I wanted to do a little check-in on the state of a few of Microsoft’s weaker businesses.  I’m seeing a few signs that they could be turning things around, but I’m reluctant to make too much out of them.  Been there, done that.  Too many times in the last couple of years they’ve pulled losses or “no decision” decisions out of what seemed to be paths to victory.  They haven’t been agile enough to tweak their approach when they couldn’t land their punches.  Will this holiday season, and 2014, be any different?  I don’t know, but let’s talk about what I’m seeing out there.

I was in the mall last weekend and went into the Apple Store to see how the iPad Air was doing.  The store was crowded, but most of the action was in back as many people came in looking for support.  Up front the real action was around the new iPhones, with the table containing the two-day old iPad Air pretty much empty.  The store had plenty of stock.  And in the 30 minutes I was in the store the only iPad Air purchase I witnessed was my wife replacing her iPad 2.  The iPad Air is an outstanding product, but it appears to be mispriced.   64GB, LTE, and a case takes you to the $1K mark, well above the $500 and under arena where most of the tablet battle seems to be taking place.

A case in point, and one I hope Microsoft is taking a lesson from, is the re-pricing of the original Surface RT (aka Surface, or Surface 1 for more clarity).   At $349 (plus $80 for a Touch Cover) the much-maligned Surface 1 is now making a dent in the tablet market.  More aggressive pricing plus targeted marketing efforts are resulting in large sales of  Surface 1 and Surface 2 into some verticals.  I’ve heard there are a fair number of large deals with businesses who are adopting Surface over iPad or Android.  But the most visible thing to me is Microsoft’s push on Surface in education.

For several weeks my wife and I had reason to grab dinner in the area around University of Colorado at Colorado Springs (UCCS).  At just about every meal I was approached by a student to ask how I liked my Surface.  The deal Microsoft was offering on them made it very attractive to the students who, as Microsoft has long argued, needed a great device for running Microsoft Office.

The extent to which Microsoft is gaining mindshare in education was cemented by two other data points this weekend.  I was reading the New York Times on my Surface while in line at a store (nowhere near UCCS) when a woman approached to ask about it.  Her kids were always fighting over access to their PC at home and she was thinking about buying a Surface 1 to resolve the issue.  Her kids’ school had purchased them for in-classroom use.  They needed Office, plus they’d want to be able to play some games.  But they had no need of desktop applications (beyond Office).  So now we have evidence of schools below the college level acquiring the Surface, and signs that this is influencing individual purchases.  Anecdotal?  Yup.  Promising? Definitely.

The next data point was a TV ad Microsoft has started to run featuring a teacher talking about use of Surface in the classroom.  It has long been understood that having your products used in education has an impact on their success in other markets.  DEC’s success in the enterprise in the 80s was the result of its dominant position in education in the 70s.  The success of Unix/Linux in IT is the result of it having become the dominant OS in Computer Science education in the 80s.  Microsoft doesn’t need to make lots of money selling Surface into education, it needs to use it to help legitimize Surface and Windows 8.  And the early signs are that the approach is working.

Circling back to my Mall experience, I then headed over to the Microsoft Store.  It was as crowded as the Apple Store, but the focus was very different.  There were few people in the Microsoft Store for support.  No one was looking at Windows Phones.  The crowds were there shopping for PCs of all flavors.  And the myriad of Surfaces in the store were the center of attention.  iPad Air, ignored.  Surface 1/2/Pro-2 getting lots of attention.  Now that’s a reversal of fortune.  Buyers?  I didn’t hang around long enough to see if people were buying, but the interest level itself is a positive sign.

A trip to the nearby Best Buy confirmed what I’d seen at the Microsoft Store.  Lots of shoppers, in fact the most I’ve seen at a Best Buy in the last year.  The Windows Store section was busy.  Many people were looking at the Surface, and you could hear sales people actually talking about it.  And doing a decent job of explaining Windows RT!  Yesterday I was at Micro Center, which still has a decent inventory of PCs pre-loaded with Windows 7.  However I heard sales reps talking up Windows 8.1, something I hadn’t heard with Windows 8.  That’s progress.

Getting people to look at the Surface and other Windows RT/8.1 devices is half the battle, and the one that Microsoft failed at last year.  You have to get people into the stores and studying machines on web sites.  You have to get retail sales reps to the point of being comfortable explaining your product, and actually talking about them in a positive way.  The other half of the battle is having products that people want at prices they are willing to pay.  It seems like there has been progress on both fronts.

One of the key changes are the new ad campaigns for Windows 8.1, Surface, and Bing.  Last year Microsoft’s approach involved the use of flashy ads that tried to tell the story with images rather than words.  It was an attempt to say “come look at our stuff, it’s really cool” rather than trying to explain the Microsoft perspective on the “post-PC” era and why users should care.  They let others explain Windows 8, Windows RT, and the Surface family rather than telling their own story.  And the story that was told was either confused or negative.  This year the ad campaigns tell the story as Microsoft wants people to hear it.  I’ve already mentioned the education ad.  Last night I saw an ad where a user clearly explains why she loves her 2-in-1 (a Yoga I think).  The new Bing ads take a similar approach, clearly explaining why Bing is a better search experience.  And often showing it specifically in terms of the enhanced Windows 8.1 experience.

The good thing about the new ad approach, and Microsoft’s plans to saturate the airways the next few months, is that the world will clearly understand what Microsoft is trying to do and why they should want a Windows 8.1 device.  That doesn’t necessarily mean that customers will buy in to the approach.  But at least they’ll be making educated decisions.

