Microsoft's Surface Pro highlights flawed 2-for-1 strategy
Microsoft's upcoming Surface Pro tablet sums up the company's seeming strategy with Windows 8: That business users can do with one device what they currently accomplish with two.
"The Surface Pro is designed for people who want a premium, thin and light notebook experience but secondarily want a tablet experience," said Patrick Moorhead, principal analyst with Moor Insights & Strategy, in an email.
"The Surface Pro [is] a symbol of Microsoft's vision with Windows 8, a reference device if you will," echoed analyst Sameer Singh, of Tech-Thoughts.
The two-in-one strategy runs through Microsoft Windows 8, the operating system whose most distinguishing feature is its split user interface (UI) personality: a traditional Windows-style mode and a touch-first, tablet-centric UI.
It's no accident that the Surface Pro, unlike its less-expensive sibling, the Surface RT, runs Windows 8 rather than the Windows RT spin-off, and relies on an Intel processor, not one based on the ARM architecture that powers virtually all tablets. Where the Surface RT is limited to tablet-style apps, the Surface Pro runs not only those, but also the enormous library of Windows applications—the same that run, for example, in Windows 7.
Essentially, Microsoft is arguing that customers can have their cake and eat it, too, with a tablet and a PC, in one device, powered by a single operating system. The strategy is at odds with Microsoft's biggest OS rival, Apple, which maintains two different operating systems for its tablets and personal computers.
But while Microsoft has called its approach "no compromise," the strategy is, in fact, rife with compromise. The Surface Pro—officially, the name of the tablet is "Surface with Windows 8 Pro"—is neither a tablet nor an ultrabook, but bits of both.
"The Pro is an ultrabook, only with more severe design constraints," said Ezra Gottheil of Technology Business Research, who covers both Apple-made and Windows-powered mobile devices, referring to the Pro's thin form factor and light weight.
Customers who simply want a notebook/ultrabook replacement are not the Surface Pro's target. Those users will keep what they have or, when they upgrade, buy another lightweight laptop like Apple's MacBook Air or any of a growing number of Windows-based options. Instead, Microsoft is betting there's a large number of business computer users who need—or at least want—a two-in-one device that serves adequately as both notebook and tablet.
The dual roles mean that the Surface Pro is, by nature, expensive. "It's a premium product at a premium price," noted Gottheil.
Those prices, which Microsoft revealed last week, speak to the all-in-one strategy as well, because they give the Surface Pro little chance of competing with pure tablets.
Microsoft has pegged prices of the Surface Pro at $899 for a model with 64GB of flash RAM-based storage space, and $999 for a unit with 128GB. The prices do not include a keyboard-cum-cover, which Microsoft sells at $120 and $130, with the lower-priced version assigned to the membrane-style Touch Cover and the higher to the more traditional moving-keystroke Type Cover.
With a keyboard—and few buyers will eschew one—the Surface Pro prices out at between $1,019 and $1,129. That's not tablet territory.
"Microsoft won't drive a lot of volume with Surface Pro compared to the iPad and 7-in Android tablets, but will profitably sell units more in line with ultrabook levels," said Moorhead.
Microsoft has never disguised the fact that the Surface Pro would be a tablet with ultrabook characteristics, or sell at a price commensurate with ultrabooks'. In June, when the company surprised the industry, including its OEM partners, by introducing its own hardware, it said that the Surface Pro would sell for about the same as Intel-powered ultrabooks, whose prices have hovered at $1,000 and beyond.
The problem for Microsoft is that the outlook for ultrabooks, which the Surface Pro emulates, is dim. Windows ultrabook sales have been disappointing this year, and show little sign of improving sans dramatic price cuts. Such a move, failing similar discounts by Microsoft, would leave the Surface Pro high (in price) and dry.
In October, IHS iSuppli downgraded its estimate of 2012's ultrabook sales, cutting its projections by more than half from 22 million to 10.3 million, citing too-high prices. iSuppli argued that sales won't take off until prices fall toward the $600 bar, perhaps in 2013.
"Surface Pro is really a PC, and potential buyers will also be considering notebooks and ultrabooks," noted Moorhead.
Windows 8: all things to all?
Even without the current sales issues with ultrabooks, Microsoft's strategy of putting two devices into a single chassis may have little chance. By trying to make Windows 8 all things to all people—and make it fit for use in a wider range of devices—Microsoft has set itself a bar that will be very tough to jump considering the current state of computing.
"The real question is, 'What is the point of a two-in-one device or touchscreen PC?'" said Singh. "Legacy applications are not touch optimized, so using them on a Surface Pro, even with a Touch/Type Cover, is a sub-optimal experience compared to a traditional laptop."
And while the app count in the Windows Store—the sole source of Windows 8 and Windows RT tile-style software—has climbed dramatically, Microsoft is still working with a handicap.
"Windows 8 doesn't really offer a vibrant app ecosystem, at least for now, that takes advantage of touchscreen capabilities," argued Singh. "So the touchscreen is basically an additional expense with little to no practical use for x86-based devices."
That means that the Surface Pro must succeed as an ultrabook first and foremost, agreed analysts. "If the Surface doesn't sell as a PC that can manifest itself as a tablet, then it's nowhere," said Gottheil.
In fact, few experts give the Surface Pro much of a chance of selling in any appreciable number. By extension, that means there's little chance for Microsoft to break out of the flagging PC business to a wider product constituency of tablets, or to create a viable two-in-one category.
"At the end of the day, Microsoft's problems with the Surface and Windows 8 have been caused by a flawed mobile strategy," asserted Singh. "Microsoft sees the tablet as an extension of the PC, but doesn't seem to understand the fact that the gap between touch-optimized and non-touch-optimized applications renders that logic invalid. Microsoft is attempting to position the Surface Pro as a laptop/PC replacement but unfortunately, replacing a PC doesn't seem to be necessity anymore."
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