Studio B is the unassuming name of the unassuming low-rise office block that houses the team that over the last three years designed and developed Microsoft's Surface tablet in near total secrecy. On Monday, a select group of journalists was allowed into the building, beyond the security guards, through the airlocks, and into the working offices, labs, test chambers, and workshops that Surface's team of designers and engineers inhabited.

We were shown around by Steven Sinofsky, President of the Windows and Windows Live Division, and Panos Panay, General Manager of Surface. Throughout the tour of the building, Sinofsky, Panay, and others who worked on Surface talked extensively about the challenges they faced in building the product. A common refrain was that of making trade-offs: that hardware, unlike software, is faced with numerous physical constraints that turn product design into a balancing act. Sinofsky argued that software, in contrast, can be made to do more stuff simply by writing more code.

Surface's major design features are a product of these trade-offs. For example, the screen size, at 10.6 inches, is unusual. Standard OEM sizes are 10.1 inches and 11.1 inches; to get 10.6 inches required custom-built displays. Microsoft says that it tried 10.1 inch screens at first, but it made the snapped multitasking view too small. 11.1 inch screens solved that problem, but their greater power demands made the device uncomfortably heavy. Reducing the weight would have in turn shortened the battery life, which the designers felt was unacceptable.

10.6 inches was, therefore, a trade-off, or, some might say, a compromise, between the competing demands of size, weight, and longevity.

Similar thinking went into the choice of screen resolution. Surface uses the common 1366×768 resolution. Microsoft acknowledges that this headline specification compares unfavorably to the iPad's "Retina display," but defends the decision as another trade-off. The widespread use of 1366×768 on PC laptops means that most Web content is at least somewhat optimized for that resolution (compare with, for example, 1920×1080, where many sites will show empty gutters down the left and right hand edges of each page).

Doubling the resolution, as Apple did when creating its "Retina" displays, is a neat solution for that, but it comes at a price: it uses more power and is more demanding of the GPU. The "Retina" nature of a display is also highly dependent on, among other things, viewing distance and ambient light: a low resolution screen with lower reflectivity and better contrast could produce better pictures in normal viewing conditions than a screen with a higher resolution but also greater reflectivity and lower contrast. Trade-offs must be made.

These trade-offs are interesting to hear about, but without an opportunity to extensively use Surface, it's impossible to say whether Microsoft made the right call. We haven't yet had that opportunity, though we will, so we must defer further discussion of the trade-offs until then.

But what we can talk about now is the way Microsoft is operating as a company. Hardware has been important to Microsoft for a long time. Products such as the first Microsoft mouse were an essential part of the value proposition of early versions of Windows. The Xbox 360 was a serious attempt to build an entire platform, with providing both the custom hardware and the software to run on it.

In spite of this, Microsoft has never been a hardware company. Hardware has been incidental, an endeavor used to drive software sales rather than a business in its own right. Speaking to the Seattle Times in September, however, Microsoft CEO Steve Ballmer said that we should expect the company to change. Software is still core, but Microsoft will become a devices-and-services company. Redmond will own and build more of the stack; not just the software that people run, but the hardware they run it on. This same message was repeated earlier this month in Ballmer's letter to shareholders.

Microsoft isn't trying to become Apple; at least, not yet. Ballmer acknowledges that the 1.3 billion Windows users around the world have diverse needs, and one size won't fit all. The PC OEMs will have a role to play. But nonetheless, he's positioning the company as more than a bit player in the hardware space.

Studio B and Surface are where that transition is starting.

As Sinofsky and Panay showed the assembled crowd around Studio B, they talked about how the building had been equipped with the CNC mills, laser etchers, and other machine tools that match those used in the Chinese factories used to build Surface. Studio B had used such technology before for developing mice, keyboards, and Microsoft's other hardware products over the years, but where before the machines might be broadly similar to those used in mass production, now they're the same (or at least, closely related; Studio B doesn't need to churn out millions of units per year, so doesn't need the biggest, fastest hardware).

The intent is to ensure that every design decision made in Studio B can be quickly and accurately replicated on the production line. That's why having hardware with the same capabilities is important; it ensures that if something can be done in Redmond, it can be done in the Far East. This enables rapid and accurate prototyping with fast turnarounds.

Studio B also performs on-site testing; we saw endurance testing of the hinge on the Touch Cover and the kickstand; drop testing of the device; environmental testing to check it works in extremes of temperature and humidity. RF testing, too, to ensure that changes to the system's shell or motherboard did not negatively impact on the performance of the custom-designed MIMO antennas.

This is not to say that any of what Microsoft was doing is unconventional. Design shops around the world use similar machinery, and do the same kind of work that Microsoft is doing in Redmond. But the tight integration between design, engineering, and production is new for Studio B, and sets the company up as a vertically integrated device firm in the same way that Apple is. Surface is not some mere hobby in the way that the Apple TV is, nor an assemblage of off-the-shelf parts in the way that the original Xbox was. It's a serious hardware business.

"Business" is an important word. Before pricing was announced, speculation was wild, with rumors of a $200 Surface, sold at a loss (or at worst, break even) to prime the pump, get Windows RT into people's hands, and stimulate development of Metro-style applications. Such an approach is far from unprecedented; it's the tack that Amazon is taking with the Kindle Fire range, for example.

Sinofsky was clear that that's not the case with Surface. It's being run as a genuine business, and that means that it's expected to make money. Surface units will be sold profitably. It doesn't hurt that the company will be using its own chain of retail outlets to get it into customers' hands, of course; there are no middle-men to take their cut.

Those retail outlets are also carefully controlled. In a large warehouse in Redmond lies "Store Zero," a replica of a real Microsoft Store that serves as a testing ground for in-store promotion and displays, store layout and design, and staff training.

Though Microsoft's OEM partners have been frustrated with Microsoft for producing Surface, with muttered insinuations that Microsoft looked at what the OEMs were doing before going its own way, care was taken to keep the Surface team separate from the teams working with the OEMs, and this extended to Store Zero. Whenever representatives of Surface visited the store, the floorspace dedicated to third-party machines was filled with foam placeholders; when the OEM teams visited, the Surfaces were replaced with foam, and the store populated with third-party hardware instead.

Just how profitable Surface will be is, of course, Microsoft proprietary information. Whenever a hot product comes out, companies such as iSuppli perform teardowns and attempt to reverse engineer the bill of materials and assembly costs, in an attempt to try to figure out that profitability.

Microsoft made a kind of preemptive attack on such efforts. It's one thing for a third party to provide cost estimates of commodity items such as flash memory, but it's quite another for them to give estimates for custom parts, and Surface contains over 200 custom parts. Custom parts could be cheaper than off-the-shelf equivalents, or more expensive than off-the-shelf ones. Which way they fall depends on a host of factors, such as the scale at which they'll be manufactured, and the number of units that capital costs can be amortized across. No specific numbers were given, but there were hints that the company wants to achieve significant scale.

As much as the company showed off, the real test for Surface will be in the market. This investment in Surface and the repositioning of Microsoft as a "devices-and-services" company will be for naught if the market doesn't want what Redmond is selling. And if it does sell well, it would be remarkable if full-scale production did not uncover weaknesses in the supply chain that will need addressing—Microsoft is starting from scratch here, compared to Apple's decade of supply chain investment. But the intent is there, and Redmond's not playing around. If Microsoft is to become a devices-and-services company, Studio B is the way it'll do it.