But Microsoft's dusty inventory of Surface devices shows how difficult the integrated hardware-software market can be, as computing shifts from being device-centric to being centered on software, data, services and user experience.
Unfortunately, the alternative for Microsoft in mobile is equally hazardous: Keep relying on OEMs seduced by the popular and free Android. It's not as if Samsung and HTC are clamoring to pay a Windows license fee so they can make mobile devices most people don't want.
Steve Ballmer's successor will have to decide whether to stick with the "devices and services" model Ballmer set up just before announcing his retirement. Don't expect much to change. Microsoft isn't about to bring in a cowboy that will abandon the company's new business model and its $7.2 billion acquisition of Nokia.
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However, with Windows revenue falling and Windows Phone a distant third behind Android and iOS, with roughly 3% of smartphone sales, can this hardware quest possibly end well?
Commodization Of PCs And Tablets
The PC market has been on a downturn since the iPad was introduced in 2010. Research firm IDC predicts that PC shipments will shrink by 9.7% year-over-year in 2013 and that tablet sales will surpass PC sales for good in 2015.
Microsoft's Windows 8 Surface ultrabook-tablet hybrid devices are an attempt to assert some control over the diminishing PC market while establishing the company as a tablet player … all with the same device! Surface RT, Surface Pro and Windows 8 all landed with a thud this year despite sincere efforts to create a unique hardware and user interface experience. Surface devices account for just 3.7% of tablet sales, according to IDC. Surface 2 devices, announced last week, offer hardware improvements such as an adjustable kickstand and a touch cover keypad that enhances battery life, as well as 200 GB of free SkyDrive storage.
Out of the gates, the Surface 2 device (the ARM-based, cheaper, more "tablety" Surface that runs Windows RT) scored big when Delta announced that Surface 2 tablets will replace paper document flight bags for 11,000 pilots; this would normally be a job for iPads and is an indication of enterprise opportunities for Surface and Windows 8.
But down here on earth, Surface prices are still unrealistically high given the lack of demand from consumers and businesses (the 64-GB Surface Pro 2 is $900 and the 32-GB Surface 2 is $450).
Microsoft positioned Surface to inspire PC makers to improve ultrabook hardware. But that market is contracting, and inspiration is in short supply. As such, ultrabooks keep getting cheaper, thanks to more consumers buying inexpensive tablets for light computing tasks.
Both Surfaces offered the tablet-loving public more than it needed. The Surface Pro's 10.6-inch screen is too big, the price too high, the battery life too short and the selection of apps too scant to be considered a tablet, as the market has been defined by the iPad, iPad Mini, Samsung Galaxy Tab, Google Nexus and Amazon Kindle Fire. Consumers were also thoroughly confused by Surface Pro's operating system, Windows 8.
These days, being a laptop/tablet hardware maker is an uphill climb if you can't reap profits from the software and services inside. And so far, the embattled Windows 8 isn't providing the app and ecosystem perks Microsoft needs to lock itself into a hardware-software package.