Microsoft's Moment of Desperation

Microsoft being a latecomer to the tablet space is responding in desperate ways to make people buy its tablet PC. The problem is that MacBook's were never about price, but about performance,

Jul 8, 2014 at 10:00PM

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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George Kesarios has no position in any stocks mentioned. The Motley Fool recommends Apple, Gartner, and Google (C shares). The Motley Fool owns shares of Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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