Having done a bit of a post-mortem on the original Surface products and strategy in Part 1, I can now dive into what I think Microsoft needs to do in order to succeed with the Surface family. The first thing I think Microsoft needs to do is eliminate the confusion around what the Surface brand is all about. Note this is not just about branding, but rather about creating a clear product strategy and establishing principles that drive the design center for products in the Surface family.
The clear guiding principle for the Surface family should be “Productivity First”. That is, every member of the product family should have being the best productivity device in its class as its primary design center. “Productivity First, Entertainment Second” might be a more complete description of the design center. Using the Content Consumption vs. Content Creation axis I’ve talked about before, Surface devices should always lean more towards Creation than competing devices in the same class. That may be saying it too mildly as the correct positioning is that they should trounce other devices in the same class at Content Creation. At the same time they need to be competitive at Content Consumption so that a user need only carry one device in any given class.
I kind of went at that backwards so let me explore this strategically. Microsoft’s strength is in Productivity software and Content Creation. It wants to win the consumer, but it can’t do that in a head-on attack on the players who dominate the Content Consumption space. No Surface will ever be a better overall Content Consumption device than an iPad. Nor will it ever be as good a portal into Amazon’s content libraries as a Kindle Fire. Even if Surface is technically superior at Content Consumption, it will never be perceived as such! And while the iPad and Android devices may achieve success as productivity devices, Microsoft has a clear opportunity to make sure that they are always considered a distant second to Surface in this area.
Notably “Productivity” and “Content Creation” does not imply purely business use, although clearly they allow Microsoft to win big in the Enterprise. One of the modest success stories for the original Surface is in education, both in institutional purchases and individual student purchases. And while Microsoft Office is a large part of the Productivity story, it is not the only story. Being the best device as a Pilot’s Electronic Flight Bag, or for a Doctor to access Electronic Medical Records, or for a retail employee to provide customer service on the store floor, counts as well. Nearly all users make some use of all devices for productivity purposes. The strategy around Surface needs to be to have the best device in class for anyone who values those productivity capabilities above the (perceived) superior entertainment capabilities of competing devices.
With Surface/Surface 2/Surface Pro/Surface Pro 2 Microsoft clearly had the productivity attribute in mind, but that itself is the point. It was just an attribute. It was not the unambiguous strategy. It was not the design center. It was not at the center of the branding and resulting messaging. The Surface/Surface 2 don’t have digitizers. They only had a version of Office Home and Student, which also didn’t include Outlook. The positioning of the Touch vs. Type Cover (Touch for Surface, Type for Surface Pro) made content creation secondary. The shipment priority favored the more Content Consumption oriented Surface/Surface 2 over the more Content Creation oriented Surface Pro/Surface Pro 2. The advertising and other messaging also was overwhelmingly tilted towards the entertainment rather than productivity nature of the devices.
For Microsoft to succeed with Surface going forward “Productivity” must be the way it intends to win, the key driver of its product designs, and the unambiguous meaning behind the brand “Surface”.
Before moving on I want to be clear, all Surface devices must be competitive (even great) Entertainment/Content Consumption devices as well. I’m not trying to say Microsoft can ignore this space, because if a user has to carry an 8″ or 10″ class Surface and an iPad or iPad Mini too many will probably just carry the iPad/iPad Mini. I have to be able to watch movies, read books and magazines, track news and blogs, and play games on my Surface. I just don’t need to beat Apple, Samsung, Amazon, and Google at it. But the reason you buy a Surface over a competing device is because you have a productivity need.
What “Productivity” means is going to vary by device class. For example, in sub-9″ class devices it probably doesn’t mean a keyboard cover (though it could). That’s a device class where note taking and handwriting as an input mode takes more of a priority. Microsoft has had a technological lead in this area for a decade, and it’s finally time for them to press that advantage. An active digitizer as a feature of all members of the Surface family would not be a bad place for Microsoft to start.
In the 10-11″ class devices the keyboard cover is a perfect example of an advantage Microsoft has, and one that would have been of greater benefit had the strategy, positioning, and branding been clearer. Also the execution. The much improved Touch Cover 2 is almost in the Unicorn category as it is never actually in stock at Microsoft stores, Best Buy, etc. The announced Type Power Cover is even worse, it is vaporware.
