Ballmer: Microsoft Had to Build Surface to Compete with Apple

Microsoft (MSFT) believed it had to construct and brand its own tablet to compete with Apple (AAPL), chief executive Steve Ballmer revealed to ZDNet blogger Mary Jo Foley in a recent interview.

As Ballmer comes down the backstretch of his 34th year at Microsoft—and last as chief executive—he didn’t mince words when he told Foley the vendor knew it was risking OEM relationships by making its own tablet. (Uh, channel relationships, too!)

But it had to be done, he said, to protect the company’s flanks. Ballmer believed that Microsoft needed sales coverage at the high end of the tablet market to compete with Apple, lest it cede that entire segment to its rival. But he didn’t think the company’s OEMs could get there effectively enough to challenge Apple.

“I was concerned that we had areas of vulnerability in competing with Apple and without any (first-party) capability, that we were not transacting that well just through our OEM partners,” he said, acknowledging that Apple’s iPad was “a higher-end brand” than Microsoft’s OEM Surface models.

“Our OEMs were having a hard time investing in competing with the higher end brand. The (Microsoft retail) stores were (starting) to take off, but they hadn’t taken off,” said Ballmer. “And without a product to fit—a product, a brand, a price point—to really go head-to-head, it looked like an area of exposure,” he said.

It’s no secret that most, if not all, of Microsoft’s Surface OEMs were flummoxed by the vendor’s decision to make first-party tablets. Some complained publicly they’d been blindsided—all but Nokia (NOK) subsequently abandoned making Windows RT-based tablets.

Perhaps cutting channel partners out of Microsoft’s Surface strategy until well into the sales cycle also wasn’t such a great idea.

While Ballmer went the extra mile to make sure he conveyed Microsoft’s concern over its OEM relationships, he said Microsoft faced facts that its “OEMs do great work, but there are places their brands and investments don’t travel.”

By building and branding its own Surface tablet at the high end of the market, Microsoft believed it could “supplement the work of our OEMs, hopefully make our OEMs stronger through the process, by making our overall competition with Apple,” Ballmer said.

The $900 million financial mudhole the first iterations of Surface created for Microsoft has been well-chronicled. Surface 2 reportedly is doing far better. But it still remains to be seen if the platform can challenge Apple at the high-end of the market as Ballmer schemed it could.