The biggest hurdle for Microsoft culturally is that the company must shed its historic emphasis on "feature-rich." People are overwhelmed with "features," especially on mobile devices. Consumers want simple, which means the elimination of features.
While it appears that Microsoft understands the need to put cell phone software on tablets, it's not clear, and there's no reason to believe, that the company actually has the vision and the self-discipline to embrace the simplicity movement.
In the book The 22 Immutable Laws of Marketing, the authors point out in Law #8 that "in the long run, every market becomes a two horse race." Right now it looks like those horses are going to be Apple and Google.
Microsoft's options are to either look for another, lesser market to dominate for example, to create and cultivate the enterprise touch tablet market or to try to beat Google in the consumer market.
The way to do this is to tweak Windows Phone 7 and optimize it for tablets, keep the price extraordinarily low, cultivate and develop amazing third-party app development and leverage its innate advantages, including synchronization with Windows.
Microsoft researchers have developed some really great ideas in combining touch with pen. The Microsoft surface team has done some ground-breaking work on the development of touch user interfaces as well. The company will need all these resources to beat Google.
Can they do it? Time will tell. In the meantime, the focus should be to avoid the mistake of Windows phone 7, which is to be too late to the party.
I'm rooting for Microsoft. But this looks like the companys last chance. If they fail to get a compelling cell phone-sized OS on tablets right away, it will probably be too late for Microsoft to ever succeed in the consumer tablet space.