For larger Surface devices, such as a 12-13″ class device that many have been waiting for, having a 2-in-1 with the design optimized for notebook usage seems right. Certainly a notebook-oriented design center, even a pure notebook, seems like a winner. I haven’t said much about this class device, but it is indeed the missing link in a Productivity device family offering. 13″ is about optimal for a truly mobile, primary Content Creation, device. Any larger and you lose mobility. Any smaller and you are really talking about a secondary device. Sure 15″ notebooks and desktops with multiple 23″ monitors are better for Content Creation, but they range from marginally mobile to completely immobile. Microsoft needs to win in the higher growth rate mobile categories.
Now let’s talk about pricing. This is something that Microsoft has screwed up badly with Surface to date. They have to get it right with the upcoming announcement. As an underdog in the 7-8″ and 10-11″ categories they need to use pricing to drive adoption. In the 12-13″ or above this is less critical, but they still don’t want to price themselves out of the market. So let me offer some general guidance and then drill in a bit. For ARM-based devices Microsoft needs to price very aggressively versus the competition. For x86-based devices in the 7-8″ or 10-11″ category they need to price slightly aggressively. For 12-13″ or above devices they need to be competitive, but there is no need to be the price leader.
So let us first talk about ARM. Microsoft is at a huge disadvantage with ARM-based devices because of two sides of the same coin. On one side they have a huge gap in Windows Store application availability compared to either Apple or Google. On the other side they have a huge advantage in Windows-based productivity (and entertainment) applications that they can’t run on ARM. The net impact is that I think consumer perception of ARM-based Windows RT devices is that they are worth $50-75 less than an otherwise equivalent x86-based device at the 7-8″ class and $100-125 less in the 10-11″ class. The current state of the Windows Store also makes an ARM-based Windows tablet worth at least that much less than a similar Apple, Samsung, or Google Nexus device. I’ll call this the Perceived Consumer Value Adjustment (PCVA).
The most productivity oriented 8″ tablet on the market is the Samsung Galaxy Note 8, which has the active S-Pen, with a Suggested Retail Price (SRP) of $399 and a street price of $329. Another competitor from Samsung is the Galaxy Tab Pro 8.4 which also has a $399 SRP but a $359 street price. The ASUS VivoTab Note 8 x86-based Windows 8.1 tablet with an active digitizer lists at $329 but is currently selling at the Microsoft Store for $299. The Lenovo Thinkpad 8, which has a higher resolution screen but no active digitizer, lists at $449 but is already selling for $399. It too is an x86. Meanwhile the Apple iPad Mini with Retina Display lists at $399 and can be found for slightly less. Taken together this suggests a “Surface Mini” that is about 8″ with a Retina-class display and an active digitizer could command an SRP of about $399. But apply PCVA and an SRP of $329-359 makes more sense.
Given that Surface devices, like Apple devices, have street prices almost identical to their SRP, the $329-359 price range is likely still too high. The Galaxy Note 8 is old at this point, which accounts for its large discount from SRP. A refresh would probably leave it with a street price around $359. If we average the ASUS and Lenovo street prices we also end up around $359. Apply PCVA to $359 and it suggests that a 8″ ARM-based Surface should have an entry price of $299 or less. There are many other data points that suggest a $299 price would be a good entry point for this class Surface. Lower-spec Windows devices in the same class, such as the Dell Venue 8 Pro, are already selling for $249 and occasionally less. They will be dropping to $199 in the next few months. The non-retina display iPad Mini sells for $299. The Samsung Galaxy Tab 4 8″ has a $269 SRP and is selling for $239. Etc. So $299 is an aggressive price relative to other high-end and more productivity-oriented tablets, but a high price relative to more modest spec’d and Content Consumption-oriented tablets.
Actually I was applying 8″ pricing under the assumption the Surface device was really an 8″ class device. If it is a 7″ device then it will need to be priced at least $50-100 lower.
Ok, that was a fairly analytic approach to pricing. But what if Microsoft wanted to flood the market with these devices and really incent developers to create Windows Store apps? Then they should price an 8″ ARM device at $249 or a 7″ ARM device at $199. At that price I’ll not only buy one for myself, I’ll give a few as gifts.
You can apply this same analysis to either the Surface 2 or a replacement, should Microsoft announce one. A Surface 2 with Touch Cover (or better yet, Touch Cover 2) for $399 would gain traction. If you replaced the ARM processor with an Atom x86 processor you could charge $449 for the combination with similar results.
And if Microsoft introduces something in the 12-13″ class? No adjustments necessary. No unusual pricing necessary. Just price to the current competitive situation for 13″ Ultrabooks and Macbooks.
