Partners: Microsoft's Surface Book Puts HP, Dell, Lenovo On The Hot Seat

Microsoft's decision to go deeper into the mobility market with its own Surface Book laptop puts one-time OEM partners like HP, Dell and Lenovo into the crossfire and raises troubling channel conflict issues, solution providers told CRN.

"I would be pissed off if I was HP, Dell or Lenovo," said the CEO for a large company in the CRN Solution Provider 500, who did not want to be identified. "This is a huge throwdown against the hardware OEMs. I just don't get it. It's already a crowded market. Why does Microsoft need to enter the laptop market, duking it out with HP, Dell and Lenovo. This throws all of Microsoft's hardware OEM relationships into disarray. It also makes me wonder if Microsoft will get into the server business. What's next?"

The CRN SP500 CEO said the Microsoft laptop offensive even has the potential to raise antitrust issues for Microsoft, which faced an antitrust lawsuit in the late '90s by the U.S. government alleging that it abused its monopoly operating system power on Intel-based PCs. "Microsoft doesn't care about the antitrust implications," he said. "They'll just fight it like they did before."

[Related: Partners: New Microsoft Surface Laptop Accelerates Channel Competition]

The SP500 CEO said the Surface Book launch is just one more sign of technology vendors' increasingly encroaching on one another's turf in the cloud era, blurring the once-clear lines between hardware and software makers. "This is making it harder for solution providers to maintain multiple OEM relationships," said the CEO. "There used to be clear lines in the sand. The walls have come down. Now every one of the OEMs have become enemies."

Microsoft has said that the Surface Book, a 13.5-inch laptop with a detachable touch screen, is priced starting at $1,499. Microsoft said the product will be available starting Oct. 26 through microsoftstore.com, more than 110 Microsoft retail stores, select retailers and authorized resellers. Microsoft sells its Surface Tablet through about 3,000 authorized partners.

The biggest issue out of the gate for solution providers authorized to sell the Surface Book is whether they lead with Surface Book and put their one-time primary hardware vendor's line in the background.

The channel conflict issues are even more troubling for Dell and HP, which just one month ago inked a deal to resell Microsoft's Surface Pro, putting them in direct competition with partners selling HP and Dell tablets.

"I'm sure the guys at Lenovo and Dell are saying, 'Whoa, what do we do now?' " said Lou Giovanetti, co-founder of Waltham, Mass.-based CPU Sales and Service. "It's going to be an interesting Christmas."

Microsoft appears to be taking a page out of the Apple playbook, attempting to control the complete tablet-laptop experience, said Giovanetti. He says hardware makers are going to have a hard time competing with the product.

"It's a good-looking machine," he said. "They're doing what Apple did. They're controlling who can sell it, and if they can do that, they can control the price. It's going to be something you want, and if you want it, you're going to pay for it. I think they've got something good on their hands, something people are going to want, and I'm an Apple fan."

Guy Baroan, CEO of Elmwood Park, N.J.-based Baroan Technologies, said he also sees Microsoft exerting more power over its hardware's software, like Apple. "They just try to keep outdoing each other," he said.

Baroan noted that the Microsoft laptop throwdown comes just after Apple stepped up its effort to compete more aggressively with the Microsoft Surface Pro Tablet by introducing its iPad Plus. "Apple saw they didn't have anything to service that segment of the market," he said.

Joe Lore, director of sales at Lenovo partner Sunnytech, Woburn, Mass., said the Surface Book spells more trouble for the channel. "This just says Microsoft doesn't care about resellers," he said. "All the major companies are going to go business-to-customer. That's where it's going. Tesla wants to sell cars direct to the customer without a dealer, and that's going the way it's going to go. In the meantime, we try to survive. Lenovo is selling direct to consumers on their website, they compete with me. "

Lore also raised the potential antitrust issues, saying Microsoft appears to have a built-in advantage in that it is unlikely to charge itself for the Windows operating systems that run the Surface Book. "Why would they do that? " he asked "Why would they charge full price? If they're buying a capacitor from a company to put into the Surface, are they going to mark the capacitor up? Why would they do it with the operating system? They already give it to kids in schools for a buck. They've already proven that they're willing to give it away, so why would they charge themselves?"

Lore expects Microsoft's channel partners not authorized to sell Surface Book and Surface to be battered by the hardware offensive.

"When Microsoft came out with their stores, I said this is the beginning of the end," he said. "The last two operating systems, there was nothing for dealers, no training or other stuff they used to do years ago. It just means a new model, and that's stores and direct-to-consumer. We make changes to adapt. Maybe I have to do more service work now to fix these things."

One large national Microsoft partner called the Surface Book a classic Microsoft power play. "They get it right and really start to eat into the market," he said. "This is the first tablet you can use as a laptop or PC that I feel comfortable with. We expect a lot of demand for them, a lot of interest. At the end of the month, we expect to have a lot of activity."

Microsoft is putting pressure on hardware OEMs like HP, Dell and Lenovo, which are going to be forced to "come up with good units at some point," he said.

Michael Novinson contributed to this story.

PUBLISHED OCT. 6, 2015