Contender or Pretender? Microsoft Surface
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Once again, Microsoft (NASDAQ: MSFT) arrives late to the fight but with a lot of cash, and it is putting a lot of it behind Windows 8, while taking a jab at partners and competitors. The unveiling of the Surface PC was rich in hype and promise, but rather short on concrete details.
The big mysterious by invitation only event in Los Angeles on Monday revealed what many were already anticipating; a new Microsoft Windows Tablet PC. Microsoft's Steven Sinofsky introduced the device on stage at Milk Studios as such - "It's a tablet that works and plays the way you want to. A tablet that's a great PC. A PC that's a great tablet. Surface."
Called Microsoft Surface, the new device is a slim, sleek tablet PC running Windows 8. Let’s take a look at what we know about Surface so far:
Working demo models of Surface were available at the unveiling event, and early notes from those at the event seem positive about the look, feel and responsiveness of the device. However, Microsoft left some key questions unanswered at the event, important things like pricing and availability.
Microsoft says the RT model will be priced competitively with other ARM-based tablets, but that puts the price somewhere in the range of $300 to $700 -- not very helpful. The Pro version will apparently be priced competitively with Ultrabooks, which again doesn’t tell us much since Ultrabooks are priced from $800 to $1,200.
Availability dates were not disclosed, only that the RT model should be available when Windows 8 is released this fall, and that the Pro model will ship 90 days after that. Assuming Windows 8 releases in September, that would mean the Pro model is still six months away.
Microsoft claims Surface will have best-in-class connectivity, but beyond WiFi there was no word on whether Surface will support 3G or 4G connectivity.
Battery life was not disclosed. We can only presume the RT will have comparable battery life to other Tegra3 tablets -- about 10 hours. But the more powerful Intel-based Pro model is likely shorter.
Both Surface models will presumably run Office apps, but Microsoft did not specify whether Office will be bundled with Surface, or if it has to be purchased separately.
Surface seems to be a very well designed product. It looks sleek and light, and seems to have some handy innovations that are bound to attract a broad base of customers. But how well does it stack up to the market leading Apple (NASDAQ: AAPL) iPad?
The 10.6” display is slightly larger than the 9.7” iPad Retina display, but Surface has over a million fewer pixels. Surface gets the nod on storage expansion and peripheral connectivity options, but the iPad includes both WiFi and 4G LTE connectivity, whereas Surface so far is only confirmed with WiFi.
Surface comes with a thin 3 mm Cover Touch pressure-sensitive keyboard, whereas keyboards for the iPad are aftermarket accessories. The iPad is about the same weight and thickness as the Surface RT, but the chunkier Surface Pro is thicker and heavier than both the Surface RT and the iPad.
Apple has over 225,000 iPad apps available through the App Store. Microsoft may have a lot of apps for Windows 7 and earlier versions, but with Windows 8 still several months from release there will likely be very few apps specifically for the touch enabled Windows 8 at launch time.
A Shove to Android
The Google (NASDAQ: GOOG) Android camp has fielded several tablets from a number of manufacturers, spanning a broad range of tablets from low-end entry level to premium tablets like the Samsung Galaxy Tab and the Asus Transformer Prime.
The midrange of the Android market includes the Amazon (NASDAQ: AMZN) Kindle Fire and the Barnes & Noble (NYSE: BKS) Nook. The Microsoft Surface is unlikely to compete in this range. However, Microsoft’s pledge of $605 million to bolster the Nook was probably not just to sustain Barnes & Noble in the fight against Amazon. Now that Microsoft unveiled its own tablet, the deal with B&N was likely to acquire rights for Microsoft to embed the B&N book reader app into Windows 8, the Surface Tablet and the Windows Phone. The deal also likely enables Microsoft to automate book buying on all its platforms. Another possibility is future versions of the B&N Nook may adopt Windows, helping Microsoft extend Windows to yet another platform to compete with Android and iOS.
With Android’s smaller and fragmented share of the tablet market compared to Apple, it is likely more vulnerable than Apple’s iOS.
Ultrabook and Macbook Air Challenger
Surface looks like it could be a strong alternative to Ultrabooks, particularly the Pro model. It may also challenge the Apple Macbook Air, which itself is a threat to Ultrabooks. Microsoft specifically highlighted the Surface’s duality as both a great PC and a great tablet, and even stated the price will be competitive with Ultrabooks. Making a better Ultrabook may have been a key part of their strategy from the start.
This is Microsoft’s first foray in manufacturing PCs; it has relied on OEM partners Dell, Lenovo and others for manufacturing, sales and distribution since the beginning. Although there’s been no public feedback from the OEM partners, they must perceive Surface as a credible threat. Microsoft has not only broken away from its OEMs on this effort, it seems to be competing directly against them. No doubt, Microsoft has raised the stakes for its partners who may have been slacking on their own tablet and Ultrabook offerings.
Whether Microsoft took matters into their own hands because they wanted to nail the details squarely or because they felt the need to get a viable competitor to market as quickly as possible is not clear. Perhaps it was both. We can only presume Microsoft is taking this bold step in an effort to stem the tide of Windows defectors to other platforms.
The decision to manufacture the Surface device themselves and sell them directly to consumers will probably fracture Microsoft’s relationship with its OEM partners. But the threat to Microsoft’s Windows market share from the rapidly growing Android, iOS and surging OS X platforms is probably a bigger concern to the Redmond giant at the moment.
Only in Microsoft Stores
At the unveiling event Monday, Microsoft stated the Surface will only be sold through its own retail and online stores. With only 19 retail outlets, and five more coming, distribution of the Surface tablet may prove challenging, especially outside the US. Contrast that with Apple’s 363 stores worldwide.
Manufacturing and distribution logistics are still quite sketchy, so this is another key factor to monitor as the release approaches. With the target market growing, IDC analysts are forecasting total tablet sales of 143 million in 2013, increasing to 222 million by 2016. Analysts are currently predicting Apple, currently with 73% tablet market share, will sell more than 60 million new iPads in 2012, and as many as 176 million by 2015. IDC expects 25 million Ultrabook sales this year, and 43 million next year.
For Microsoft to take a realistic shot at this market they will have to reconsider their sales channels. Now that Surface has been officially unveiled, negotiations with retailers like Best Buy and Wal-Mart may follow. It seems improbable that Microsoft would keep Surface out of major retail outlets if they were anticipating significant demand.
Countdown to the Bout
The Microsoft Surface appears to be the best challenger to the Apple iPad so far, and it looks as though it could be a significant threat to the premium Android tablets as well. But Microsoft may have had a bigger strategy in mind, firing a dual salvo -- one shot at the Android/iOS competitors, with the Surface RT ARM-based model, and the other shot at the Macbook Air and its Ultrabook OEM partners, with the Surface Pro Intel-based model.
There are too many unknowns to gauge how competitive the Microsoft Surface will be. Without pricing information and with release dates 3-6 months out we may have to wait until next year before we know whether Surface can compete. Much will depend on pricing, distribution, marketing, features and the apps available for Surface.
On the surface it looks like Microsoft could have a winner, but for now we just have to settle for shadow boxing until Surface enters the ring.
Invest wisely, my friends.
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