I’ve spent so much time on pricing because I think this is critical to the short-term, and thus long-term, success of the Surface family. Microsoft must use pricing to make itself a force in the market for under 11″ computing devices. It must use it to make up for both perceived and real shortcomings, both in the general case of the Windows Store having an inferior app selection and the specific case of ARM-based systems not having the ability to run desktop applications.
I want to talk about one more topic which is WWAN (3G/4G/LTE) support. Microsoft has mostly shied away from including WWAN support in its Surface family. Yes the Surface 2 belatedly got WWAN support, and then only as a very expensive option. I won’t purchase any further tablets without LTE support, and I know many others are in the same boat. Both Apple and Samsung introduce both WiFi-only and WWAN versions of their tablets. Failure to do so leaves a significant segment of the buying population uninterested in your device. It also leaves you out of the extensive retail footprint of the carriers, as well as that of independent mobile-oriented retailers.
Microsoft has to fully commit to WWAN in devices under 11″. That would obviously be at a premium price above the entry-level pricing exercise I did earlier. “Mobile First, Cloud First”. You can’t be mobile without WWAN, so if I don’t see WWAN support in the May 20th announcement then I think Stephen Elop should look at making changes in leadership of the Surface team.
Productivity First. Fill out the family. Price to SELL. And, on a different level, WWAN support. That’s what I think Microsoft needs to do to get the new Surfaces right.
One might ask, is the AT&T / Microsoft sales prevention system firmly in place? I walked into a Microsoft Store last week ready the buy a Lumia 1020 or 1520 phone. $200 on contract + $30 per month I understood. Upon checking out I was presented with a contract for $200 + $70 per month, not what I was expecting. Why $70 instead of $30, where did the additional $40 come from? Oh, that is for the phone, to get the reduced price… Such a deceptive marketing strategy left a bad taste in my mouth, and I bailed. Later I checked the AT&T website. Pricing is even more convoluted there. Messaging to a sales rep with their online tool I could not get a straight answer. There were mired options, all aimed at getting you to commit to expensive, multi-year contract. I felt like I was being bamboozled. Result, NO SALE. Question, are retailers shooting themselves in the foot with this type of marketing technique, or am I simplybehind the times and it’s accepted in the mainstream?
Well this has nothing to do with Microsoft and will be similar with any AT&T (or T-Mobile) phone purchase. Verizon is also going in this direction. That is an unbundling of the phone subsidy. So you can:
A) Pay full price for the phone and get a very discounted rate plan
B) Finance the phone, in which case there is no lock-in as you can pay it off any time, and get a very discounted rate
C) Go with the old subsidy-based model that locks you in for two years
It sounds like you were on option B, which is the most common one these days. In other words you were charged for the monthly rate plus the financing of the phone (beyond the up front charge).
I’ve done the calculations and in most cases option B comes out the same as the old subsidy-based model. Or rather, for a high-end phone it comes out the same. For a low-end phone like the Lumia 520 the two-year cost is much much lower with option A and with a mid-range phone either A or B is better than the subsidy model.
Well Hal, let’s do the math. $40 X 24 mo = $960. Cost of phone without contract: $580. Total cost with contract = $200 down + $960 = $1,160. Difference = $580, twice the outright purchase price, 100% financing cost over the two years! Seems to me somebody is circumventing truth in lending laws.
Point is other people can do the math too, and this sort of thing is detrimental to sales if not, dare I say it, outright fraud.
The way AT&T’s current plans work is that you pick a data plan that’s shared among the lines and devices on your account. I’m guessing that was the $30 charge, probably something like 1-2 GB. Then for each device you put on the account, there’s an additional fee; for a smartphone on contract, it’s $40. (If you buy your device outright, you can get a discount on that.)
Ok, that sounds like the traditional subsidized plan and not the new style plan. With the new style you finance over 15 or 18 months.
What I would suggest is that you go to an AT&T Store (a corporate one, not a reseller) and go through the options with them.
I agree. I have just purchased a first generation surface pro for half the price of the new generation. Apart from the truly woeful battery life which means that you need to have a permanently plugged if doing anything serious on it, it’s fantastic value at that price. The problem comes though when you want to buy a type cover, which in New Zealand is $200. For $160 New Zealand I have purchased a Logitech tablet keyboard a Microsoft sculpt comfort mouse and a case for the device. I would rather have had a type cover but I can’t justify the expense.
The interesting thing is I read a report the other day that suggested that every surface Microsoft sells they are still losing money, but they may have to just be willing to lose quite a lot of money in order to get a hold in the market.
