With interest in traditional computers waning, the world's largest software company is attempting to reinvent the Windows PC in a new format and directly challenge Apple's all-conquering iPad.

"One person called it historic, unique," said Steven Sinofsky, head of Microsoft's Windows unit and the driving force behind Windows 8, who opened the launch event in New York in front about 1,000 media and PC industry partners.

"It's twice the amount of storage as a competing tablet for the same price," Sinofsky said, comparing the entry level 32 GB Surface with the cheapest 16 GB model of Apple's latest full-sized iPad, which both cost $499.

Sinofsky and his team showed off a range of devices running Windows 8 from PC makers such as Lenovo Group Ltd and Acer Inc, but devoted most of their energy to the second half of the presentation and the Surface tablet, the first computer Microsoft has made itself.

Panos Panay, head of the Surface project, demonstrated the tablet's features, beaming video and music to other screens, showing off the ultra-thin cover that doubles as a keyboard, and hooking up a camera to the device's USB port. He even dropped the device on the floor to demonstrate its durability.

Microsoft stressed that the Surface, featuring a pre-installed version of Office, is not just for entertainment but also for work.

The device has generated a lot of curiosity, but so far has not garnered rave reviews and users seem unconvinced.

"It's really a new class of device that sees the tablet and PC experiences merging into a single device instead of discrete ones," said Michael Gartenberg, an analyst at tech research firm Gartner, who attended the launch. "Microsoft's challenge now will be to educate the market as to why different is also better."

Apple Chief Executive Tim Cook wasted no time shooting back at Microsoft's challenge.

"I haven't personally played with the Surface yet, but what we're reading about it is that it's a fairly compromised, confusing product," Cook said on Apple's quarterly earnings conference call with analysts. "I suppose you could design a car that flies and floats, but I don't think it would do all of those things very well."

NEW DEPARTURE

Windows 7 was introduced three years ago, but Windows 8 represents the biggest change in Microsoft's user interface since Windows 95 came out 17 years ago.

"We've reimagined Windows, and we've reimagined the whole PC industry," Microsoft Chief Executive Steve Ballmer told Reuters Television.

The radical redesign, which dispenses with the Start button and features square tiles for apps, may surprise some users.

Sinofsky sought to quell fears by emphasizing that the new system was built on the base of Windows 7, Microsoft's best-selling software that recently passed 670 million license sales.

"Enough consumers don't know where to go; they are still confused by Windows 8," Envisioneering Group technology consulting Richard Doherty said at the New York event. "There were no developers here (at the event). I don't know if developers will embrace it."

Initial demand for Windows 8 appeared solid, but customers are wary of spending money on unnecessary technology in the tight economy.

"We've seen steady pre-order sales on Windows 8 devices from early adopters," said Merle McIntosh, senior vice president of product management at online electronics retailer Newegg. "However, we expect that most average consumers are waiting until after launch to make a purchase decision."

Microsoft is offering several versions of the new system. The basic Windows 8, the full Windows 8 Pro and Windows 8 Enterprise for large organizations will all run on the traditional PCs, laptops and new tablets using Intel Corp chips. Windows RT is a new version of Windows that will be pre-installed on its Surface tablet and other devices using low-power chips designed by ARM Holdings Plc.

Through the end of January, users running Windows XP, Windows Vista or Windows 7 can download an upgrade to Windows 8 Pro for $40. Windows 8 devices go on sale at midnight.

Microsoft has not said how many apps Windows 8 will have at the launch, but it is expected to be a fraction of the 275,000 available to iPad users. The New York Times Co announced a reader app for Windows 8 on Thursday and Amazon.com Inc launched a Kindle e-book app for the new system, but some big names such as Facebook Inc are not expected to feature.

Businesses are not expected to be early adopters of Windows 8, but some feel the new crop of tablets running Office applications could counter the iPad.

"Enterprise IT will do anything to not have to deploy iPads. There are development costs, new software they don't really understand," said Patrick Moorhead, founder of technology analysis firm Moor Insights and Strategy. "Enterprise will more likely pick a Windows 8 tablet. (This) is going stop rollout of iPads in its tracks."

Investors were uncertain about the prospects for Windows 8, but many feel a solid launch could help Microsoft's stock, which has languished between $20 and $30 for much of the last decade.

Apple's shares have outperformed Microsoft's over the past 10 years and its market value is more than double Microsoft's. Microsoft shares closed at $27.88 on Thursday, while Apple shares closed at $609.53.

"This really is about debunking the notion that Microsoft is a dinosaur and (showing) they are relevant in a new climate of tablets and mobile," said Todd Lowenstein, portfolio manager at HighMark Capital Management, which holds Microsoft shares.

"Extreme pessimism and almost utter failure is priced into the shares, so any kind of positive delivery on units, customer perception, would be really beneficial to the stock."

(Writing by Bill Rigby in Seattle. Additional reporting by Poornima Gupta in San Francisco.; Editing by Bernadette Baum, Jeffrey Benkoe, Matthew Lewis and Andre Grenon)

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