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7/31/2013
11:44 AM
Michael Endler
Michael Endler
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Can Microsoft Rebound From Surface Flop?

Clearly, Microsoft's Surface tablets have bombed. Now what will the company do about it, and what does it mean for customers?

At some point, Microsoft will presumably release a version of the Surface Pro equipped with Intel's Haswell chip, which should address one of the device's primary flaws -- poor battery life. The refreshed device could face trouble if it maintains the current Surface Pro's $899 base price, especially with cheaper Win 8.1 models expected from other OEMs.

Even so, the next Surface Pro could still attract attention from businesses, many of which will begin device refreshes over the next year. The Pro is vastly outnumbered by iPads in the enterprise, but that ratio could owe partly to timing. Businesses don't generally invest in a new OS until an update – such as Windows 8.1 – is released, and with many businesses still embroiled in Windows XP upgrades, this tendency has arguably been exaggerated.

It remains to be seen if consumers will ever embrace a high-end Surface tablet, but with businesses, there's obvious value in the device's ability to run both mobile apps and desktop software. The Surface Pro could still factor into a write-down of its own at some point, but potential enterprise sales at least give Microsoft reason to be hopeful.

The next Surface RT model will face a tougher path, however. Rumors indicate that the forthcoming device will rely on Qualcomm's Snapdragon 800 chip, which not only handily outclasses the Nvidia processor in the today's model, but also suggests LTE support -- one of the current version's more crippling omissions. The new device is also expected to be smaller, with a 7- or 8-inch screen. Between an updated OS, improved components and an attractive form factor, the next Surface RT could be substantially more compelling to consumers.

Then again, the current model has barely registered a pulse with the mass market, so "substantially more compelling" might not mean much in context, especially given that competing models are growing more persuasive as well. New iPad Mini models could be on the market by the time the new device hits, for example, and unless you truly need Office on a tablet, the new Nexus 7 Android tablet trumps the current Surface RT in nearly every way. Throw in the fact that devices that run the full version of Windows 8 might cost as little as $300, and there's not a lot of room in the market for a Windows RT device.

A truly competitive price could help Microsoft's efforts. The company will no doubt be sensitive to profit margins, especially since the lack of Win RT support means Microsoft is almost singlehandedly bearing the cost of promoting and supporting the OS. Nonetheless, with Surface pricing, Microsoft has already been stung by its own hubris.

Apple has sold more than 57 million iPads since the Surface RT went on sale, for example, which means that if each of the iPads were priced at a mere $20, they still would have produced 33% more revenue than the entire Surface line. Such a low price isn't viable, of course -- but it demonstrates a point: By keeping prices high, Microsoft is losing money.

If the next Surface's price is dramatically lower, Microsoft might still lose money -- but with higher sales volumes, the losses could be less substantial. At the same time, the increase in sales would boost user investment in the Modern UI, which would in turn compel more developers to create Windows Store apps. If short-term hardware profits are unlikely, in other words, Microsoft needs to concede as much and price the devices such that the larger Windows ecosystem benefits.

Data about the discounted Surface RT isn't yet available, so it's unclear how low Microsoft will need to drop prices in order to guarantee a market response. But with its first effort, the company aimed too high on cost and too low on user experience. This time, Microsoft needs to learn from its mistakes.