As much as I like my RT, I don’t have much faith in Microsoft suddenly making great decisions on this. Perhaps it’s the statistician in me that puts those odds really low because of the past two years. Real shame. With most of their traditional partners diversifying their product lineups, the competition is getting tougher.
I think there are multiple issues facing the Surface line as well as client side Windows. On the software side I think Windows 8 did a lot of work moving the OS into the modern era but not a lot in delivering a new Windows.
As much as many would like to see another XP, 95, or 7 I think Microsoft will need to make a product that “feels” new and not just have part new with the Metro side. I think Metro as an interface will need to continue to change and not sit still. I think too many people are married to Metro as it is now and that’s not good for the long term. I also think Windows RT needs a major rethink not just to better compete with iOS or Android, but also ChromeOS.
As for the Surface lineup I think the time has come for Microsoft to decide on whether its want to do well in hardware or just scrape by and not upset their hardware partners. These are the same partners who have no problem adopting Android or Chrome (or webOS). I agree that Microsoft needs to be aggressive with pricing on RT devices. I also think its time for Microsoft to put out at least one notebook. I think the bigger thing for Surface’s push to be the choice for productivity and content creation is apps that are designed for those purposes. I think a Metro Office would lessen resistance to RT as a platform as would a proper eBook platform.
Microsoft needs to get realistic… and serious about Windows RT/Surface RT. The reality is that in order to attract more developers, they simply need to sell more Surface RT tablets–A LOT MORE.
The 8″ Surface mini should cost $199. The Surface 2 should cost $299. Yes, they’ll lose money on them for a year or two… but at least people will be BUYING THEM. As the author points out, at those prices, people won’t just buy one for themselves, but they’ll buy them as gifts because they’re such a great deal.
And instead of giving away Office… Microsoft could start charging for it. After all, they’d be practically giving away the tablets, so the least the consumer could do would be to buy Office… since this tablet was specifically designed to be a productivity tool. And THAT’S how Microsoft makes its money off Surface.
Actually I think they should replace the bundled perpetual Office license with a 1 year Office 365 subscription. Then, assuming a 2 year lifetime for a tablet, those who want Office will pay for it for the second year. Or they’ll buy a new tablet, so it becomes a driver for future device sales.
Look, I did one pricing exercise. What you really need to do is a price sensitivity analysis. That would show where lowering the price no longer drives significant additional volume. You also have to take manufacturing ramp and supply chain constraints into account. I’d rather see them introduce the Mini at a SRP that balances demand and supply then rapidly drive the street price down as they ramp up supply. So start out with aggressive pricing and get more aggressive in 3-6 months.
Give me a 10″ Surface with an Atom cpu for $450 and I’ll buy one immediately. That machine would be perfect for me and I’m fine paying a $100 premium over competing Acer and Asus machines just for material quality. You make a fantastic pricing analysis, Hal, and MS needs to wake up to this reality: keep selling lackluster numbers and lose money plus risk their modern ecosystem dying, or fight with price, create a user base, drive adoption and thus ensure longevity for Modern. The choice would be obvious if I were making the decision.
Agree. The Surface is the best looking tablet on the market–well-built and classy design. People would snatch them up for the right price (well, they would’ve in the beginning). Hopefully the “stink of failure” hasn’t ruined its chances of ever succeeding… like it did for Zune.
There’s no guarantee that dramatically reducing prices is suddenly going to work for the Surface line-up. The issue with the ARM Surfaces is that, beyond the issue of apps and LTE, they still feel a tad slow. The Surface 2 is a dramatic improvement over the first-gen Surface RT, but it still feels laggy in some respects – loading apps, loading the store, browsing the web can be prone to slow-downs. Don’t get me wrong, it still works fantastically well overall considering it essentially runs on phone-spec hardware – but compared to an iPad which is so slick and smooth, Microsoft still needs to do a lot of optimisation work to improve the overall UX of Windows on ARM hardware. Mind you, even with intel Core i5 and i7 on a laptop and desktop, Modern UI apps still get stuck on loading screens for seconds at a time.
I guess you could say people would forgive the shortcomings if it was very cheap. Perhaps. Again, there’s no guarantee. Google sells its Nexus tablets very cheap and has only had very moderate success, and only in the 7 inch size. Android is undoubtedly at parity with iOS on a features, performance and application availability comparison. Amazon also sells its Kindle Fire tablets very cheaply and doesn’t seem to have had runaway success either. Admittedly they simply serve as a front end into Amazon’s subscription services, but even at dirt cheap prices they are not selling 20 million a quarter like the iPad.
