Microsoft's Moment of Desperation

Microsoft  (NASDAQ: MSFT  )  recently pulled a marketing and sales stunt that surprised everyone. In an attempt to sway devoted Mac users over to Microsoft's new Surface Pro 3 tablet, it's offering a $650 rebate to consumers to trade up to Microsoft's new Surface Pro 3, provided they hand in their MacBook Air in working condition.

However, Microsoft's work is cut out for it in more ways than one. Not only will taking market share from Apple  (NASDAQ: AAPL  )  not be easy, but gaining traction in the tablet space will be just as hard. 

Apple's market share has been immune to the PC slide
Apple has been gaining market share even as PCs shipments have trended lower. According to Gartner, U.S. Mac sales spiked 28.5% year over year in the fourth quarter of 2013, giving Apple a 13.7% share of the U.S. market even while the PC industry continues to struggle.

According to Apple, thanks to strong MacBook Pro and MacBook Air sales, Macs have gained global market share for 31 of the last 32 two quarters.

This is a trend that might continue, especially now that Apple has lowered the price barrier to the Apple ecosystem. Apple's new 21.5-inch iMac costs only $1,099, while the new MacBook Air starts at only $899. 

Apple has a very loyal consumer following 
Devoted Mac users aside, according to the American Customer Satisfaction Index, Apple has been topping Customer Satisfaction Benchmarks in the PC category for over a decade now.

Source: American Customer Satisfaction Index 

You don't score No. 1 year after year without a reason. No matter what investors might think of Apple products, consumers (customers) think very highly of Macs. It's no wonder, either, just days after the Surface Pro 3 went on sale, buyers began grumbling about poor performance on Wi-Fi networks using the 802.11ac standard.

More juice is better
One of the reasons why the MacBook Air got to be so popular is because its battery lasts anywhere from 9-12 hours depending on the model. Microsoft claims that the battery of the Surface Pro 3 can last you up to nine hours. This is good, but if you want the longest-lasting laptop on the market, then the MacBook Air is still the best choice.

Microsoft's Surface Pro 3 is not a bargain 
If one wants to compare apples-to-Apples (pun intended), then one has to add the extra cost of a keyboard to the Surface Pro 3. When all is said and done, the Surface Pro 3 will cost you a total of about $1,129. The total cost comes down to $479 with the $650 rebate. However, while Microsoft might persuade a few Mac addicts to buy the Surface Pro 3 for $479, I am not so sure how many more MacBook Air owners will be persuaded once the special offer ends. Please keep in mind that the $1,129 price tag is for an entry-level Surface Pro, and for the same price you can buy the top-of-the-line MacBook Air.

Microsoft might be too little too late in the tablet game
IDC's Tom Mainelli, research director for Tablets, had this to say a while ago:

It's becoming increasingly clear that markets such as the U.S. are reaching high levels of consumer saturation and while emerging markets continue to show strong growth this has not been enough to sustain the dramatic worldwide growth rates of years past. We expect commercial purchases of tablets to continue to accelerate in mature markets, but softness in the consumer segment—brought about by high penetration rates and increased competition for the consumer dollar—point to a more challenging environment for tablets in 2014 and beyond.

That's not to say that Microsoft will not be able to gain market share in the tablet space, but it will be a challenge. For example, according to IDC, while Apple grew it tablet business by 13.5% year over year, Samsung  (NASDAQOTH: SSNLF  )  registered 85% growth year over year . In a strange way, Microsoft might be better off giving a rebate to Samsung users than Apple users.

In fact, even if we assume Microsoft manages to take some business from Apple, Google  (NASDAQ: GOOG  )   might be an even bigger competitor. According to the NPD Group, Chromebooks accounted for 21 percent of all business and educational notebook sales in 2013, up from a negligible share in 2012. And with Lenovo, Hewlett Packard Samsung and Acer also entering the Chromebook space,  Microsoft will have its hands full trying to compete for a segment of the laptop and notebook space.

Bottom line
Being a latecomer to the tablet space, Microsoft is responding in desperate ways to encourage people to buy its tablet PC. The problem is that MacBooks were never about price, but about performance; Microsoft might be barking up the wrong tree. In addition, the fact that Apple ranks so highly in customer satisfaction and that the Surface Pro 3 is not that much of a bargain (without promotional discounts) will make Microsoft's job even more difficult. 

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Read/Post Comments (12) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 08, 2014, at 11:54 PM, MrMoney77 wrote:

    Good Afternoon George (well that is my current timeframe in Japan). I noticed that you listed a $1,129.00 price tag on the Surface Pro 3. I am going to have to disagree with you on this one. currently list the entry-level Pro 3 at $799.99. I sat back and said to myself, "Maybe this guy included the type cover version 3 keyboard with this price." Boy was I wrong. The price tag on the type cover version 3 keyboard is $129.99. After using Algebra 1, I concluded that this totals out to $929.98. I decided to give you a third chance with this entry-level price tag by adding shipping and handling. No sir, not from Tigerdirect. You see, my family dwells in good ole South Carolina where shipping from Tigerdirect is tax free. Final total price; $938.30. My Poor George (80's song by MC Lyte), can you please explain where this $1,129.00 price tag derived from in your writing? Yes I am a Microsoft fan, yes I love the Surface Tablets, and yes I much respect for the Macbook Air, but if you are going to compare products, use a good source. Thank you sir and have a good day.

