By Rita Chattaraj - August 24, 2012 | Tickers: AAPL, GOOG, MSFT, NOK | 0 Comments

Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Microsoft(NASDAQ: MSFT), which has been ruling the personal computer operating system space for long now, is looking at changing the way the company functions - a shift in paradigm. Being restricted to the age old offerings will not help the company to cope up with the changing dynamics of the highly competitive consumer electronics space.For several years Microsoft had the software segment as its main focus point and it left the hardware part to a diverse ecosystem of OEMs likeDell,HP,Lenovoand many others. But now, with Surface tablet computers, Microsoft aims to capture a good chunk of the hardware side of the model too. The company is attempting to build an ecosystem of Windows-driven devices where both hardware and software will come from the tech giant.

Microsofts Master Blaster StrategyWith Surface, Microsoft is clearly following the path of anintegrated hardware and software offering ecosystem as displayed byApple (NASDAQ: AAPL). The iPhone maker is a living example of how successful this business model can be.In fact, this is not the first attempt of Microsoft to develop its ecosystem. The company has been attempting this for a long time, however it never tasted success. The Live Social Network didnt work out, nor did Bing, the competitor of the worlds largest online search providerGoogle(NASDAQ: GOOG). The general perception of Microsoft in the consumers mind was that it was old, slow at everything and not up to the art of the age. These thoughts were further fueled by the range of cheap plastic hardware as against Apples simple yet catchy and beautifully designed gadgets.

However, this time the companys plans may pay off big time and this might be just the beginning. The Windows maker has worked very hard on the form factor and the feel of the Surface tablets. The consumers as well as industry experts are pretty impressed with the trade dress of the device. So, finally we have something that actually can give Apple stiff competition. Slowly the giant can move to smartphone hardware too. For all we know, like Google acquiredMotorolaand is planning to use the phone maker to manufacture its own smartphones and tablets, Microsoft too can acquire a firm and go about its dream of enjoying hardware-software dominance in the electronics space.

Competitive strategies The Redmond-based tech giant aims to change the consumer perception about it - from being a super successful operating system maker to an equally successful hardware provider - and for this the company has chosen the tablets space as the first point of attack. So, how does Microsoft want to make it big in this market?Winning through losses!

Recently, there have been rumors that the Surface tablets will be available for a starting of $199. Initially everyone felt this was just a rumor to test the reaction of the OEMs, but as time passes and Microsoft is still not denying the claim, there are chances it will turn out to be true. If this is really the case, then the Surface RT will not only be battling with the iPad, but alsomay turn out to be fatal for the Nexus 7 from Google andAmazonsKindle Fire.

So, does this mean the Surface RT will have lower tech specs than the iPad? No. Under the hood the Surface RT will be as strong as the iPad, but still available at just $199. What Microsoft is trying to do is pretty clear the Windows maker is going after market share and not profits. Microsoft wants to penetrate the tablet market by providing superior tablets at extremely competitive prices even if it needs to face losses. This way, no one will buy the iPad since the two devices will have the same specs while the Surface will be cheaper and again no one will buy Android-based tablets since the prices will be the same whilethe Surface will be superior. Microsoft is thinking of leveraging the success from its other business parallels to its newly formed hardware business so that it can snatch from Apple and Google their share of the consumer electronics sector.

Now, focusing just on the tablet market will be an incomplete effort on Microsoft's part. The company also needs to put stress on the smartphone hardware market. However, the Windows maker has no plans as of now to manufacture handsets. Rather, it plans on carrying on with the OEM model here byleaving the handset manufacturing toNokia(NYSE: NOK), but with good chances of moving into the handset manufacturing in the near future. Through Nokia, Microsoft aspires to knock down theApple andSamsung-Google dominance and give users something new and exciting. While Surface will ensure Microsofts success in the tablet market, Nokias Lumia will ensure the success in the smartphone space.

Departing thoughtsMicrosofts plans are definitely not ordinary and these involve huge challenges and a lot is at stake. Shifting its focus from software to hardware and repositioning itself in the minds of the users is no kids play. The Windows maker knows this very well that if, for whatsoever reason, Windows 8, Surface or Lumia fails, it is going to be doomed and this is why every step it takes needs to be well planned. But, like I say, no risk, no gain and know risk, know gain. Microsoft is taking a risk for which it can get rewarded greatly. It has the right combination of expertise, experience and goodwill to drive this strategy to success. And, in due course of time, if it decided to acquire Nokia also, it will not be a surprise for anyone. Rather, the move will actually fit in with Microsofts aspirations like a glove. I am very much bullish on the Windows maker and have a feeling it will surely stir up things in the tech space.

Excerpt from:
The Shifting Paradigm of Microsoft