announcement from Microsoft (MSFT) on Monday, and most of it has centered around comparisons to iPad and how it will effect Apple (AAPL). This is worth considering, but this announcement impacts Google (GOOG) far more than Apple for several reasons.
First Apple. They will continue to make new variations of iPad to serve their very loyal customer base, and as has been true with PCs, they will continue to dominate the high priced segment of the market. And the massive success of the iPhone will continue to drag the iPads along with it as more and more high end users learn and become hooked on the very impressive Apple ecosystem of iOS, Apps, content, and cross functionality among Apple devices. And as is also true with PCs, there is plenty of market share available at lower price and/or functionality points for Microsoft to go after.
In addition, Microsoft can now support the enterprise market with an Apple style solution, and thus erect a barrier to Apple's entry there. This defends Microsoft's long time existing turf, and allows corporate IT managers to continue to make the safe decision and stick with their exiting Microsoft based infrastructure. So if Microsoft executes well, most likely the Apple vs Microsoft competition will continue as before, with Apple dominating the high end and Microsoft dominating the low end and corporate.
But the effect for Google is a far different story. Although they have made no headway in the corporate market, Google is currently dominating the low end market witht their Android operating system on various smartphones and tablets made by others. The timing of the Microsoft announcement indicates it is really targeted at Google more than Apple. A Google tablet has been rumored for quite a while, and no doubt the engineers in Google's new Motorola Mobility unit are hard at work on it right now. Microsoft wanted to get out there first, so that all the hype around the Google tablet would need to include comparisons not only to the iPad but to Surface as well. This is a smart move.
But the bigger problem for Google is that it is another huge nail in the coffin of Android. Google's once strong position in providing the mobile OS for the low end of the smartphone and tablet market is eroding rapidly as their OEM partners anxiously await a more robust and well tested solution of Windows 8 from Microsoft. Google has done a poor job of supporting and testing Android, with the result being a huge hodgepodge of various versions, forks, custom User Interfaces and incompatible apps coming out from all the big OEMs like Samsung, HTC, Amazon (AMZN), Acer, Asus, Toshiba, Sony (SNE) and even Google themselves via their new Motorola unit. When Google purchased Motorola and became a direct competitor to their own Android customers, that was the last straw for most, and they are now going to back to work with their longtime partner Microsoft for the next generation of solutions.
Microsoft has also smacked Google by creating an ARM CPU version of Windows 8 called Windows RT, and by recompiling and testing the Office suite for the new CPU, and by including Microsoft Office on the ARM based version of Surface. This is an arrow in the heart of Google Android, because Google has been operating without a competitor in this space up to now, and suddenly they have one that includes the most popular application software on earth, the Microsoft Office suite, which Google will never be able to get or duplicate. Google just does not know how to test and support software in the way that Microsoft has learned in the last 30 years supporting the PC business.
So how will the big OEMs react to the Microsoft Surface tablet? They are most likely pleased that Microsoft chose to make Intel and ARM based development and test platforms on their own, rather than partnering up with or buying up one of their competitors to do it. They are no doubt also pleased the Microsoft is making the effort to actually create and test an integrated solution on both CPUs, which will cut down on their own testing and porting problems on all their new Win 8 devices. Could Microsoft become a big new competitor of theirs? Yes. But designing some hardware and finding some China contractors to build it for you is a far smaller and different investment than spending billions on a direct competitor like Google did. So that means the Microsoft could just as likely decide that once the Win 8 ecosystem is up and running with their traditional OEMs in a year or two, they could quietly exit the tablet business altogether.
Google's poor testing and support of Android and its purchase of Motorola Mobility will spell the end of Android, and Microsoft is taking advantage of it in a big way.