Ballmer Calls Apple's Hand, Introduces "Slate PCs" At CES

Saying it's "almost as portable as a phone and as powerful as a PC" and that it's ideal for reading, surfing the web and taking entertainment on the go, Microsoft CEO Steve Ballmer revealed what he called "slate PCs" at the Consumer Electronics Show in Las Vegas yesterday. Due later this year, one slate he demonstrated comes from HP and runs Windows 7. Until now, even though "shipping" is a feature (the touch-enabled Win 7 OS is already shipping), Apple has been getting all the credit (even from Wall Street) for a tablet that officially doesn't exist yet. Perhaps things will tilt a bit now that Microsoft is out of the closet.In all, Ballmer showed three slate PCs; one from HP, another from Archos, and a third from Pegatron. In demonstrating the HP prototype (see embedded video below), Ballmer demonstrated Amazon's Kindle for PC software to show how the slate is well suited to reading books, particularly with its touch screen (perhaps more so than the Kindle given that it's backlit, it's color, and it can do all the things Windows 7 can do). Continued below..(apologies if you have to scroll a bit)...

In its news post on Ballmer's introduction (which includes some video), the BBC reported VentureBeat.com's Dean Takahashi as saying "Apple tends to change the game and this Microsoft/HP tablet didn't blow them out of the water."

The question is, what would it take to blow "them" (whoever that is) out of the water? Ballmer's discussion of the slate PCs didn't last very long and offered scant details. But, if you ask me, just Microsoft's presence on stage, showing a touch screen interface, should be enough to upset the Apple cart, if only a bit. While the world seems to be holding its breath for a mystery Apple tablet that officially doesn't exist (or maybe it does if the WSJ's report was really a "controlled leak") and Wall Street is lavishing "praise" on Apple's stock, anticipating that the non-existent tablet will do for Apple what the iPhone did, perhaps we should still consider the laws of physics and competition before dismissing Microsoft as so far has been done during this tablet hype cycle.

As I wrote yesterday, should Apple ship a tablet, it will no doubt include a fair amount of genius that will send Microsoft and its partners back to the drawing board for "slate PC v2." But the purpose a tablet serves (in other words, the applications), how it manages power consumption, and the ultimate out-of-pocket cost doesn't leave a lot of room for significant differentiation in the big picture. At the very least, this new wave of tablets are responses to Amazon's Kindle, Sony's e-Book reader, and Barnes & Noble's nook. At most, like with the slate PCs Ballmer introduced yesterday, they're full-blown PCs that can do anything a PC can do. Apple's tablet, if there is one, will fall within this range.

The all important battery life (particularly for activities like reading) should be a serious concern to buyers and here, Apple hasn't demonstrated that it knows how to manage power (or package it, for that matter) any better than its competitors. Nor will Apple defy the rules of cost that come into play when it comes to packing all that whizbang technology into something the size of a composition notebook. If anything, relative to other tablets on the market bearing the same basic feature set, Apple's tablet will be more expensive (so long as Apple is true to form with its premiums). In other words, at the very least, Microsoft deserves a bit more credit for something that it's shipping (Windows 7 is tablet-enabled) or showing (the slate PCs) than it's getting.

Where Apple Has An Advantage Two of Apple's key assets in this brewing battle are its iTunes "content store" and its iPhone/iPod Touch App Store. It's for this reason that, if Apple ships a tablet, I anticipate that its operating system will most closely resemble that of the iPhone.

Sure, Apple will want to make money on the tablet itself. But Apple's business model is different from Microsoft's in that for most every iPhone and iPod Touch sold, it generates recurring revenue for itself. That's because of how many iPhones and iPod Touch users buy content from Apple's iTunes store (cha-ching) and applications from Apple's App Store (cha-ching again). Like iPhones and iPod Touches, a tablet from Apple could make for another very nice razor to which a variety of "blades" (audio, video, apps) can be attached.

The big question that looms is whether Apple will go whole hog against Amazon and Barnes & Noble by adding a full blown bookstore to the portfolio of "blades" that it can serve to iPod, iPhone, and potentially "iSlate" owners.

By choosing to go with Windows 7 as the slate PC operating system, Microsoft has also signaled to the market its primary business model for its answer to Apple, et alia: it's the same model as Windows. Microsoft will largely make its money on the operating system license that goes with each slate PC sold with very limited opportunities for iTunes/App Store-like recurring revenue. Even worse, whereas Microsoft normally has a shot at some recurring revenue through sales of Microsoft Office (to owners of Windows), that may very well end up blown when it comes to slate PCs given the content consumption role they're best suited to.

In other words, whereas a tablet from Apple could end up being a good vehicle for the type of audio, video, application, and book sales that Apple makes money on, the slate PC from Microsoft hardly looks like a razor, at least not for Microsoft. OK, it could be used as a client to Microsoft's Zune store. But that would take some serious marketing to drive what amounts to a non-Zune toting Windows 7 user in that direction. Perhaps that's a connection Microsoft should have leveraged by calling them Zune Slates instead of slate PCs.

Going back to Ballmer's demo where he demonstrated how the slate PC's touch screen interface can be used to flip the pages of a book, he did so using Amazon's Kindle for PC. If slate PC is a razor, then the blades will primarily be sold by third parties like Amazon. Advantage: Apple (and Amazon).

Indirectly, slate PCs could boost Microsoft's revenue, provided that their users end up frequenting Microsoft's online advertising-based Live services (like Live Photos and Skydrive). But, for Microsoft, that's a far more circuitous route to recurring revenue than the way Apple is set up. And maybe that's what Wall Street is acknowledging.

David Berlind is the chief content officer of TechWeb and editor-in-chief of TechWeb.com. David likes to write about emerging tech, new and social media, mobile tech, and things that go wrong and welcomes comments, both for and against anything he writes. He can be reached at [email protected] and you also can find him on Twitter and other social networks (see the list below). David doesn't own any tech stocks. But, if he did, he'd probably buy some Salesforce.com and Amazon, given his belief in the principles of cloud computing.

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