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Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
7/31/2013 | 6:14:13 PM
re: Can Microsoft Rebound From Surface Flop?
Great analysis of Microsoft's increasingly dire problem: Windows 8 indifference (and dislike). Dropping Surface Pro and RT prices seems to be the only solution at this point. That will come with the negative perception of admitting failure and backtracking, but at least it will help sell some units and get people using the Modern UI. If Surface Pro gets Haswell chips and improved battery life and RT shrinks down to compete with Nexus 7 and iPad Mini, people may get interested, especially if they feel like they're getting a deal. But still, such adjustments are not game-changers. It will be hard for Microsoft to reroute the rudderless Surface after months and months of shrugs. MS seems intent on plowing forward with advertising money and the hope that Windows 8.1 will save the day. It's Einstein's definition of insanity on full display. I guess Microsoft can afford to be insane -- for now.
DDURBIN1
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DDURBIN1,
User Rank: Ninja
7/31/2013 | 8:01:09 PM
re: Can Microsoft Rebound From Surface Flop?
Microsoft should change it's slogan to " too little too late". I doubt we see an updated Surface anytime this year since the Xbox has been on the market for over five years.
Aroper-VEC
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Aroper-VEC,
User Rank: Apprentice
7/31/2013 | 7:52:14 PM
re: Can Microsoft Rebound From Surface Flop?
MS missed the boat on tablets and now they are trying to catch up. The problem is, they jumped in the water after the boat left the dock and now they are swimming against a rip-tide. Apple was the first to do what others had failed miserably to achieve; a simple-to-use computing device that was light, versatile, and had a long battery life. Apple's issue was a lack of Enterprise support and no MS Office. Had MS been ready at this time with a good product, they may have been able to gain traction on Apple back in 2009. But, they waited two and a half years to port a desktop OS to a tablet device and they couldn't even do that properly. I get the whole single OS ecosystem, but Apple has achieved this without using a singular OS train. Mac OS X and iOS are capable of interchanging data and sharing some applications, but they are different operating systems tailored to their respective hardware platforms. As such, they run beautifully and for long periods of time and users can switch between devices effortlessly and still access their data. The issue here is that this was the focus for Apple from the outset and not something that was decided on only after it was proven that there was a market for such innovations. And now, you have Samsung doing the same thing, more quickly, using Android, and they are filling in the gaps opened up by Apple. Where, realistically, is there room for Microsoft?
DDURBIN1
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DDURBIN1,
User Rank: Ninja
7/31/2013 | 7:55:02 PM
re: Can Microsoft Rebound From Surface Flop?
When Amazon introduced the Kindle, it took a bit of a lose on the sale price to capture the on going content purchases, something HP does with printers to capture on going ink sales. Microsoft should have taken the same approach with the Surface RT but instead went the greedier route charging a high end price. Plus the Metro Store doesn't offer anything close to Amazon's content. To add insult to injury the technology employed in the RT is out dated compared to iPads and most high end Android tablets. I don't see Microsoft correcting this strategic blunder even with the next version of the RT. RIP RT.
Bob Gill
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Bob Gill,
User Rank: Apprentice
7/31/2013 | 8:01:50 PM
re: Can Microsoft Rebound From Surface Flop?
I agree with the RIP. $99 Android tablets have better screens.
Bob Gill
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Bob Gill,
User Rank: Apprentice
7/31/2013 | 8:00:40 PM
re: Can Microsoft Rebound From Surface Flop?
We have 4 or 5 Surface Pros here. They are great. People love them and I'm hopefully 8.1 and Haswell will make them even better.

RT? Yes, I get the point of having a low cost iPad competitor, but it's way too confusing for the marketplace.
Tom Mariner
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Tom Mariner,
User Rank: Strategist
7/31/2013 | 8:18:16 PM
re: Can Microsoft Rebound From Surface Flop?
They wrote off a billion bucks. They would have had them lining up at the store and sold out if they put the money into subsidizing the RT at $300 and the big gun with keyboard Pro $599. if you price like you are going to sell 100, you're going to sell 100 -- but don't get upset if you price over the market, think that massive ad campaigns are going to up the sales. Prius priced like they were going to sell a million, Volt a thousand -- both came true. But Prius made big bucks and Volt cost all of us many billions.

Particularly when you are trying to catch up, you had better bomb the price to get market share or you will have to bomb the price to clear the shelves for the next version. It's Haswell time and those Ivy Bridge i5's are going to be boat anchors. I'd love to get one of those Pro's dirt cheap like most of the folks around here have -- but I'll wait for the Haswell.
EB Quinn
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EB Quinn,
User Rank: Apprentice
7/31/2013 | 8:32:43 PM
re: Can Microsoft Rebound From Surface Flop?
Weak analysis, nothing new here, been "analyzed" this way all over the place.

Microsoft needs more time for Surface to Surface. They haven't had a full holiday season with the channel yet. It is priced way too high. Microsoft doesn't give up easily.

Let's see if they adapt or stand pat. If they stand pat, then this kind of regurgitation of the facts in a quasi-analytical tone might prove out. The market will not support spending north of an iPad price for a Microsoft device - that was just a bad idea. But it is too early, if you want to be analytical rather than just want to stir-the-pot, to sound the death knell of Surface.

It is a pretty cool machine. They will get the kinks out, albeit slowly. If they grease the channel with more consumer-friendly pricing, this thing could still catch on.
Mordock
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Mordock,
User Rank: Apprentice
7/31/2013 | 8:57:59 PM
re: Can Microsoft Rebound From Surface Flop?
With Dells RT equivalent starting at $299 and their Pro equivalent starting at $499, saying the Surface is over-priced is a gross understatement. They needed to undercut Apple by at least $100 to even get their foot in the door, and instead they thought they could go head to head. Just plain stupid.

8.1 to the rescue, NOT! The new Start button is just a slap in the face of everyone telling them to get the Start MENU back. This has only Pissed Offed their potential core market even more. They haven't made it any easier on themselves unless they back down at the last minute and bring back the Start Menu in the final release of 8.1. Unfortunately, I think they are too pig-headed and just plain too arrogant for that.
IT-security-gladiator
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IT-security-gladiator,
User Rank: Strategist
8/1/2013 | 12:31:17 AM
re: Can Microsoft Rebound From Surface Flop?
A 2nd hail mary after the clock went down to 0:00

There are no 2nd chances in Mobile when you

sell over priced junk Klunk notorious virus traps
and your competitors are eating you foir lunch.

