Investment Implications of Microsoft's Surface
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft (NASDAQ: MSFT) finally launched its new tablet, the Surface, earning positive feedback from the critics and even some price gains for the company's stock as an immediate reaction from investors. This new move from Microsoft could have important implications all over the tech space.
It's of course too soon to tell if Surface can really be a successful product. Microsoft withheld some critical information, like the important issue of product pricing. Positive reviews don't mean commercial success, especially not in this industry, and Microsoft has already experienced some setbacks in the hardware business. But this new product looks well thought, and if it works it would have important consequences for Microsoft and many other big players in the technology scene.
Microsoft is not really targeting Apple (NASDAQ: AAPL) with this new move. Of course Ballmer and his team would be more than happy to steal some market share from mighty Apple, but the Surface looks more targeted toward productivity uses, and it's probably a more direct competition to netbooks than iPads.
Apple's ultra-successful iPads are a great product for consuming content: reading books or anything on the web, watching videos or using social networks. But they are just not great for working. Sam Grobart of The New York Times writes about Surface:
There’s a significant population out there, people who look at an iPad and say, “I like it, but can I get one to replace my laptop? Even for just some of the time?” And the honest answer has always been, “No.” The iPad has plenty of accessories, but it’s not a productivity device.
Microsoft’s answer to this question seems to be: “Of course you can!” The new Surface runs Windows — either a lightweight, tablet-friendly Windows RT version or the original gangster Windows 8. It has a keyboard. The Pro version has a stylus.
Being a Microsoft product, it sounds reasonable to assume that the Surface should relate smoothly with Windows and Office, which is an important advantage for working purposes. When people are choosing a device to work, they want ease of use and speed, and Surface could provide those features if the product is well designed.
Apple has gained a lot of ground in the corporate market lately, but if people want one only device to consume content and work, Microsoft could have something valuable to offer. This product, however, would be a bigger danger for companies like Sony (NYSE: SNE) and Dell (NASDAQ: DELL) than for Apple. If you have a tablet for all purposes, there is little use in buying a netbook or another computer of any kind for that matter.
Both Sony and Dell have seen their margins under pressure due to a tremendously hard competitive landscape in the last years. If Microsoft can successfully sell its own software and hardware, while at the same time joining the mobile revolution, Mr. Softee will put its deep pockets in the service of Surface.
Under a successful scenario for Surface, OEM manufacturers like Sony and Dell would suffer, but so would Google (NASDAQ: GOOG). The online search giant has not had much success in the tablet business, and a successful product from Microsoft would clearly reduce the available space for new competitors. Google has deep ambitions in the hardware business, and the company has invested heavily in hardware and patents with the acquisition of Motorola Mobility.
The mobile business is a competition about ecosystems and applications, and if Microsoft does well in tablets it could easily translate that success to smartphones and steal some of the enormous market share Google has achieved with Android. That's a big if, of course, but investors in Google should watch Surface closely, just to monitor the risks.
Apple has a tremendous brand value, and it will not be easy for Microsoft to replicate the sensory experience or the overall design of the iPad, so it doesn't look like Apple has much to worry at this point. The Cupertino giant is followed by a big legion of fans who would never think about switching and iPad for a Microsoft product, at least for now.
Maybe Microsoft has a chance at producing a good device that's useful for both work and play, and there is clearly a market for that. Actually it would mean a good integration between tablets and computers. That would be great news for Microsoft investors.
Famous investor George Soros once said: Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. Most investors distrust Microsoft and Surface in this new venture, so the situation is worth watching in search of opportunities, at least according to Soros.
acardenal owns shares of Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