That all having been said, both Amazon and Google are probably selling a lot more tablets than Microsoft at any rate. All I’m saying is that while there might be some room to move on price, I don’t think a firesale is necessarily going to turn the tide. It’s an extremely competitive market. Microsoft would do well, IMHO, to push the Surface devices hard in businesses and educational institutions through volume licensing and discounts – this would play to their strengths because they could offer a bundle of *devices* and services. Microsoft has a good record with software and services, but I haven’t seen any solid evidence that they are making an effort to sell Surfaces to their volume licensing customers, other than the oft-publicised venture with Delta airlines. Yeah, that was a great deal, but 20,000 tablets is not going to set the world on fire when your competitors sell millions. To their credit, Nokia was doing this very well before the acquisition – they were pushing hard to do deals with businesses. I read many articles of them securing phone deals with corporates in the UK, US, Europe and even Australia where I live. It shouldn’t be rocket science – this is pretty obvious stuff. If they want to play in the hardware space, they have to drive volume. The most obvious place to start is with volume licence customers and SMEs with whom they have existing and enduring relationships. Do the upsell! I hope Stephen Elop adopts the same challenger mindset he had when Nokia CEO to drive these sorts of deals.
Doing all of the above doesn’t mean they have to give away the products, half the time it’s about making an effort to market and sell the damn things rather than expecting customers to just buy them off the bat. That means blanket, saturation marketing – much like Apple does. It doesn’t matter where you go around the world, Apple has an ad on billboards, bus stops, train stations, buses, magazines, newspapers. Even Samsung does this. Why can’t Microsoft? Now that they are, effectively, the world’s second largest phone manufacturer with factories all over the world, a player in tablets, as well as in Xbox and peripherals, they have to keep those factories producing. That means they need volume and profit. They won’t come if they sit back and relax, expecting the tidy 30% software margins of the past to just roll in. It actually requires effort, on a global scale, beyond just slashing prices.
I want to see Microsoft hungry again. Satya Nadella says Microsoft is going to have a ‘challenger mindset’. Let’s hope he walks the walk, because going on past efforts Microsoft has a lot of work to do.
The single biggest problem for Windows tablets is a lack of Windows Store apps. No amount of promotion (which is the aspect of marketing you are talking about) will compensate for that deficiency. Even giving money to developers, offering to pay for development of apps, or doing the development themselves, is succeeding at closing the app gap. The single most effective way to close the app gap is to create customer pull, and you do that by gaining market share. And with few other strings to pull you use pricing, which is another aspect of marketing.
What apps do we think MSFT is missing? They have Netflix and Hulu and Plants vs Zombies. The big ones are covered, for the most part. I could really care less if they have the Lowes app or the Home Depot app. I have no clue why folks need those?
To me, the gap is in high quality niche apps. For example, at our kids swim meet a couple weeks ago, the results were available in real time with an app on Android and iOS. I do Crossfit and there are some great Android and iOS apps to track your performance. All the Windows apps are basic at best.
When we talk about the limitations on the MSFT app store, I’d be really interested to hear the specific apps people think are missing. This would tell us a lot about how to fix this problem.
Just saw a great example: Whatsapplebees http://www.engadget.com/2014/05/09/whatsapplebees-app/#continued
This is nothing someone would use long-term, but it’s a toy and gets attention. I’m sure the developer didn’t even think to make a WP version.
Let’s start with a version of Amazon Unbox. There are tons of apps missing, from major to niche.
It is a shame that the BBC has yet to release an iplayer or radio app for Windows 8.1 although there is one for the Lumia phones. Give me that I have all I need!
I was just given the green light for moving forward with developing a Win 8 LOB app for the outside sales force of my company. But a key issue is the lack of LTE-equipped devices. We’re looking at the Lenovo ThinkPad tablets (8″ & 10″) and the Dell Venues. Neither 8″ device has LTE, and Lenovo’s 10″ LTE offering isn’t due out for at least another few weeks if not longer. Very disappointing to find such limited availability of LTE-equipped devices that are supposed to be for content-creation.
The DV8P was originally promised in an LTE option, but 9 months in the LTE version has yet to appear. The Thinkpad 8 has also been promised in an LTE version, but that too has failed to appear so far. I don’t know what the problem is, but it is a BIG problem as you demonstrate.