Of course once Microsoft has a customer’s interest that customer has to find a product that they really want to buy.  Here the story is much better going into the holiday 2013 season than it was going in to holiday 2012, but there are important gaps.  Positives include the majority of notebooks now being offered, including some in the sub-$500 range, now having touch screens.  Higher-end devices that compare positively with the best Apple has to offer are also now plentiful.  And the variety of 2-in-1 devices, the area that Microsoft sees as most important to establishing its “post-PC” credibility, is rather good.   Windows 8.1 is a more refined version of Windows 8 that invites users to really give it a try, whereas the original often had them screaming “Windows XP forever” before they’d given the new approach a chance.  So while the jury is still out on if customers will drink the Kool-Aid, at least if they go look there is a lot of Kool-Aid available to tempt them.

On the weak side for Microsoft are the pure tablets and more tablet-centric 2-in-1s.  The number of Windows tablets available in retail stores has actually shrunk in the last several months.  I think there are two factors here.  First is that we are in the midst of a product transition and many recently announced devices have not yet made their way into the channel.  For example, none of the four announced 8″ Windows 8.1 tablets were on display in any of the retail stores I visited.  So as retailers have stopped carrying older models they’ve had nothing new to replace them.  Second, OEMs have changed focus and prioritized new 2-in-1s over new tablets.

ASUS is a good case in point, having introduced their Transformer Book family and drawn an amazing line in the sand with the $399 T100 2-in-1 (not yet available in stores), but not the VivoTab line.  The VivoTab Smart (and RT) had the widest retail distribution of any Windows tablet this last year as well as winning the thin and light crown.  It was also about the only Windows tablet with a 4G/LTE option, so the only device that carriers such as AT&T stocked in their stores.  I was hoping for a refreshed VivoTab Smart that went up against the iPad Air, but so far no indication that we’ll see one this holiday season.  Meanwhile the originals have all but disappeared from the channel.

So the question remains, will the Microsoft ecosystem fill the channel with compelling tablets this holiday season?

At the moment the biggest question-mark is the availability of tablets with built-in LTE (or outside the U.S. other 4G technologies).  So far the only LTE-equipped Windows 8.1 tablet we’ll definitely be seeing this year is the 10.1″ Nokia Lumia 2520.  In one very positive sign it looks like Verizon will be offering a Black Friday special on this tablet of $399.  That would be an amazing product at an amazing price.  If AT&T offers a similar deal then I’m going to find it hard to resist.  But as far as I know, no other 10″ class device with LTE will makes the channel until 2014.  I hope someone proves me wrong.

This whole LTE thing is important and it is kind of shocking that Microsoft doesn’t have an LTE-equipped Surface in the market yet.  I was talking to the manager of a local AT&T store and he told me customers come in all the time asking for them.  He also turns out to be a Nokia fan and is excited about getting the Lumia 2520.  He thinks it could turn out to be a good product for AT&T.  If only Microsoft and the Windows ecosystem were moving more aggressively on LTE-equipped products they could do a much better job of co-opting the carrier channel.

Which brings me to the other big question-mark for this holiday season, the 7-8″ tablets, where much of market action as shifted.  The good news is that four 8″ Windows 8.1 devices have been announced.  Unfortunately no Microsoft nor Nokia device is amongst them.  Worse news is that so far LTE versions of these devices, while hinted at, have not been introduced.  The Dell Venue 8 Pro, for example, comes with instructions that indicate there is a version with cellular modem but so far no such version has been introduced.

Microsoft needs these 8″ tablets to achieve wide-spread retail availability by the end of this month if it wants to have a shot at changing tablet market dynamics.  If an LTE version of at least one of them makes it into stores this season that would be a big plus.  So far the only 8″ (ignoring the embarrassing Windows 8-based Acer W3) I’ve seen in the wild is the Dell Venue 8 Pro.  I have one sitting next to me and will blog about it soon.  But I’ve seen none in retail stores.

Now let’s circle back to pricing.  Customer expectations are that tablets are modestly priced devices with entry-level products coming in under $300, mainstream products coming in under $500, and only premium products and configurations heading towards the $1000 mark.  This seasons crop of Windows tablets seems to be following this pricing wisdom.  The Dell Venue 8 Pro 32GB is listed at $299 for example.  Amazon ran an introductory special on it for $255, and for some reason I still don’t understand it was actually $226 when I added it to my shopping cart.  The Lumia 2520 is going to be listed at $499, but we already know of one special that brings the LTE-equipped 10.1″ device in at $399.  At these kinds of prices Windows tablets could generate some real excitement and actual buying in the market.  And that’s a complete turnaround from last year’s generally overpriced offerings.

So what’s the conclusion here?  Microsoft has made real progress on the evolution of Windows 8 in the last year with a better OS, much more complete hardware offerings, better price points, and far better messaging.  The Windows 8.1 launch was far lower key than last year’s launch, better setting customer expectations.  By the end of November it seems quite likely that the channel will be filled with the exact kinds of products Microsoft wanted to see, and that those products will generate far more interest than the products of the previous year.  It’s actually possible Microsoft will have a great holiday season, with 2-in-1s really taking off and Windows tablets making a visible dent in the market.

Last year too many things got in the way of finding out if Microsoft’s approach would ever gain traction.  This year things are lining up to give us the answer.