A Different Perspective on Microsoft's Surface Sales

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Measuring success should be relatively easy. But when it applies to the rollout of a mobile computing alternative in today's hypercompetitive market, things get a little fuzzy. That's especially true for Microsoft's (NASDAQ: MSFT  ) Surface tablet. If you ask an Apple (NASDAQ: AAPL  ) or Samsung aficionado, Microsoft laid an overly expensive egg when it rolled out its new "next great thing." But is the Surface really a flop, or are there mitigating factors we should consider?

Just the facts
The latest sales numbers for Surface RT and Pro sales, according to Bloomberg, suggest that Microsoft has sold about 1.5 million of the tablets since the RT was first rolled out in late October. The Surface Pro, Microsoft's higher-end device, has been "available" (more on that shortly) for just over a month now and has sold about 400,000 units, according to the report. Of course, like his mobile-computing brethren over at Google (NASDAQ: GOOGL  ) , Microsoft CEO Steve Ballmer is notorious for not sharing sales results, so the market needs to rely on Bloomberg and its unnamed sources for now.

Assuming the Surface sales numbers are close to Bloomberg's estimate, they're absolutely dismal compared with the nearly 23 million iPad units Apple sold in its most recent quarter. Google's tablet partner Asus, according to IDC, is also gaining customers at a significantly higher pace than Microsoft's Surface, jumping to fourth in tablet market share, primarily because of Google's Nexus 7. Clearly, Surface is a bust, right?

Factors to consider
There's no denying that the Surface RT has problems. Inventory hasn't been a concern, as it is with the Surface Pro. But the RT's incompatibility with legacy Windows apps, and with Microsoft letting potential buyers know that the faster, more powerful, Windows-compatible Pro was "coming soon," put a damper on RT sales. Unfortunately, these are only two examples of how Microsoft dropped the ball when introducing its tablets. (A recent article details a few other hiccups.)

The 400,000 Surface Pro units moved in its first month (give or take) aren't much, as Apple pundits are quick to point out. One Apple-friendly report referred to Microsoft's Surface rollout as "stumbling out of the gates."

But let's keep this in perspective: With only a month of Surface Pro sales under its belt, a host of inventory problems that have riled customers, and a cost beginning at $900, Pro was never going to sell millions of units immediately, regardless of the circumstances. Was Microsoft really supposed to unseat Apple, Samsung, or even Google, at the top of the tablet food chain, in just a month?

But there's a bigger consideration when determining whether the Surface Pro is a success: sales comparisons on an apples-to-apples basis. The Surface Pro isn't a tablet, but it's been lumped into the same category as less powerful, and much less expensive, alternatives. There's no one to blame but Microsoft for marketing the Pro to the tablet market in the first place, bringing it directly into the crosshairs of Apple, Google, and Samsung, but side-by-side evaluations simply aren't warranted.

But comparing the base $900 Pro, with its PC-like features and 128GB of storage crammed into a tidy little tablet-sized package, with a $329 iPad Mini or even cheaper Google Nexus 7, doesn't do Microsoft, or the Surface Pro, justice. If there's a sales results comparison to be made, it should be between the Pro and Google's new $1,300 to $1,450 Chromebook Pixel. But mentioning the Surface Pro in the same breath as a tablet? That's akin to lumping a Yugo in with a BMW because they're both cars.

The notion that the Pro is more laptop than tablet is a recurring theme that runs through many of the Surface Pro user reviews. The capability of running legacy Windows applications on Pro, and the Pro's lightning-fast performance, changes things, big time. Now, users get all the computing power of a PC with the mobility, size, and weight of a tablet.

That leaves Microsoft with a decision to make: Do Ballmer and his team decide to market the Pro as a new, niche product, justifying its higher price by emphasizing its advanced features compared with mere tablets? Or does Microsoft find ways to shave the cost of the Pro to a more manageable, tablet-like price?

Consumers will remain hesitant to spend $900 to $1,100 (depending on the Surface Pro's features) for what they perceive as a tablet, when other options are listed for half of what Microsoft is asking. With an estimated manufacturing cost of a mere $284, Microsoft can adjust the Surface Pro's pricing if it decides to go this route. Of course, the $284 is the cost to manufacture the Pro only, and doesn't include transportation costs, marketing expenses, and the like. But it certainly leaves Microsoft with some maneuvering room.

Regardless of the direction Microsoft elects to take in marketing the Surface Pro, and to a lesser extent the RT, early sales results aren't nearly as dire as some would have you believe. When all the factors are considered, Microsoft's entry into the tablet market is doing just fine. Ballmer needs to make some tough decisions if he wants to build on Microsoft's Surface sales going forward. But so far, so good.

With the release of its own tablet, along with the widely anticipated Windows 8 operating system, Microsoft is looking to make a splash in the booming mobile 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.

