Microsoft's Surface Pro 3 Is a Great Idea (but Doesn't Change Much)

I've been hard on Microsoft Corporation's (NASDAQ: MSFT  ) Surface tablet line to date. But while I was initially inclined to frown at its Surface Pro 3 announcement yesterday, I'll readily admit that the new tablet has piqued my interest.

Microsoft hopes its Surface Pro 3 will lure notebook buyers. Source: Microsoft.

With its 12-inch display, the Surface Pro 3 is Microsoft's largest tablet to date, and stands as the tech behemoth's most prominent effort so far to provide consumers with a viable tablet-based alternative to laptops. Given that niche, I'm not convinced the Surface Pro 3 is meant to compete directly against current large tablets from the likes of Apple (NASDAQ: AAPL  )  and Samsung, but instead aims to lure Microsoft's bread-and-butter productivity seekers -- myself included -- who still prefer Windows and grow increasingly unimpressed with their options as the world migrates to smaller devices.

The Surface Pro 3 is also relatively light -- compared to most laptops, anyway -- at 1.76 pounds, offers roughly nine hours of battery life, and is reasonably powerful so should handle most anything a laptop user would expect.

Surface Pro 3 solves two big problems
What's more, by narrowing the gap even further between tablets and notebooks, Microsoft is addressing two key problems from which the Surface has suffered to date -- namely, it's opening the Surface line to a larger group of interested buyers and also partially negating the fact that its platform still lacks a meaningful app ecosystem compared to those enjoyed in devices powered by Android and Apple's IoS.

Finally, with prices for its various models ranging from $799 to $1,949, the Surface Pro 3 should offer Microsoft higher margins and help propel the entire line further toward sustained profitability. Remember, Surface revenue fell off a cliff last quarter just as I expected, dipping sequentially from $893 million to $494 million as holiday sales waned. Meanwhile, the cost of that revenue once again came in higher at $539 million, which means Microsoft lost another $47 million last quarter for its efforts. Shooting for higher-margin devices to comprise a larger percentage of overall Surface sales, then, could be just what Microsoft needs to push it into the black.

And to be fair, that $494 million did represent a 50% increase over the same year-ago period. By contrast, Apple's most recent quarter saw iPad revenue fall 13% year over year. Then again, Microsoft was working from a significantly smaller base, and Apple is likely set to unveil the latest in its iPad innovations at its annual Worldwide Developers' Conference less than two weeks from now.

A great idea doesn't guarantee success
But even putting aside any competing solutions Apple might introduce then, Microsoft's Surface Pro 3 is hardly a guaranteed winner.

For one, consumers actually have to bite on the new solution in order for Microsoft to enjoy those higher margins. And while I'll admit the folks at Microsoft have made big strides in improving Surface hardware, expanding its addressable user base, and muting the impact of its subpar app ecosystem, the fact remains that it's still working to overcome the stigma created when previous Surface models fell far short of expectations.

In the end, the Surface Pro 3 might be Microsoft's most compelling tablet yet, but I'm still not convinced it has what it takes to prop up the entire line.

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  • Report this Comment On May 21, 2014, at 3:55 PM, twolf2919 wrote:

    I can't argue with your statement "...for those who prefer Windows...", but the Surface's other benefits are somewhat questionable.

    Take the price: $799 gets you a tablet - you need to add the $130 keyboard to make it be the productive tool you said you wanted. So that's $930. And you still need to add MS Office (not bundled!) The low-end MacBook Air is $899 - a real laptop that can be put on your lap and which includes an office suite.

    Take weight and battery: it's 1.7 lb - but with the keyboard, you're pushing 2 lbs....not much lighter than the Air's 2.3 lb. Both advertise a battery life of 9 hours, but for $999 (still cheaper than a Surface with Office), you get a bigger 13-inch screen, more storage, and 12 hours of battery life.

    You're certainly right that the Surface can act as a tablet and the MBA cannot.

  • Report this Comment On May 21, 2014, at 6:07 PM, marv08 wrote:

    This thing runs a full Windows installation and has no 3G/4G connectivity. Considering a restore partition a must and the need to keep a lot of files locally installed, the 64 GB version is certainly inadequate for most, you want the 128 or 256 GB model for even moderate requirements. People interested in some games or advanced photo or video apps will also want a Core i5 minimum.

    We talk, including the keyboard, around $1.5k here. How many laptops are sold in this price range, and who sells them? The answers are "not many" and "Apple" respectively.

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