What does Surface Mean for Microsoft?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Monday Microsoft (NASDAQ: MSFT) borrowed a play out of rival Apple’s (NASDAQ: AAPL) playbook, hosting a mysterious press conference for an unannounced product. Microsoft even went so far as to keep the venue a secret until the day of. Granted, the press was pretty sure beforehand that it was a tablet announcement, but the effort was admirable.
Also admirable was the tablet on display, the Microsoft Surface, which comes in two flavors: one running Windows 8 Pro and the other running the ARM-based version, Windows RT. In another Apple-ish move, Microsoft emphasized the engineering and design that went into the pair of devices, highlighting the iterative process involved and the numerous design considerations made when constructing the Surface. One such design consideration highlighted was the decision to include a built-in stand and the importance placed on getting it right. It was also clear throughout the presentation that no detail was too small, another nod to Apple and its design philosophy.
In another display of engineering prowess, Microsoft also revealed a pair of smart covers with built-in keyboards and touch-pads. When combined with the kickstand the Surface functions in a manner similar to a laptop, at least on a desk or tablet. The keyboard/smart cover hybrids look and sound impressive, though it remains to be seen how well they function in the wild. The press did have hands-on time with the devices, but the keyboards were not available for use. The device performed well during the demonstration, though there was a slight hitch when the first unit had to be replaced mid-demo.
While the devices show plenty of promise, one of the biggest takeaways is that Microsoft is pulling out all the stops for Windows 8, even at the risk of alienating their current hardware partners. Truth be told, alienating the hardware manufacturers is likely a low-risk move for Microsoft, given their current market position. There simply isn’t another operating system to turn to, and until there is Microsoft has little to worry in the way of manufacturers leaving the fold. Long-term it could spur the development and adoption of alternate operating systems, but a successful iPad competitor should more than outweigh the possible downside. It also serves a clear signal that Microsoft doesn’t trust their hardware partners to get the job done, or at the very least, does not trust them to do it without a strong reference device.
It’s hard to blame Microsoft for coming to such a conclusion, particularly when its major hardware partners have been struggling to develop competitive tablets and suffering from stagnating sales. Hewlett-Packard (NYSE: HPQ), one of Microsoft’s largest partners, gave up on their own tablet offering and also publicly contemplated leaving the consumer PC business all together. Even now HP is in the midst of restructuring, revealing plans in May to layoff 27,000 employees by 2014 on the heels of a weak quarter. Dell (NASDAQ: DELL) is also experiencing lackluster sales, reporting a weak quarter, and also failed to grab a sizable portion of the tablet market.
Which leads to another big takeaway: Microsoft has set the bar high for other Windows 8 tablets, making it clear that design should be a major focus of any forthcoming device. It seems Microsoft has drawn the correct conclusions from Apple’s success, choosing to borrow their design approach rather than putting together an iPad clone. If the thesis that hardware and software design should go hand-in-hand holds, taking this direction should be positive for the company’s bottom line.
The Microsoft Surface shows plenty of promise, but also left some questions unanswered. First and foremost, the devices have no concrete launch date or price, though Microsoft did provide estimates. There was also little presented regarding the actual hardware specifications of the devices, which when coupled with the limited hands-on time may indicate a product still in flux. Or worst-case scenario, one that Microsoft can’t actually deliver. Though Microsoft made it a point to emphasize the keyboard and its responsiveness, as I mentioned before it wasn’t available for testing, which might indicate issues that still need to be worked out. Several analysts, including myself, feel that Microsoft missed the mark by not having more information and a more hands-on presentation, particularly since it leaves room for the Surface to be more Zune and less Kinect upon release.
If Microsoft delivers the Surface in a manner consistent with its potential and at a competitive price point, the iPad might be forced to deal with a serious competitor. Perhaps more importantly, even if the final product doesn’t prove to be a blockbuster, it should still be a positive catalyst for the stock. Microsoft has long delivered products that did the job -- embracing design is the next logical step, even if it doesn't immediately payoff with the Surface. It also gives hope for Microsoft-built smart phones and ultra-books, which might become important soon given Nokia's (NYSE: NOK) current trajectory. The Surface, with its slick industrial design, shows what Windows 8 tablets can be, and should help steer Windows tablets in the direction desperately needed to topple Apple's tablet dominance. At the very least it shows Microsoft knows what it needs to do next, which bodes well for the company and its stock.
TigerAnalyst has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple, Microsoft, and Nokia. 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.