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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.