Microsoft (MSFT) is making a very serious strategic error in fragmenting its Windows 8 ecosystem by supporting two fundamentally incompatible versions of its operating system - Windows 8 and Windows RT.
As pleased as I am as an Nvidia (NVDA) shareholder that the ARM (ARMH) based Tegra 3 will be powering the high profile "Surface RT", I believe that the presence of both Windows 8 and Windows RT tablets will have a very tangible impact on customer satisfaction and Microsoft's brand image. Why?
Customers Want Stuff To Work
If I buy a Google (GOOG) Android device, then I know there's a reasonable chance that all my Android apps will work. The same thing applies to an Apple (AAPL) iOS device. In fact, the reason that a lot of folks stick to the Microsoft platform in general is that all of their software, dating all the way back to Windows NT/2000 is likely to work without a problem. However, with the release of Windows 8 and its feature-gimped cousin, Windows RT, that is no longer the case.
Traditional software for Windows NT/2000/XP/Vista/7 will not run on any Windows RT devices. Any native Windows 8 programs will not work and will only work on traditional Windows 8 PCs as well as the Intel (INTC) Atom and Core based Windows 8 tablets. The customer unfriendliness scenario is quite elementary and will likely play out as follows:
- Customer buys a new "Microsoft Surface" tablet running "Windows", expecting that this will be the perfect blend of an iPad/Android-like device that will also run his/her traditional legacy programs
- Customer finds out, after spending $500 - $600 on his/her new device, that this is not actually the case and that she/he needed to buy a full "Windows 8" device rather than "Windows RT" (which is basically Windows 8 as far as marketing is concerned)
- Customer is very unhappy that Microsoft is now trying to get him/her to buy all-new programs for this supposedly "Windows" device and either grumpily goes back to his traditional PC or grudgingly forces him/herself to enjoy the purchase by buying into the new ecosystem.
This is not good for Microsoft's already bloodied image in the face of Apple's increasing dominance in the tablet and notebook spaces due primarily to its "customer friendly" image.
Is There An Easy Fix?
The question, then, is whether there is an easy fix to this. The answer is "yes" - use Intel's "Atom" Z2760 chip low power processors. They're just as good as anything in the ARM camp in terms of performance, performance/watt, and they will run legacy software without a hitch while also providing the Metro UI experience.
Now, many third party tablet vendors are doing just that; Lenovo (LNVGY), ASUS, Dell (DELL), and HP (HPQ) have all publicly announced design wins for Intel's Z2760 coupled with Microsoft's full Windows 8 OS. Unfortunately, it seems that these are more business/enterprise oriented and will cost significantly more than their consumer oriented Windows RT counterparts.
The big question is, "why fragment the ecosystem at all?". Well, it seems that by pushing the fundamentally incompatible version of Windows 8 into the mainstream, it hopes to eventually wean users off of the traditional desktop metaphor.
With X86 hardware, there is no technical excuse to not include a "fully featured" version of Windows 8 on the devices (and since Windows 8 would need to be released in its full form on the laptops and desktops, it would be trivial to install a copy on an X86 tablet). However with ARM based processors, there is a convenient excuse to be forced to run only Metro-style apps, which Microsoft likely hopes will fuel app-store purchases to increase revenue sources from its Windows platform, much as Google and Apple do.
Investors - What To Do?
From an investment standpoint, the most prudent thing is to actually dive deep into the ecosystem and observe how Microsoft is making sure that the customers are informed. Go to a Microsoft store if you can, or go to Best Buy (BBY), Amazon (AMZN), or any other tech store of choice and "play customer". See what models are being more heavily pushed (Win8 vs WinRT), how the different OS choices are being presented to you, the customer, and generally get a feel for how Microsoft and the various partners are handling things.
If the distinction between Windows 8 and Windows RT is very delineated and the customer is, in general, being well informed then these worries should become less prominent. If not, then I would be seriously concerned about the "user friendliness" of the ecosystem and the choices given.
While Microsoft is obviously affected by the uptake of Windows 8/RT, it is more important to watch how well Windows RT does as well as Windows 8 and their relative popularities.
Should people choose the compatible, but slightly more expensive Intel "Atom" based devices, then this will mitigate a key threat that Intel faces in the Windows ecosystem - the ARM threat. But if the Windows RT devices do particularly well, then Nvidia and Qualcomm (QCOM) will likely emerge as viable solution providers in the Windows space, leaving the door open to even further market share gains at the low end. This would be especially devastating to AMD (AMD), whose only ammo against Intel in the PC space is the low end.
This is a bold move, but I believe it is fundamentally a mistake. Microsoft wants to "do over" its Windows operating system and ecosystem in order to generate revenue from apps. This is also the same reason that Microsoft has been promoting its Xbox platform much to the expense of the gaming experience on its own Windows PC platforms. However, with PC gaming, there isn't really a choice -- it's Windows or bust. For the PC/tablet space in the general use case, Apple is a very powerful force and it will show no mercy in taking disgruntled Windows users under its wings.