Who Will Buy Microsofts Milan?

The world might not be ready for a “Milan” coffee-table PC in every living room just yet, but that wont stop Microsoft from trying.

With the launch of its new surface computing product May 30, it appears that Microsoft is positioning its new technology for widespread use both in the enterprise as well as the home, according to industry analysts.

The first three customers to use Milan—T-Mobile, Harrahs Entertainment and Starwood Hotels and Resorts—offer Microsoft a very visible stage to display its new product where people can see its potential and interact with the new technology.

The first of these coffee-table PCs, which the company has officially dubbed Microsoft Surface, is expected to hit the market in late 2007.

“Ultimately, Microsofts target audience is the mainstream consumer,” said David Daoud, an analyst with IDC, who has also seen the early previews of Milan. “I think at first youll have a proofing period where its being tested and refined. After that, it makes perfect sense to go for consumers and these three companies Microsoft has selected are perfect because they are heavily involved in consumer relationships.”

/zimages/7/28571.gifClick hereto read more about the launch of Microsofts Milan surface computing product.

While the concept of touch-screen technology is not new—tablet PC being the most recognizable example—the way the technology is being used and refined by Microsoft is different. Right now, its hard to tell how consumers and corporate customers will adopt it or how widespread its use could be.

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With that in mind, Microsoft will likely introduce the technology slowly and promote it with businesses, such as Harrahs Entertainment, that will give it maximum exposure to both sets of potential customers, Daoud said.

The Milan used at Harrahs Caesars Palace in Las Vegas, for example, will allow guests reserve tickets for concerts, order meals or simply explore what the hotel has to offer throughout the casino.

From these initial customers, Daoud said he sees the Milan moving into other high-end restaurants, where patrons can use their credit cards on the table to order food and drink, ask for the check and calculate the tip.

Steve Baker, an analyst with NPD Group, said that with Milan, Microsoft is looking to expand on some of the new and improved tablet features that it incorporated into its Windows Vista operating system. These improvements allow for much more flexibility with touch-screen products.

Like Daoud, Baker sees the Milan moving beyond the initial customers and into high-end retail stores, for example, as a way to help promote the concept behind this PC.

“What happens from here is that the magic of the market will do its work and then well see what value can be added to it,” Baker said. “With a development like this, you see companies being born and other companies look at opportunities to create new markets for these products.”

/zimages/7/28571.gifClick hereto read more about touch-screen technology.

Neither Baker nor Daoud could say for certain if Microsoft would try to expand its reach by partnering with a major OEM vendor, such as Hewlett-Packard or Dell, to build these surface computing PCs. (HP has a concept coffee-table display that works with a thin client PC but its not known when this will be ready for any practical use.)

In the meantime, the initial prices for the Milan technology will likely fall, which will make the technology much more appealing to a broad range of consumers and corporate users.

Daoud said more mainstream adoption of Milan technology, along with a price drop, is about three to five years away at this point. With the initial announcement on May 30, Microsoft said the first three Milan PCs will cost anywhere between $5,000 and $10,000.

Baker sees a gradual adoption during that time.

“I really dont think there will be an in-between period,” Baker said. “Youll have people developing more and a more applications for the business worlds and youll have more people adopt the technology if there is some value-add to it … It will be more like a gradual evolution.”

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