Microsoft vs. Apple: New Surface Ads Bring Back Mac, PC Battle

Microsoft is attempting to provide potential customers with a context for Surface Pro 3, which is needed because since being launched the Surface message has not been clear and sales have lagged.

Aug 26, 2014 at 4:50PM

The classic "Hello, I'm a Mac" ads starring Justin Long as the hip personification of a Mac and John Hodgman as the stuffier PC were originally an attempt by Apple (NASDAQ:AAPL) to win market share from Microsoft (NASDAQ:MSFT). Now Microsoft is attempting to turn the tables with an ad that portrays its Surface Pro 3 as the hipper product compared to Apple's more traditional MacBook Air.

The commercial is an effort to cast the Surface Pro 3 as a laptop that's also a tablet. That's a subtle change from the original marketing for the Surface line as a whole, which showed the devices more as tablets with some laptop-like functionality. The ads more or less scream "everything you can do, I can do better."

It's an attempt at a complete role reversal by Microsoft. Though there are still many more PCs being used than there are Macs, Surface is certainly an upstart product. By saying, "it's like that, but better," Microsoft is at least attempting to provide potential customers with a context for Surface Pro 3, which is needed because since being launched the Surface message has not been clear.

Surface Pro

Surface Pro 3. Source: Microsoft 

What the ads say
The recent commercial shows a MacBook Air side by side with a Surface Pro 3. At first the Pro 3 has no keyboard and one voice asks "Are you running full Adobe Photoshop on a tablet," and the other answers "Yep." Then comes the key message:

"But it's not just a tablet, it's really a laptop," the Surface side of the voiceover says as a keyboard is clicked in.

The commercial goes on to establish that Surface Pro 3 has a touchscreen, which MacBook Air does not. It also states that it's as fast as the Mac and it has an array of ports including USB and a mini-display port (which many tablets lack). The Surface kickstand is then shown off before the two voices deliver the kicker:

Mac voice: So, you're saying it does more than my Mac?

Surface Voice: Well, technically you said it.

It's a direct, powerful ad that while not nearly as clever as the original "Hello, I'm a Mac" commercials does get its point across. Since both devices start at around the same price once you figure in the cost of a Surface keyboard, Microsoft is pretty directly saying that Surface can replace a MacBook Air and an iPad.

Macbook Air

MacBook Air. Source: Apple

Why Microsoft needs to do this
The positioning for Surface to consumers has been confusing since the company's massive rollout for the device in October 2012. The first commercials for Surface focused on the RT version of the device, which runs a scaled down version of the Windows operating system. RT only runs apps that are specific to the OS, not full Windows programs, similar to the way an iPad can't run programs written for Mac OS.

If that was the only Surface device, consumers might have caught on. Instead, Microsoft also launched the "Pro" series, a set of Surface tablets which run actual Windows. This caused confusion among consumers, which led to disappointing sales.

By breaking the Pro 3 out of the pack and branding it specifically, Microsoft should clear up some of the confusion, though it clearly would have been better off it had been branded as something other than a Surface in the first place. Selling a Surface and a Surface Pro is more confusing than selling a Surface and a something else entirely. 

How bad are the sales?
Microsoft has not made money on the Surface line but the company still sees some signs of hope. In its quarterly SEC filing for the quarter ending March 31, 2014, Microsoft reported $494 million in revenue from the Surface line, down 45% from the December-ended quarter but up more than 50% from the same quarter in 2013. The company spent more money than it took in for Surface during the quarter, spending $539 million for a $45 million loss. That's a $6 million bigger loss than for the quarter which ended Dec. 31, 2013. Overall, in the first three quarters of the fiscal year, Microsoft had $1.8 billion in Surface sales with $2.1 billion in expenses.

Sales fell again in the fourth quarter to $409 million, but the company did not break out the expense specifically for Surface, instead including it in the overall Computing and Gaming Hardware segment which includes Xbox. Still, though sales declined, the company seems to still have faith in the line -- specifically the Surface Pro 3.

Microsoft does not break down sales of individual Surface models, but Microsoft CFO Amy Hood expressed hope during the Q4 earnings call that the release of Surface Pro 3, which took place during June, the last month of the company's fiscal year, could turn things around. "While it's still early, sales are outpacing earlier versions of Surface Pro, and, we are excited to bring the device to many more markets this summer," she said.

Doing better than products that failed is not much, but it's at least a sign of life.

Can Microsoft make Surface work?
The original Surface RT was a reasonable answer to an iPad that could perform as a limited laptop replacement. Since the RT devices had Microsoft Office installed on them for free, making them a nice compromise between a laptop and a tablet, it was actually surprising that they failed to connect with consumers.

With Surface Pro 3, Microsoft is attempting to remove all of the ambiguity. The company wants to establish that this is not a tweener device, it's a full-fledged laptop that can also work as a tablet. Comparing it to the MacBook Air establishes that very clearly -- which should clear up some confusion.

As for sales, it's more likely to cannibalize customers who would have purchased Windows machines made by Microsoft's partners than it is Apple users. Surface Pro 3 is a nifty tablet for someone who likes Windows (or needs it for work) that also does everything a laptop does.

That may allow Microsoft to carve out a niche for Surface Pro 3 and make it a viable product, but if that happens it's unlikely to be at Apple's expense.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Kline is long Microsoft and Apple. He owns a Surface RT and a MacBook Air. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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