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Microsoft's (NASDAQ: MSFT ) gutsy gamble doesn't appear to be paying off.
The software giant's last-minute decision to push its Surface tablet into third-party retailers just days before the holiday shopping season came to a close has backfired.
In an analyst report earlier this week, R.W. Baird's William Power concludes that Microsoft's tablet has been a dud.
After speaking to reps at Best Buy (NYSE: BBY ) and Staples (NASDAQ: SPLS ) -- the two most prominent chains that began stocking the Windows RT-fueled device two weeks ago -- Power concludes that the buzz just wasn't there.
Apple's (NASDAQ: AAPL ) iPad remains the top choice, and that's not necessarily a shocker. Power also reports that Amazon's Kindle Fire and Samsung Galaxy Tab were popular alternatives. However, he describes the reps at Best Buy and Staples labeling demand merely "modest" for the Surface. All of the stores checked had not run out of Surface tablets.
This is the worst thing that could happen to Microsoft, which had limited the sale of Surface since October's launch to its own online store and the roughly 70 Microsoft stand-alone and holiday stores around the country.
"Expanding its reach is dangerous," I wrote about Microsoft's strategy when it was announced two weeks ago:
If Surface isn't selling at one of its pop-up kiosks, no one knows. If consumers see the Surface and choose cheaper Android tablets or the iPad's richer ecosystem at the local Best Buy, Microsoft will be exposed. This is exactly what doomed the webOS TouchPad and the BlackBerry PlayBook, as both tablets quickly saw their selling prices cut by more than half in the clearance bin.
The TouchPad died after flopping at the retail level, though BlackBerry's PlayBook lives on. Research In Motion (NASDAQ: BBRY ) has a 4G model "coming soon" as it gears up for next month's anticipated update of its BlackBerry mobile operating system, but the RIM tablets on the market now are marked down to half of their original prices. Is this what Microsoft wants? Now that it has been exposed through channels where it can't silence the soft sell-through numbers, Microsoft may have little choice but to cut prices ahead of the next month's rollout of the higher-priced Surface Pro tablets that do more than just play nice with Microsoft Office and run RT apps.
Mr. Softy's in a pickle, though. If it slashes Surface prices -- something that is no doubt necessary at this point as analysts slash their Surface unit sale projections -- it will upset the hardware partners putting out Windows RT tablets. It's a lose-lose situation, and it may be what prevents the Surface Pro tablet from being the game-changer that it could have been.
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.