Will Microsoft’s restrictions with Office doom every Windows RT tablet?

Microsoft’s effort to join the tablet fray is drawing criticism before the first Surface RT has even shipped: Analyst Shaw Wu believes the $499 entry-level price point may be “a fatal mistake,” the differences between Windows RT and Windows 8 are likely to confuse consumers, and my colleague Kevin Tofel rightly notes that Microsoft hasn’t explained to consumers why they should consider the new tablet.

Perhaps the biggest flaw with the Surface RT, though, is that businesses can’t use Office applications on Windows RT devices out of the box, as ZDNet pointed out last week. The tablets come with a preview version of Office Home & Student 2013 RT, which will be packaged with every Windows RT tablet that comes to market. But Microsoft forbids the use of Office on the Surface RT by businesses unless those users have an additional license for other Office properties. And that stipulation may shackle sales of every Windows RT tablet in a very big way.

Eliminating a key differentiator

The restriction isn’t out of line with Microsoft’s policies regarding consumer-targeted Office software, but it’s directly at odds with the strategy behind the Surface RT, which was designed as a kind of bridge between laptops and PCs. And it’s a crucial shortcoming because Microsoft has opted not to undercut Apple on price, which means it must differentiate the Surface on functionality. The most obvious way to do that would be by leveraging the ubiquity of Office on the PCs many of use for business every day.

While the iPad remains largely a complementary device – and a pricey one at that – the Surface RT could be marketed as a tablet that also can replace users’ laptops or notebooks. Without the restrictions on Office software, business users (and even small to medium-sized businesses) would be far more inclined to buy the tablet instead of a new laptop rather than in addition to one.

David Gerwitz this week theorized that Microsoft might be bound by “a customer agreement somewhere” that prevents the company from offering a cheaper or bundled copy of Office. Requiring users to own the additional license may be a way for Microsoft to circumvent any such stipulation, Gerwitz suggests. That certainly sounds plausible, but regardless of why Microsoft has imposed the licensing restriction the company has clearly handcuffed itself in a tablet market that is quickly becoming very crowded.

Not just the Surface RT

Amazingly, it appears that the licensing restrictions will apply to every Windows RT tablet expected to come to market in the coming months – and that isn’t a short list. Dell this week unveiled the XPS 10, and Acer, Asus, Lenovo and Samsung are all expected to churn out Windows RT tablets by the end of the year. As The Verge reported two months ago, all those tablets will run the same version of Office that the Surface RT runs – which means they can’t be used for business purposes without an additional license. And as David Murphy of PCMag.com recently wrote, these new tablets won’t come cheap – while pricing has yet to be disclosed for some models, it appears that few will match Apple’s $499 price point for an entry-level gadget. And some high-end models will be substantially more expensive.

It’s possible that the legalese regarding Office Home & Student RT won’t doom all these new tablets running Windows RT. (And it’s true that the Surface RT is already back-ordered.) Microsoft could turn a blind eye toward business users who fire up their Windows RT tablets for work purposes, and retail sales staffers could reassure buyers with a wink and a nod that the tablet can be used for both work and play. But it seems clear that manufacturers of Windows RT tablets simply can’t compete with the iPad on price alone. If they can’t market their devices as hybrids that couple the functionality of laptops tablets with the simplicity of tablets, they’ll have a very difficult time eating into Apple’s dominant market share.