Read/Post Comments (7) | Recommend This Article (5)

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  • Report this Comment On March 19, 2013, at 11:09 PM, techy46 wrote:

    I've been using DOS and Windows for 40 years and don't really care about MS Surface other then as a concept device for MS to make Windows 8 better. I'm going to buy a Lenovo Z400 or Z500 Touch since they contain 1-15" touch screens, i3-i7, 500Gb HDD and all the extras you get with a notebook but lose with a tablet. I know lots of other MS Windows users planning on Dell XPS, HP Envy or Lenovo Yoga or Helix. Does it really matter which Windows 8 device we like the most? Can't wait to see the Intel Atom Haswell devices next Fall and the 7" Surface RT mini.

  • Report this Comment On March 20, 2013, at 1:04 AM, GAinSAC wrote:

    I am an actual owner of a Surface Pro...and fricken love it! It has all the power of my desk top, and is way faster! This machine dominates when it comes to business usage. I had an associate in my office today, with his iPad, and he admitted that he can't fully use his device when working in the field with clients. In fact, his iPad is primarily used for entertainment. If anyone is serious about a device that is more than a video the Surface! Lightweight, fast, great screen, runs MSFT Office! This sucker is going to redefine how business is done!

  • Report this Comment On March 20, 2013, at 3:08 AM, doawithlife wrote:

    Quoting techy46 " i3-i7, 500Gb HDD and all the extras you get with a notebook but lose with a tablet"

    You realize the Surface Pro uses an i5. So it falls into the i3-i7 range....

    I love my pro. Samsung uhs-1 64gb micro-sdxc make it rule. So far I have two of these and two san disk micro-sdhc cards. The Samsung have read speeds around 63MB/s and write at about 16MB/s. Faster then a HDD and I can have as many of them as I want. So far I have one san disk card used to hold PS1 one games (about 120 PS games so far), one san disk card to hold music (about 40k songs downloaded, fiance went crazy one night), one samsung card holding my steam powered games, and one samsung card holding the rest of my PC games plus adobe software suite and Office 2010. The Surface Pro itself has Sims 3 with expansions installed (64GB version, use sd cards to make up for low space).

    Love this thing.

    I will also note. This is my first real tablet purchase (I have a $50 tablet, a Pandigital). I always said I wouldn't sink the money until they made a real computer. Well the Surface Pro is a real computer. MS did a bad job advertising and they put out the crappy RT which isn't a real computer.

  • Report this Comment On April 18, 2013, at 5:13 PM, conradirr wrote:

    I've been a little confused about the Surface Pro with some of the conflicting information floating around the web about it. I've been wondering if the Pro would be good for a student since I have a daughter who will soon start college and was thinking of getting her one. I was reading an article at that mentioned it would be ideal for a student especially with the type cover that you can get for it.

  • Report this Comment On April 21, 2013, at 8:23 PM, constructive wrote:

    "techy46 wrote:

    I've been using DOS and Windows for 40 years"

  • Report this Comment On April 21, 2013, at 8:25 PM, constructive wrote:

    "With an estimated manufacturing cost of a mere $284, Microsoft can adjust the Surface Pro's pricing if it decides to go this route. "

    This is Microsoft we're talking about, the company that's lost untold billions on Bing, Windows CE, Windows Mobile, etc. The gross margins are irrelevant, they are clearly hemorrhaging money on Surface.

  • Report this Comment On August 21, 2013, at 7:47 AM, guestacct wrote:

    @ conradirr

    As a student who has been researching this for a while, I have to say It depends on what and how she is going to be using it. If she is going into a program like art, engineering, or equation heavy fields, the surface pro would be ideal. It runs regular windows programs and have the power to do it well. I would just purchase a monitor to use while she is at home because it would be hard to stare at all night while writing a paper. Stay away from the pro if she needs battery life over 4-5 hours.

    But, if she already has a desktop, you could look at something like the galaxy note 10.1 (android) so she could have something portable. It has the same wacom screen as the pro and is good for notes, you would just need a keyboard.

    If you definitely want to go with windows 8, then the ativ 500t and ativ 700t deserve looking at. They have 11.6 inch screens and both offer note taking. They also are both available with a keyboard dock, a plus because she will be able to sit with them on her lap and type (the pro will tip over b/c there is no sturdy hinge). The 500t is cheaper than the surface, but has longer battery life (9 hrs or so), and runs on more efficient (sometimes laggy) atom processor. The 700t has the same i5 as the pro and gets about 6 hours of battery life.

    The pro would be good, but for my money, I would go with the 700t, unless she has a desktop. In that case, save some money and get the 500t or the galaxy note 10.1 running android.

    Also, if you purchase the 500t, make sure it is a submodel that comes with the stylus.

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