What You Need to Know About the New Microsoft Surface Tablet Computer

Microsoft (NasdaqGS: MSFT) took two pages out of Apple’s (NasdaqGS: AAPL) playbook on Monday night. First, it built up huge buzz by keeping the media guessing for days before launching its new tablet computer, the Microsoft Surface, at a surprise location in Los Angeles.

Second, the company broke with its usual practice of licensing its software to hardware manufacturers, instead opting to make the new device itself.

The Microsoft Surface features a 10.6-inch touch screen, slightly larger than the iPad’s 10-inch screen and much bigger than the seven-inch screens on Amazon.com’s (NasdaqGS: AMZN) Kindle Fire and Research in Motion’s (NasdaqGS: RIMM) PlayBook.

The new device will run Windows RT, a mobile version of Windows 8, Microsoft’s much-anticipated new operating system, which is set for launch this fall.

Touch Keyboard Sets the Microsoft Surface Apart

In a departure from current tablets, the Surface also comes with its own stand and a pressure-sensitive cover that doubles as a touch keyboard, so users don’t have to rely solely on the touchscreen to type.

Two versions of the device (with 32 GB and 64 GB of storage) will debut around the same time as Windows 8 and be powered by chips licensed from ARM Holdings (NasdaqGS: ARMH).

Ninety days later, Microsoft will launch a 128-GB professional version of the device that will run the full version of Windows 8 and will be powered by Intel (NasdaqGS: INTC) chips.

Microsoft Surface Will Need Lots of Content—and Quickly

A key part of any mobile device’s success lies in the number of software applications, or apps, that users can download. Here, Apple and Google’s (NasdaqGS: GOOG) Android operating system have a big lead. Apple’s App Store, for instance, offers more than 200,000 apps.

At the Microsoft Surface launch, the company gave few details about what content will be available for the new tablet, other than to say that Netflix (NasdaqGS: NFLX) will make a version of its streaming app for Windows 8. Left unaddressed was the role that Xbox content will play, or how the Microsoft Surface will fit in with the company’s recent investment in Barnes & Noble’s (NYSE: BKS) Nook e-book reader.

Variety technology writer Andrew Wallenstein was quick to pick up on that: “Despite the Hollywood setting of the press conference,” he wrote, “entertainment was not a big emphasis of Surface. Beyond passing remarks regarding viewers’ capability to use a variety of Windows apps to access gaming, video and music, little was said even about its highly anticipated integration with Microsoft Xbox video game console.”

If the Microsoft Surface is to have a chance in the cutthroat tablet market, the company will have to outline precisely what content, including apps, will be available for the device—well before its launch.

Proper Pricing of the Microsoft Surface Will Be Crucial

Another important factor that has yet to be announced is how much consumers will have to pay for the new tablet. In its press release, Microsoft said that it will reveal the pricing closer to launch, but that the Microsoft Surface is expected to be “competitive with a comparable ARM tablet or Intel Ultrabook-class PC.”

As ARM chips power 95% of the world’s mobile devices, that leaves us with a wide range. The iPad, for example, starts at $449, while the lower-end Kindle Fire and Samsung Galaxy sell for about $199.

In light of the Surface’s robust selection of features and its well-publicized launch, Microsoft is clearly aiming squarely at the iPad, suggesting a price close to that level. However, that could be a risky strategy given the latter’s strong reputation and control of roughly 58% of the tablet market.

Apple has already essentially taken out one competitor that tried this approach: when Research in Motion launched its PlayBook in 2011, it matched the prices of the device’s 16 GB, 32 GB and 64 GB models directly with the corresponding versions of the iPad. RIM was later forced to slash its prices after PlayBook sales slumped. Today, the PlayBook accounts for just 1.7% of the global tablet market.

Microsoft Surface Is Well-Positioned to Benefit from Growing Popularity of Tablets

Still, market share tells only part of the story. Equally compelling is the astonishing rate at which the overall tablet market is expected to grow in the coming years.

According to a report from market-research firm IDC, 107.4 million tablets will be sold in 2012. Next year, that number will rise to 142.8 million units, and to 222.1 million by 2016.

Right now, consumers are the main buyers of tablets, but businesses are starting to see value in the devices and are expected to account for a large part of the market’s growth in the coming years.

That puts the Microsoft Surface in a great position to build on Windows’ strength as the number-one operating system for business. IDC’s research backs this up, according to Tom Mainelli, the firm’s research director for mobile connected devices:

“Our current thinking … is that Windows-based tablets will be largely additive to our existing media tablet market forecast. We don’t expect Windows-based tablets to necessarily take share from Apple and Android, but will grow the overall tablet market.”

Microsoft stock edged up 0.25% in after-hours trading, to $30.09.