Even if you filter out some of the automatic Apple fanboyism/triumphalism from his post, *Gruber of Daring Fireball makes a lot of interesting points in this one: "Surface: Between a Rock and a Hardware Place"*

"...Design is about making decisions, and Microsoft could not decide. ARM or Intel? Who should be on stage? Soft or hard keys on the keyboard cover? They went with “all of the above”. The only hard decision they made was the big one: to turn against their OEM hardware partners.

I presume Microsoft timed this event to jump ahead of anything Google might be announcing at their I/O conference next week — and the consensus seems to be that Google is going to announce much the same idea: their own Google-branded, Google-designed tablet that will put them in direct competition not just with Apple but with their own OS licensees.
no demonstrations of the seemingly extraordinarily clever cover-keyboards in action, or really much in the way of software demonstrations, period? That’s rough, even by the standards of pre-announcements. ...The message I took away is that Microsoft has concluded that, ready or not, it needed to move now. There is no longer enough profit to be had selling software alone.
If I’m right, it’s inevitable now that Microsoft will acquire Nokia."

-> daringfireball.net/2012/06/surface_between_rock_and_hardware_place

Gruber also quotes several paragraphs from analyst @Asymco/ Horace Dediu, digging into the financial internals to see what may really be going on here: asymco.com/2012/06/20/who-will-be-microsofts-tim-cook/

"...If we divide operating income by PCs [sold] as well we get $35 per Windows license and $43 per Office license. That’s a total of $78 of operating profit per PC.

Now let’s think about a post-PC future exemplified by the iPad. Apple sells the iPad with a nearly 33% margin but at a higher average price than Microsoft’s software bundle. Apple gives away the software (and apps are very cheap) but it still gains $195 in operating profit per iPad sold.

Fine, you say, but Microsoft make up for it in volume. Well, that’s a problem. The tablet volumes are expanding very quickly and are on track to overtake traditional PCs while traditional PCs are likely to be disrupted and decline.

So Microsoft faces a dilemma. Their business model of expensive software on cheap hardware is not sustainable. The future is nearly free software integrated into moderately priced hardware.

For Microsoft to maintain their profitability, they have to find a way of obtaining $80 of profit per device. Under the current structure, device makers will not pay $55 per Windows license per device and users will not spend $68 per Office bundle per tablet. Price competition with Android tablets which have no software licensing costs and with iPad which has very cheap software means that a $300 tablet with a $68 software bill will not be competitive or profitable.

However, if Microsoft can sell a $400 (on average) device bundled with its software, and is able to get 20% margins then Microsoft is back to its $80 profit per device sold. This, I believe, is a large part of the practical motivation behind the Surface product.

The challenge for Microsoft therefore becomes to build hundreds of millions of these devices. Every year."

The question will be 1) if Windows 8 (as RT on ARM or "full" version) will catch on sufficiently to get the volume they need. And 2) and related, if they can really get to an entry level price of $400 while still maintaining a 20% margin. If they can, great, but then the currently professed "competitive pricing with other tablet OEMs" (who may have to pay MSFT as much as $85 per Win8/RT license), presumably by charging itself the same license fee internally, goes out the window.

So far, it looks as if the price-point for the Surface RT will be closer to $600, where once again it will not be nearly competitive enough with the iPad 2 and 3 when it comes to price-point. In my view, the only shot that MSFT have at this is to offer the Surface RT with keyboard cover, AND with an RT version of Office for $399, all inclusive. That is the only way to build up a compelling value proposition that MIGHT have a chance.

But we already know from the Android tablet OEMs experience that it is more difficult to beat the iPad on price (with rough feature parity) than first believed, so I would be truly surprised if MSFT can hit that price-point mark. Already, the announced specs for the RT included some items (like the completely unnecessary 8MP rear-facing camera) that make me doubt this very much.

Combine this with MSFT's Windows Phone 8 announcements yesterday, and you can see that they are skating on very thin ice. Not only were all existing Windows Phone 7.x phones Osborned yesterday for the next 3-6 months (announced that there will be no upgrade path to the next version, WP 8, which will largely share a code-base with Win8), which has to smart particularly badly for Nokia, given that they decided on a WinPhone-only strategy.

But there are even deeper problems: The new WinPhone 8 features are nearly all playing catch-up to both Android and iOS, and of course neither of them are standing still, with a brand-new - more thoroughly redesigned than the 4S - iPhone "5" (whatever it will be called) expected this fall, likely to suck up most of the attention oxygen in the smartphone marketplace, and Samsung having just entered the Galaxy S III into the race.

The reality is, that outside of Nokia, none of the smartphone (or tablet!) OEMs can afford to run a Windows Phone 8 / Windows 8/RT only strategy, given that the current run-rate for WP7.x phones is just over 1 Million / month (3.3M sold in Q1/2012 -> engadget.com/2012/05/24/idc-q1-2012-world-smartphone-share/ ). How many OEMs are supposed to survive off of that number?!

They are all running at best a dual Android /"some WinPhone attempts" strategy, with Nokia actually having to have its phones further subsidized by MSFT to sell any at this point (and as already pointed out, this problem just got much worse) -> businessinsider.com/elop-windows-phone-7-is-a-big-fat-retail-flop-2012-6

Why on earth would any OEM currently consider paying MSFT a license fee for WP7 (now dead in the water) and soon WP8, when their margins and bottom lines are already so under pressure, and Android is free (except for the MSFT patent trolling extortion scam)?! Mobile OS selling nearly a million a day now, vs. one selling 1 Million a month. The former being free. Gee, I wonder...

And the only thing that might, MIGHT make the Win8/RT tablets situation any different could be the integration of Office into them. But the price has to make sense, else there will be ZERO value proposition.

More: pandodaily.com/2012/06/20/windows-phone-8-is-microsofts-last-ditch-effort-to-remain-relevant/

Tons of curation and discussion on WP8 -> plus.google.com/112964117318166648677/posts/8DeqXkUTtvd
and Win8/RT Surface tablets -> plus.google.com/112964117318166648677/posts/QbxWJhzBDnm

/cc +Stefan Svartling +Ramon Nuez +Theo Tol +Chris Robato 
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