"This is the tablet that can replace your laptop," Microsoft's (NASDAQ: MSFT ) Surface executive Panos Panay said at a Tuesday event in New York after the software giant unveiled the Surface 3. In fact, the Surface 3 even challenges Apple's (NASDAQ: AAPL ) Macbook Air, Microsoft said.
With the 12-inch laptop-tablet hybrid, Microsoft, finally displayed some clear direction for the Surface line. It's positioning the Surface 3 as a replacement to the notebook and as a showcasing device for its services. While it's nice to see some direction, the obstacles Microsoft faces in hardware may still be too challenging.
Apple's a tough competitor
Throughout the launch event, Microsoft repeatedly compared the Surface to Apple's Macbook Air. In one comparison, a Microsoft executive placed the Surface 3 on a scale to show that it was lighter than Apple's 13-inch Macbook Air -- an interesting comparison since the Surface is clearly shaped like a tablet and has a smaller display.
But there's a problem about positioning a device up against Apple's Macbook Air. When it comes to hardware, Apple is an experienced and proven competitor -- not just because of the hardware itself, but Apple's OS X operating system is increasingly gaining traction as a first choice among consumers. In the U.S., for instance, Apple's Mac sales have been gaining share for years. OS X computers made up about 13.7% of PC sales in the fourth quarter of 2013, according to data from Gartner. That figure is up from less than 7% in the same period in 2006.
There's undoubtedly rationale for Microsoft's decision to position the Surface against notebooks. Panay explained during the event that 96% of consumers who own an iPad also own a notebook. The Surface 3, he says, is aimed at "taking that conflict away." In other words, if the Surface 3 can really fill the role of both notebook and tablet then Microsoft could hit a homerun. Of course, this is easier said than done. And looking at those same stats in a different light, it could be argued that consumers have shown a clear preference to own both types of devices.
Could Microsoft have positioned the Surface better if it launched the rumored Surface mini instead and aimed it at the popular small tablet category? Not necessarily. Facing off against Google's Android and Apple's iOS wouldn't be any easier. The mobile device market is an Apple- and Android-dominated world.
An uphill battle
No matter what type of hardware Microsoft launches, the software giant is up against some big challenges. With its Windows operating system losing market share and its hardware business arguably remaining at a standstill at best, it's still unclear whether Microsoft should be focusing on hardware at all.
But these challenges don't automatically mean the company is doomed to failure. Fortunately, Microsoft has other great things going for it. For instance, its cloud and server solutions for enterprise, Microsoft Office, and its gaming segment are all great businesses. And there could even be a noble purpose for Microsoft's hardware: As Microsoft CEO Satya Nadella explained during the launch event, its hardware sales serve as showcasing devices for Microsoft's broad array of software and services.
Further, the risk of downside from Microsoft's hardware business is balanced out by the potential upside opportunity. So, even though the outcome of its Surface line is still uncertain, a smidgen of more clear direction, even if the Surface doesn't look ready to challenge the Macbook Air yet, is good news.
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