Microsoft’s Surface Pro Experiences Massive Demand Or Planned Scarcity?

Rajesh 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) released the Surface Pro tablet on Feb. 9, and it sold out over the weekend. This suggests that the Surface Pro is either a massive hit, or Microsoft underestimated the demand and short supplied. Both the 64GB and 128GB models went out of stock in stores and on the company’s website on Saturday. The Product Chief Panos Panay said that the tech giant is in talks with its retail partners to restock the stores with the Surface Pro.

The company did not take pre-orders for the Intel-powered tablet, unlike the case when it released the ARM-based Surface RT in October. Many customers lined up outside Microsoft, Best Buy, Future and Staples shops to get their hands on the device on the very first day, but soon discovered that supplies of the larger 128GB models were almost immediately exhausted.

The company says that this was a result of solid demand, but it rather appears that the supply was too low to satisfy the basic requirements. The Redmond giant typically does not reveal the sales figure or the number of units it shipped in the initial batch. But as per several reports Best Buy and Staples outlets were inadequately stocked and did not receive sufficient numbers of tablets to sell. In fact some sources also state that there were single digit supplies in most of these retail stores. Now the question is if the demand is really amazing, or was it an underestimation of the demand? Or did Microsoft intentionally supply less to create a buzz and increase demand?

Roaring demand or supply inadequacy
It could be that the company witnessed higher than expected demand and the units fell short. Had the company taken preorders, it would have been easier to make a forecast regarding market demand. Also, the company may not have anticipated such a good response given the number of Surface RT units it sold after theyt hit stores shelves. As per analyst estimates, the company sold about a million units of the Surface RT in the fourth quarter of 2012 compared to Apple’s (NASDAQ: AAPL) 3 million iPads only in the first weekend. The lackluster sales number of the RT version could have made Microsoft supply less tablets this time. But there were many buyers who wished to replace their notebooks with the Surface Pro.

Many view it as intentional scarcity to boost demand. As per an investigation conducted by a Windows Observer, there was a store which had just one unit each of the 64GB and 128GB version, while another had only five of each model. There was another store that complained of a late shipment, while many outlets at several other locations said that they did not have display models to show to prospective buyers. All this looks similar to Apple’s scarcity strategy when it released the iPad 2. Local Wal-Mart and Best Buy stores barely received one or two units to sell. The availability of the iPad remained limited even after a full week of launch. Similar to these iPad customers, many Surface Pro buyers who couldn’t get their hands on the tablet were extremely disappointed and have asked when can they get one.

Surface Pro better than Surface RT
The Surface Pro is targeted at professionals who are mostly on the move and need a device that is handier than a laptop but more useful than a typical tablet so that they can continue their work. This is what the Pro offers, as it is a hybrid of a laptop and a tablet. The 10.6 inch Intel-powered tablet runs the full featured Windows 8 just like laptops. This means that it is capable of running all Windows applications, including ones that run on Windows 7. The 64GB version comes for $899, while the 128GB model costs $999. This comes without the touch cover and type cover, which can be bought separately for $120 and $130, respectively.

However, there are some issues with the Pro. It weighs 2 pounds and is heavier than the usual tablets. It is about 40% heavier and thicker than the iPad. Even in terms of the battery, the Pro gives just over half the battery life of the iPad. Moreover, it is highly priced at $899-$999 which could be a big negative point for many buyers who may not be ready to shed such a huge amount.

Though there are some added features that the Pro offers, it may not be feasible for price sensitive customers. These customers would rather buy a 128GB version of iPad for $799 than go for the Surface at $999. More cost conscious buyers could also purchase Google’s (NASDAQ: GOOG) Nexus 10, which targets the same market as the Surface Pro and is highly appreciated for its excellent display clarity. The Nexus 10 base version of 16GB sells for as low as $399 against the high priced Surface Pro. It competes with the iPad 4 and is one of the best Non-Apple tablets. It may not be directly competing with the Pro, but it has its own features that could lure customers. Given the price, the Android 4.2 Jelly Bean powered device with 10.1 inch display has brilliant specifications which include 2GB RAM, whopping resolution of 2560 x 1600, and a 5 megapixel rear camera. Even Nexus 7, which runs the latest Android version Jelly Bean and offers the Google Now service, is a great device to buy at a reasonable price. As per mobile industry analysts, the company has sold about 4.6 million units of Nexus 7 in 2012. Both the Nexus 7 and Nexus 10 are selling well.

Concluding thoughts
The tablet market is getting extremely interesting with rising competition. The software giant’s Surface Pro would take some time to seep into the market, particularly at its high price. At present Google is going to be a reasonable but great alternative to both Apple and Microsoft tablets. In all this it would be interesting to see if Microsoft makes a tough contender to fight Apple's premium product and combat Google’s reasonable offering.

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