  • Report this Comment On July 09, 2014, at 1:39 AM, jameskil wrote:

    Motley Fool is the marketing arm for Apple ... so any discussion of Apple products or future releases should be read with that in mind. Also, Macs have been "gaining" market share on Windows devices since 1984. OK ... so what is the market share for Macs compared to Windows based devices? Not mentioned you say? That's because it is miserable and always has been. Where is Apple's enterprise support or products? Non-existent you say? Where is authoring at with regards to enterprise support or products for Macs? iPads? Hell, iPhones for that matter? Non-existent you say? Oh ... OK ... How about Apple's Office equivalents? Aren't even used by most users you say? How about Oracles (Sun's) OpenOffice? Or IBM's Lotus or Notes or Domino or ... IBM Anything? Not used much if at all you say? Oh ... OK ... so ... what's going on with all those apps that people Download? Toys, or used until curiosity is satisfied you say? Oh ... OK ... well where is all the real work being one here? On PC's you say? That's probably true ... so don't let The Fool scare you away from Windows devices ....

  • Report this Comment On July 09, 2014, at 3:49 AM, amz wrote:

    Of course, you're also forgetting to include the cost of the Macbook digitizer option... A real digitizer with pressure levels like the Surface Pro.

    If you're making a true apples-to-real-computers comparison, you're including that major feature, right?

    George, why am I only hearing "cricket-cricket" from you and your iFriends?

    Here's a bit of help... The closest you'll get is a $3,000+ Modbook.

  • Report this Comment On July 09, 2014, at 7:32 AM, jdmeck wrote:

    jameskil - Apparently you have never read any of Sam's garbage.

  • Report this Comment On July 09, 2014, at 9:49 AM, Drichter wrote:

    As usual, a worthless and firmly biased piece from the Apple-addled Motley Fool. I especially love the attempt to ding the surface pro for alleged anecdotal WiFi problems, when I myself have two that perform beautifully and one of the big criticisms of MacBook is notoriously bad WiFi reliability.

    Well played, Fool.

  • Report this Comment On July 09, 2014, at 10:10 AM, username321 wrote:

    Wow.. Looks like some Microsoft fans came out to play. Been awhile..

    @ MrMoney77 - The price of the surface Pro 3 with a keyboard on the Microsoft store is $1129. I'm sure there are discount websites where it is cheaper..but the author wasn't writing a 'where to buy it' article so its reasonable to quote the price that Microsoft sells it for.

    @ jameskil - lot of questions.. MARKETSHARE of MS.. desktop is about 90%. Smartphone/tablet/handheld is about 1.5%. ENTERPRISE - traditionally not an Apple space, but now they are focused on it: The iPhone, which is often Apple's entry point into enterprise, is used in 97% of Fortune 500 companies. Numbers for the iPad were even higher at 98%, and Cook added that 90% of tablet activations in corporations are iPads< ; <

    MS OFFICE - yep still the leader (and one of the best selling application for Macs). That about all MS has left..Office keeps the lights on, we'll see for how long.

    @amz - aahh.... what?.. ok.. yeah,,sure we all need a digitizer with pressure levels. You got me there...

  • Report this Comment On July 09, 2014, at 12:43 PM, jdmeck wrote:

    If it wasn't for Jobs, there would not be a Microsoft.

  • Report this Comment On July 09, 2014, at 12:44 PM, amz wrote:

    @ username321 - Yes, the digitizer is a critical element. If Apple could do it, you and the author would cite it in a second, but they can't or won't. And enough people want it that they post Macbook mod how-to's online or buy the aforementioned $3,000+ Modbooks.

    You and the article's author compare your Mac "car" to a Microsoft "airplane" and claim that the wings (the digitizer) are superfluous because YOU don't know how to fly.

    One more thing... Macolytes like to cite the "app gap" when trying to compare the iPhone to Windows Phone, but they conveniently forget that in that in the desktop / laptop world -- where real work is done -- Apple is sorely lacking. Even Apple relies on Windows to build Macs (see Tim Cook's recent tweeted photo).

  • Report this Comment On July 09, 2014, at 12:47 PM, amz wrote:

    @ jdmeck Ahem... 1997... Apple gets $150 million bailout from Microsoft.

    And if we want to be precise, if it wasn't for Woz, nobody would know the name Jobs.

  • Report this Comment On July 09, 2014, at 3:44 PM, AceOfSaves wrote:


    And if it wasn't for Jobs, nobody would know the name Woz...if we want to be precise.

  • Report this Comment On July 09, 2014, at 5:21 PM, amz wrote:

    @ AceOfSaves Absolutely agree. I was just reacting to @jdmeck's ridiculous, oversimplified fanboy comment.

  • Report this Comment On July 10, 2014, at 9:41 AM, glennwarnerjr wrote:

    Microsoft is only attempting to get prospective Apple buyers to give the Surface 3 a serious look. The author of this article reveals his bias by not even getting the price of an entry level Surface correct.

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George Kesarios

I focus mostly on technology stocks, but I also venture out to other sectors. Mostly focusing on valuations instead of what makes companies tick. My greatest challenge, finding stocks that can double in 12 months or less.

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