What about the Nokia Lumia 2520. It comes with LTE, runs Windows RT.
Sindows RT to my mind has a lot of future for Business LoB Apps, which wnat a reduced, simpler, more secure platform foot print. Bteer than hanging onto the past bloated, insecure, constand updating Windows x86 desktop Win32 platform. Simplify your Business Apps to run on modern Windows RT, and leave the Desktop version for power users and system back end administrators.
The 2520 is a great device hampered by a poor rollout and the fact that the only keyboard case option is more of a dock and prevents use as a tablet. See https://hal2020.com/2014/03/23/10-lte-for-me/. The 2520 also has an uncertain future given that it and the Surface target the same market segments and now come from the same company.
But it remains the case that Windows RT is NOT NOT NOT being accepted by the market. It is indeed an important part of the future of Windows, but how do you get people to actually buy them? As you note one route may be the LOB corporate-purchase route, but that is not a high-volume route so far. And most corporations have tons of legacy apps that they still need people to use. Oh, most of those are browser-based you say? Sure, they also use ActiveX controls which aren’t supported by Windows RT. Or the company has standardized on Chrome or Firefox and their add-ins, none of which is available on Windows RT. So we are still years away from Windows RT being a viable option on a broad scale.
Yes, we’ve considered it. It is still a possibility, but I think there are three reasons why x86 (Win 8.1 Pro) is being pushed:
1) Those in our security/infrastructure group want to join the devices to the domain. I’m not sure why it is so important when they’re already okay with not being able to join the iPads that already exist out there.
2) Some have concern about Microsoft abandoning Windows RT. In my mind, this isn’t a huge deal because I don’t think WinRT (not to be confused with Windows RT) will be going anywhere, regardless of what happens to their Windows RT brand. WinRT apps run on both RT and x86 devices, so whatever effort we put toward our LOB apps will carry into the future.
3) There is uncertainty on whether the device that we hand out will be just a *companion* device or a *replacement* for the desktops/laptops we also supply our sales force. If it is more than a companion device, we’ve got to have the ability to run Cisco AnyConnect (our chosen VPN product) so that our reps can access the network and run our older desktop apps while at home or even occasionally on the road. I’m still surprised that Microsoft hasn’t resolved this issue with Cisco and opened up their APIs. Cisco points the finger at MS, and vice versa. That Cisco has a VPN client for iOS and Android but not Windows speaks poorly of Windows, since Microsoft is supposed to be the premier provider of work-enabled devices and services.
The Domain Join issue is an interesting one. If they could do it then they can manage just like any other Windows device rather than as another special case. But it is also somewhat of a misunderstanding vis a vi what a Windows RT device is.
The VPN situation is a screw-up by Microsoft. Even for non-business use, I miss the ability to run the WiTopia client on my Windows RT systems. Configuration of the built-in Windows VPN support is a nightmare compared to using the client, and is unreliable as well. Lack of support for Cisco VPN pretty much dooms Windows RT for corporate use.
Argh…just found out today that the information given to me earlier about the Lenovo TP 10″ being available by the end of May was incorrect. It is not due out until September. So it’s back to either the DVP11 or a Nokia 2520 (RT-only), OR we give our reps mobile hotspots to carry around in addition to the non-LTE tablets. Unfortunately, while the hotspots are somewhat small, they’re still almost the same size as an iPhone.
I just can’t understand why device makers haven’t been able to move faster on this.
Sorry – the TP 10″ *with LTE* isn’t due out until May. The non-LTE version was just announced.
I am not sure about the price point. The question is does MS wants to enter the market for low priced hardware? I think the OEM are doing a fine job there. The issue was at high end. So the thinking seems to be that they might not sell a lot of Surface but they will provide options at high end.
To me the bigger question is what exactly is Surface for? Volume or niche high end market.
Having said that they need to execute better in high end and there are certain market dynamics which is stacked against them?
When Microsoft declared itself a Device and Services company it gave up the right to do devices just as “North Star” offerings. They must now go for high volume products. In general I don’t think that means they need to go for low-priced commodity products. BUT, since they are choosing to continue to use ARM processors for tablets and they are severely disadvantaged by that processor they will have to compensate with price.
Right, they need to find a strategy similar to what Intel has done over the years:
* Advance the art with new products,
* Go for volume with existing products, and then
* Get out of the way when commodity pricing drives the margin out of the business. They are a long why from that level of manufacturing-to-channel maturity right now.
