Why the Surface is Expensive: Apple Threatened High-End PCs

Apparently, Surface owners owe Apple a debt of gratitude. Comments made by Steve Ballmer indicate that it was actually Apple’s dominance in high-end computing that convinced the company to move forward with the Surface RT and Surface Pro.

The comments came during an interview with ZDNet’s Mary Jo Foley. In the interview, Ballmer said that the decision to create the Surface was tough to make because of its hardware partners. “[Ballmer] knew that it would not be the simplest discussion to have with our partners, who(m) I wanted to stay our partners.” Ballmer decided to go through with the project because he felt that Apple’s dominance in the high-end computing space left Microsoft vulnerable. It was Microsoft’s belief that its hardware partners were having a hard time “investing in and competing with the higher-end brand.”

The Surface 2 with  a Type Cover 2

The Surface 2 with a Type Cover 2

Read: Steve Ballmer Bids Farewell to Microsoft in Final Company Meeting

Reading between the lines a bit, that kind of thinking would explain why Microsoft hasn’t created any low-end Surface devices. Ballmer told Foley that it didn’t decide to create a “classic 13-inch laptop or $500 desktop” because its partners “do a great job” in those areas already.

Though Microsoft is considered one of the world’s largest technology companies in the world, it hasn’t had a lot of success with creating its own branded hardware. In fact, the company mostly stayed in the computer accessories business until it announced the Surface RT and Surface Pro.

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According to Ballmer, the decision to go into the hardware business also centered on whether Microsoft could incorporate a hardware business into its already monolithic set of divisions telling Foley that, “One of the things tech companies really do terribly is build new capability. Unfortunately, when the industry changes, if you haven’t built any new capability, you can become less relevant because the thing you were good at becomes less relevant and you didn’t build capability in a new area.”

That kind of thinking will sound familiar to those who have followed Microsoft’s trajectory. Having dominated the operating system industry for so long, Microsoft was caught off guard by Apple’s iPhone and iPad. While the company had products in those markets, neither were positioned for long-term success against a new breed of products.

By the sound of it, the Xbox also made it easier for Ballmer to green-light the Surface project, saying that the Xbox was “Sort of a signature about building new capability in hardware and devices.” Because the Xbox consoles required custom processors and hardware to work, Microsoft already had some of the expertise it needed to create Surface. Ballmer said that the need to upgrade and improve its hardware capabilities is part of the reason the company is purchasing Nokia’s Devices and Services division for $7.2 billion.

Read: Nokia Shareholders Approve Microsoft’s Devices & Services Deal

Really, it seems Ballmer is making the point that the Microsoft of today is better equipped to follow consumers wherever they are. Whether that’s true or not remains to be seen, however  Microsoft is actually in the hardware game and not on the sidelines. That’s something Ballmer is clearly proud of. The interview closed with him going so far as to declare that “Windows – and by extension his Microsoft – have defined a class” of devices.

Microsoft is expected to formalize Steve Ballmer’s retirement and announce a new CEO any day now..

  

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