A decade ago, Microsoft created and steadily improved the Tablet PC, releasing several versions of Windows with built-in Tablet PC capabilities and working with numerous partners to bring innovative devices to market. Customer reaction, however, has been consistently mixed, and while some still swear by Tablet PCs, none have sold particularly well.

And then there's Apple. Taking an iPod touch and stretching it out to Tablet PC size and renaming it as the iPad, Apple has quickly dominated the market that Microsoft first created. The iPad is already selling at a rate of about 750,000 units per month. It's hard to imagine that many Tablet PC models sold that well during their entire lifetimes.

Apple's competitors aren't sitting still either. Google and its many hardware partners are planning to deluge the market with numerous Android-based tablets starting this month, when Dell's Streak tablet goes on sale in the UK. (A US launch is scheduled for July.) Android tablets will ship in a variety of sizes and form factors, and will come with capabilities the iPad lacks, like built-in cameras, expandable storage, and replaceable batteries.

But what about Microsoft? So far, the company has been pretty quiet about its plans, though CEO Steve Ballmer famously—perhaps infamously—touted an HP Slate design at the Consumer Electronics Show in January. Unfortunately for Microsoft, that device is now in limbo. And it may ship with the smartphone-based Palm WebOS instead of Microsoft's Windows 7, as originally planned.

Surely the company has some plans to retake the market it spent almost a decade building. One plan I've advocated is using its Windows Phone 7 OS, instead of the PC-based Windows 7, as the basis for Microsoft's tablets. Unlike the iPad's iPhone OS, WebOS, or Android, Windows Phone 7 is a natural fit for larger-screen devices like tablets, thanks to its innovative, panoramic user interface. Unfortunately, it's also not ready for primetime—smartphones based on Windows Phone 7 won't ship until the end of the year, and Microsoft is clearly focused on that market first—so it would likely be 2011 before such devices could ship to customers. Clearly, Windows Phone 7 is not the answer. Not this year.

Microsoft also recently released a new embedded version of Windows, called Windows Embedded 7, which is essentially a fully componentized version of Windows 7 aimed at non-PC devices. This means that hardware makers could create slimmed down tablet devices using only those parts of Windows 7 they need, perhaps leading to better performance and battery life. But Windows Embedded isn't Windows, and such devices could simply confuse and disappoint customers, just as laptop-like Windows CE devices did a decade and a half ago.

Microsoft's plan, such as it is, actually rests with Windows 7. And while this OS has been well received, and has proven workable enough for the netbook market, it's unclear whether hardware makers can make it a success with slate-like tablet devices. The key, of course, is a variety of devices at a variety of price points, a strategy that could mimic the PC model, since these devices will indeed simply be small PCs. And Microsoft will likely try to position Windows 7 slate devices as the "premium" tablet experience, a strategy it's had some success with before with Windows and Office.

"There are always lots of noises at the beginning of a new category," Microsoft Corporate Vice President Steve Guggenheimer said this week. "\\[When the netbook market started,\\] it was 95 percent not on Windows, and three years later it is 95 percent on Windows. Windows has proven to be a phenomenal platform for our partners to make money. They know we are going to continue to build support to the operating system."

But the flexibility of Windows also comes with complexity. And if previous diversification attempts with Tablet PCs, Ultra-Mobile PCs, and Media Center PCs provide any clue, customers aren't necessarily interested in making that tradeoff outside of the home office. Indeed, one of the iPad's most compelling features is its simplicity: Apple didn't base this device on its more capable but more complex Mac OS X system. This was an explicit vote on what it perceives as the future of computing and, to date, this bet appears to have paid off.

Looked at broadly, Microsoft appears to be placing, instead, the same age-old bet it's always made, on the PC. The only question is whether this bet makes any sense outside of traditional PC markets.