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

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 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. 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.

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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 August 26, 2014, at 6:29 PM, toomanyrules wrote:

    I'll by a surface if it run window 7. Windows 8 sucks!

  • Report this Comment On August 26, 2014, at 7:53 PM, kwright62 wrote:

    Windows 8 on the Surface 3 makes for a very productive computer. If you like an older version of Windows the desk top mode of 8 will be familiar and useful.

    I could not return to the use of a non touch screen device.

  • Report this Comment On August 27, 2014, at 7:53 AM, jdmeck wrote:

    And as usual, MS is the loser.

  • Report this Comment On August 29, 2014, at 7:23 PM, dj235 wrote:

    @toomanyrules - buy not by.

    I love my Surface Pro 3. Bye.

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