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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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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.
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.
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.
Aroper-VEC
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Aroper-VEC,
User Rank: Strategist
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?
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.
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