You forget one very fundamental issue. Microsoft are already losing unit cost money on every Surface unit they sell. Cost of producing a Surface device is aroudn $80 higher than their sale price. Lowering their price down by another $150 just means they lose more money per unit sold, and p*ss off their partner OEMs at the same time. That simply does not make long term business sense, if your objective is to sell a lot of units. You quickly go out of business,if your shareholders don’t bust you first. The other OEMs know this, which means price cutting would just annoy them even more.
Microsoft need to get out of the devices game, and subsidise choice partner OEMs, on compelling hardware devices of OEMs branding. So the risk and benefit is shared between MS and OEM. This is what Google did with Nexus devices. Microsoft half attempted this with Nokia, over the last couple of years. But Nokia still losing money hand over fist on Windows Phone, and I am not sure that Microsoft will get any substanstive cost reduction from assuming Nokia Manufacturing facilties.
Price cutting, at below unit cost, can only exist for very limited period. Apple, Google, and OEMs know and can see that Microsoft is failing here.
I think you are misinterpreting the cost data, and clearly Microsoft is focused on getting into the device business not out of it. But that aside, if Microsoft wanted to sell for higher prices than they should use Atom processors instead of ARM processors. Then they’d have identical cost structure but much less need to use low pricing to compensate for the market’s total abhorrence of Windows RT. Microsoft is leaving $100+ per device sold on the table by using ARM, and is stuck with volumes too low to cover fixed costs or to get competitive prices on components. They made a bad choice and, so far, have stuck with it despite the fact that it is sinking their entry into the devices business.
And I thought I was pessimistic. I really think it is more to do with very poor and promotion marketing of Windows RT, than the product itself. Metro on Windows Phone is pretty compelling, Live Tiles is little more difficult to sell on Tablets, but get a compelling Cortana on Tablets, and promote Windows Phone/ Windows Tablets with integrated Cortana services, and I feel they are onto a winner. Nokia Marketing on their Lumias did a good job in Europe on getting Windows Phone established. More of that marketing, and less of US centric homespun Microsoft marketing would help.
I really am not convinced by relying upon Intel Atom as being a long term saviour. Microsoft have to stay in the ARM game for their Phones. I don’t think we re going to get Intel Atom Phones anytime soon. That is why I am convinced the consumer mobile is surely ARM based, and never will be Intel. [Even if being British, so I naturally support ARM] Microsoft are offering Choice of ARM (consumers and possibly simple LoB) and Intel for Pros. Android will drive all consumer devices down to ARM based units.
On a more positive point, Free lisensing Windows to cheaper OEMs and offering compelling MS Software and Services to all Platforms (aka MS Office on Macs in 1980s), is the right way to go. Even if this means Android versions of MS Lumias, connected into MS/Nokia services. Whilst combining WP/Windows RT into a better consumer OS in Windows 9 mobile (Threshold) timeframe.
And Yeah in reply to the previous comment reply , supporting Chrome, Firefox and other browsers on Windows RT would be brave and powerful. But don’t expect any plug Ins or Active X. We need to move away from Plug Ins, and onto HTML5 or native Apps. And I say that as a very disappointed LOB Silverlight developer, more P*ssed off that MS relinquish and allow Flash sites on IE RT!
And what happened to the Office Apps marketplace ? MS could reduce the MS Office footprint, but open up Office Apps/ Macros as general and domain specific Apps for sell.
I am wondering if Microsoft should be in this business at all? They do good things with software, but their offerings in hardware haven’t really been much of a success. Better to make software for iOS and Android devices.
The other thing is the 8″ form factor. Not great for productivity and I think Phablets may be pushing this form factor into history. People have noted the downturn in iPad sales, but I spoke with an Apple reseller who told me that the iPad Air continues to sell like hotcakes while the market for the 8″ Mini has dried up. People are making doing with a mobile phone and a full size tablet, rather than the in-between mini-Tablet.
I think the tablet category is in transition with both Phablets and very inexpensive tablets siphoning off the pure entertainment category. Apple is particularly hard hit by this because the iPad Mini with Retina display turned out to be a product that few people wanted at the price Apple is offering it. I know a number of people who looked at it and ended up buying the older iPad Mini instead because they just didn’t see enough difference to justify the higher price. But moreover I think the problem is that Apple didn’t really innovate much with the refresh. The full-size iPad Air is an amazing device that still has no equal.
All that said the other shift may be to Microsoft’s benefit as the growth moves away from the Content Consumption world into the Content Creation world. Assuming of course that is what happens.
