GAME CHANGER: Microsoft Is Going To Make Its Own Tablet!

Steve Ballmer hands

Photo: AP

Microsoft plans to manufacture its own tablet, Sharon Waxman & Alexander C. Kaufman at The Wrap report.The Wrap is a Hollywood-focused industry site, so it’s a little weird to see it break this news. But, Ina Fried, who has covered Microsoft for years, confirms the report at All Things D.

Microsoft has a big event in LA on Monday, which is where it is expected to reveal its tablet.

This is a major strategic shift for Microsoft, which typically licenses its software to manufacturing partners like Dell, HP, or Acer. Those companies make the computers, which is a pretty crummy business. Microsoft sells the software, which is an excellent business.

The problem with this strategy in the tablet market is that Apple and Google have disrupted the business model.

Google offers its software for free, and its hardware partners struggle to match Apple on the price and quality of the iPad.

Microsoft wants to charge tablet makers $80-$85 for Windows and Office. If you add that cost into the price of a tablet, there’s no way hardware partners will come near Apple’s $500 entry price for an iPad. Not to mention the $400 price of the iPad 2, which is a great tablet.

So, eventually, Microsoft’s partners are either going to end up dropping Microsoft to support Android, where they can make more money. Or, they’ll force Microsoft to cut its prices. Either way, it’s bad news for Microsoft.

To deal with this new landscape, it appears that Microsoft has decided to copy Apple and do its own hardware.

This is a huge risk for a software company. It has done consumer-focused hardware three notable times in its recent past. The Zune, the Kin, and the Xbox. The Zune was a flop. The Kin was a disaster. The Xbox is doing well now, but was a money pit for years.

Last year we brought up the conundrum of Microsoft making money in the tablet market when Google gives away software to a Microsoft insider. We said, “Don’t you have to make your own tablet?” This person was being coy, but said, “We don’t do well with our own hardware.”

So, Microsoft knows the challenge it faces.

However, with Google giving away software and Apple quickly running away with the market, Microsoft may feel as though it has no choice. It has to enter this market and it can’t trust Dell or Samsung to produce an iPad-killer.

Microsoft has to do it itself.

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