Microsoft Corp. (Nasdaq: MSFT) will be constrained in a contest against Apple Inc. in the market for handheld computers by unveiling a tablet that doesn’t work with some of the most widely used downloadable applications.

The Surface RT, a tablet that runs the latest version of Microsoft’s flagship operating system and goes on sale Friday, won’t feature applications for Facebook Inc.’s social-networking service or Apple’s iTunes music store.

Microsoft packed the new Windows with touch-screen capabilities, gave it a new look and feel and ensured that it’s compatible with some popular apps, including Hulu LLC and Netflix Inc. Still, the company won’t say how many apps are available for the operating system, and the lack of a broad range of games, tools and other downloadable software will detract from the Surface in a head-to-head comparison against the iPad and its plethora of more than 275,000 apps.

“Part of me had hoped that we’d see more killer apps,” said Wes Miller, an analyst at Directions on Microsoft in Kirkland, Washington. “Consumers who buy into the platform on Friday — unless we start seeing an abundance of apps — are buying into a promissory note that the apps will arrive.”

Microsoft Chief Executive Officer Steve Ballmer is introducing the biggest overhaul of his company’s flagship software in almost two decades at an event in New York today. The new Windows reflects the rising stakes of a contest with Apple and Google Inc. for the loyalty of customers shunning personal computers for mobile devices. It goes on sale tomorrow.

‘Biggest Product’

“This is the biggest product we’ve ever done,” Ballmer said today in an interview with Bloomberg Television, comparing it to the arrival of the personal computer in 1981 and the introduction of Windows 95.

The number of apps in the store is critical because machines with the Windows RT operating system, including the first iteration of the Surface and four other devices from partners, can’t run existing Windows programs. Windows RT devices can run only those expressly written for the app store. Machines with Windows 8, which run chips from Intel Corp., can run older Windows programs.

Downloadable applications have become central to the way customers use tablet computers, and one of Apple’s selling points is its leadership in apps. The company introduced a low- cost version of the iPad earlier this week, part of CEO Tim Cook’s effort to keep budget-conscious shoppers from inexpensive tablets sold by competitors such as Inc. The iPad mini is available for early orders tomorrow, the same day Surfaces hit stores.

Consumer Defection

Microsoft is relying on the new operating system to revive interest in the personal computer and carve out a position for Windows in the tablet market, which is picking up consumers defecting from PCs.

Microsoft advanced 1 percent to $28.18 at 9:32 a.m. in New York. Through yesterday the shares had gained 7.5 percent this year.
The PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli. That would be the first annual decline since 2001.

Microsoft has had a lot of interest in writing for the operating system and has had to add staff and computers to process and approve the submissions, Antoine Leblond, the vice president in charge of the Windows app store, said in an interview.

Apps Developers

Because apps written for the program can be sold not just to tablet users but to hundreds of millions of customers who will get Windows 8 on personal computers, Microsoft has a chance to win over more developers, Leblond said.

“Microsoft feels pretty strongly that the platform they have built is compelling to both users and developers,” Miller said. “Time will tell if both are true.”

Miller’s own examination of the Windows app store indicates there were 7,873 apps worldwide earlier this week, with hundreds being added daily.

Similarly faced with a possible dearth of applications, Microsoft’s Windows Phone group in 2010 paid some developers to write their programs. The team also built some, including a Facebook program, on their own.

The Windows team declined to do either, Leblond said.

Facebook Decision

Facebook, for example, only writes apps for Apple’s iOS and Google’s Android operating system, and the company opted not to do Windows, a person familiar with the matter said in May. Microsoft could have written a Facebook app on its own using Facebook’s open standards, which is what the Windows Phone group did.

“Facebook will or will not decide write an app,” Leblond said. “That’s their decision to make. We’re not going to build a native app for them.”

Leblond also notes that Windows RT customers can go to Facebook’s website and get a similar experience to the app.
Instead, the Windows group focused their budget on workshops to train developers and resources to help them write apps, Leblond said.

More than 400,000 people have attended developer camps run by the company, Leblond said.

Besides Hulu and Netflix, the new Windows will also have apps such as the Skype Internet-calling service and Evernote Corp.’s note-taking tool. A version of Rovio Entertainment Oy’s Angry Birds will be available November 8.

“When the store opens, we will have more apps in it than any other store when it opened and to me that’s a great sign of momentum,” Leblond said. “I’m much more interested in the momentum that we’re seeing than what that absolute count looks like.”