Not sure where this shift to Content Creation will come from. Most of the market is drive by consumers, by definition just want to consume. To create, means sitting down, at a desk, which means plugging desktop into keyboard, large display, mouse etc. That market is very small, and Enterprise is unlikely to be convinced, unless there is some form of universal, OEM independent dock standard, that various (Enterprise) OEM Tablets just dock into.
“To create, means sitting down, at a desk, which means plugging desktop into keyboard, large display, mouse etc. ”
That is a pretty narrow view of ‘creation’. The Norwegian Prime Minister ran his country from an iPad. The artist David Hockney uses his iPad for his art. Musicans, photographers, writers, doctors, barristers and academics ‘create’ on iPads. Apple has shown us that people are finding many new ways of being ‘creative on an iPad’ and that can be true of other Tablets (with suitable Apps) too.
I am afraid that far too many people approach creation with the mindset that it all happens in the office. No doubt that is because many are office workers tied to MS Office for their work. Some even think that ‘real work’ is all about Excel spreadsheets. However, there is a whole big world of creation out there and Tablets are opening up many possibilities beyond the office and office furniture.
Excellent. Thank you.
As another example last week I went to the eye doctor and he was using an iPad to review and update my medical records. He was making use of a capacitive pen. Imagine how much better that app would be on a device with an active digitizer.
Great point. The iPad isn’t perfect for creation. Good, but not perfect. I would love to see an iPad Pro. As you say the Tablet is evolving.
We were forced to switch urgent care providers 2 years ago and the new one has an Apple-based office, including iPads for patients to do all their paperwork on. I don’t know whether the implementation was just bad, but I found using the iPad for data input to be cumbersome. It didn’t help that the iPads were in some sort of protective case that made them weigh about the same as the Dell Latitude E6430 I used on a project. Entering medications and dosage info was very cumbersome. After you filled in a page on the iPad, it was saved to the server. I was called back to an exam room before I finished all the required data entry. The front desk person said I could take the iPad to the exam room and finish there. I filled out another page and when the iPad tried to save the data to the server, it timed out and said it couldn’t establish a connection to the wireless network. After several tries, I gave up. When the doc came in I explained that I was unable to enter all the required data and they said not to worry about it. I noticed the doc was NOT using a tablet to take notes, etc. When I returned about a year later, I was given another iPad to update my records and discovered that the data the iPad said it couldn’t save was actually saved. I had to make another visit about 3 weeks ago and went through the same cumbersome process to update my meds, but I did get it completed before I was called back to an exam room. This past Sunday, I had to take my wife in for her first ever visit. Instead of being given an iPad to fill out the paperwork, she was given actual paperwork to fill out with a pen and there was no request for meds. The practice was still Apple-based, but there wasn’t a iPad to be see anywhere.
Hal, what do you use to interact with the desktop on your DV8P when it’s not in a dock? Since Dell doesn’t have a replacement for its problem-plagued stylus, I’ve given up trying to use the desktop. Thanks.
I don’t use it much, but I did get one of the latest pens from Dell. Unfortunately I broke the USB connector a couple of weeks ago and my DV8P is now useless. I’ll see about getting it repaired when I get home. Unfortunately Dell really messed up the connector design so you can put the Micro-USB in backwards. Over time I bent the pins enough that one finally broke.
Thanks for the info on the stylus. I guess I’ll make a trip to the local Microsoft Store and check them out.
I wish there was a way to edit posts. I now see I used horrible English at the end of my next to last paragraph in my post above 😦
You have a very narrow view of creation.
Wow, I just re-read this. The Surface reveal this week seems like it was the result of Satya and the SLT reading your post. They shot for a 12 inch productivity device which is pretty much the best in class “convertible tablet”. The rumored mini either didn’t exist, or, if you read the punditocracy, was delayed because it didn’t align with a strategy like the one you describe.
I was talking to my daughter the other night (before the reveal). She’s a field engineer at oil/gas well-sites here in Texas. She’s trying to put together an “engineer’s notebook” of all the calculations, data tables, etc. that she and her peers use each day. She said something like “it would be great to have this on a tablet, but there’s no way my iPad could survive what I put field devices through”.
My guess is that she’d be happier with the MIA 8 inch Surface than she would be with an iPad. Shrink a Surface down and would certainly feel nearly indestructible.
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Hal, I really enjoy your posts and blog articles. I look forward to them, and I very much appreciate how well they are written. Thank you.