Can you say it''s "Curtains time" for MicroFlop?

Yes indeed.
LeeB120
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LeeB120,
User Rank: Strategist
8/1/2013 | 12:51:41 AM
re: Can Microsoft Rebound From Surface Flop?
Simple enough - Drop RT - that was a total waste of time to begin with and should have never left the lab.
Bring Surface pro down to a reasonable price for what you get and the keyboard should come with it and not be a separate purchase. It's simply too expensive at $1000 for what you get.
melgross
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melgross,
User Rank: Ninja
8/1/2013 | 4:06:03 PM
re: Can Microsoft Rebound From Surface Flop?
Microsoft has a problem with pricing. I understand that they want to compete against the iPad. The iPad is the business and government tablet. So that's where they really need to do well. But it's difficult competing against the iPad at the same, or at a higher price level. Right now, there are tens of thousands of business apps for the iPad, as has been pointed out in a number of places. Win 8 software, consisting of mediocre, non business apps won't cut it.

And neither will Desktop software, Office or not. The fact is simply that this software does poorly on such a small screen. It seems as through people are forgetting about the convertible market that Microsoft tried to foist on us in the early 2000's. it didn't work well on 13-15" screens with a stylus, and it's even worse on a 10.6" screen with a stylus. Now they are talking about shoehorning it into an 8" model. What a great idea!

I can run my Mac from my 9.6" iPad. I get the full screen resolution from my Mac on it. But it's a terrible idea. Everything is way too small. I would need to bring my Mac resolution way doe to be able to use it easily, and then I give up that big screen usage model which I need. The same thing happens with the Desktop on the Surface Pro. This is an idea which never should have happened.

I do see IT, and some other specialized departmental use for the Pro. But as for general adoption, no.
Michael Endler
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Michael Endler,
User Rank: Author
8/1/2013 | 6:32:39 PM
re: Can Microsoft Rebound From Surface Flop?
Agreed, with a few minor caveats.

I know some people aren't bothered by the small screen, but I wonder if this group of people will ever constitute more than a niche community. Personally, I use my Win 8 tablet's desktop mode in specific situations--e.g. on a train or airplane, the tablet is more portable than my laptop, so even though the laptop makes it easier to use Word, the tablet is the one I bring. I actually use the tablet's Modern UI substantially more than I use its desktop side. When I want to use a desktop app, I'm most likely to use my Windows 7 laptop or my iMac.

All that side, I've been surprised at how effectively I've been able to use Adobe Lightroom on a Surface Pro. The touch support is a bit awkward-- but at least it's there, which is more than I can say of any other desktop apps. It's actually possible to process and edit a RAW file with a few taps, which is pretty cool-- and not something an iPad can do. I wouldn't attempt pixel-level edits or anything, but if you were, say, a photographer or journalist working on the road, the Surface is a more viable tool than I would have thought. All things being equal, I'd rather fire up Lightroom on a 30-inch monitor, though. Again, niche uses, but not mass market appeal.

Your point about apps-- spot on. Microsoft made news when it announced Win 8 will get a native Facebook app-- and it should have, since Microsoft needs consumers too. But what Windows 8 really lacks are tablet-optimized enterprise apps. For desktop software, I suspect a lot of enterprise users will keep using traditional desktops, at least most of the time, and for at least the next few years. So if Microsoft wants to produce the best business tablet, it needs applications suited to the form factor. For Win 8 tablets, legacy software access has to be a perk, not the primary appeal.
df805
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df805,
User Rank: Apprentice
8/1/2013 | 6:05:06 PM
re: Can Microsoft Rebound From Surface Flop?
This is a wonderful time in the computer industry. Microsoft's ability to force upon consumers that which works for Microsoft has notably diminished. Many, but by no means all, computer users now have a choice when before they simply had to use whatever Microsoft self servingly troweled up.
Its the beginning of the end of Microsoft's control of the industry and their ability to leverage their monopolies to impede, impair, and prevent competition and the innovations of their competitors.
It is unlikely Microsoft will change their monopoly abuse business model, but their ability to continue it has been curtailed to at least some extent.
This is a great time for the consumer and innovation in the computer industry.
normcf
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normcf,
User Rank: Apprentice
8/4/2013 | 10:00:01 PM
re: Can Microsoft Rebound From Surface Flop?
I think microsoft's decision makers are all geared towards squeezing as much money as possible from a monopoly. This means figuring out what the best price is to maximize profits, or taking a new business by bundling a proprietary product on their OS (e.g. IE to wipe out netscape, hyper V to wipe out VMware). microsoft does not know how to operate in a competitive environment where users have real choice.
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