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Microsoft's Surface Duo Is a Niche Device With an Identity Crisis

By Leo Sun - Oct 5, 2019 at 8:30AM

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The tech giant returns to the smartphone market with a baffling dual-screen device operating as an Android phone.

Microsoft (MSFT 0.23%) recently unveiled its first Android phone, the Surface Duo, in a surprising return to the smartphone market. Unlike most phones, the Duo sports two 5.6" screens, which fold out into an 8.3" display. There's no rear camera -- users fold the device backward and use the front-facing camera for forward-facing shots.

The Duo runs a standard version of Android with Alphabet's (GOOG 0.71%) (GOOGL 0.39%) Google Play Store installed, but it also comes with a suite of Microsoft's cloud-based Android apps, including Office, Outlook, and OneDrive.

The Duo is the smaller sibling of Microsoft's other new dual-screen device, the Neo, a Windows 10 device that offers two 9" screens that fold out into a 13" display. The Neo can also be converted into a laptop with a keyboard add-on that covers most of the second screen.

Microsoft's Surface Duo.

Microsoft's Surface Duo. Image source: Microsoft.

The Neo might appeal to Windows users who like the Surface, but the Duo targets a narrow niche of smartphone users who want a dual-screen device. Let's see why Microsoft launched the Duo, and why this so-called "Surface Phone" could struggle to gain ground in the crowded smartphone market.

Not a fresh idea

Several companies dabbled in foldable phones over the past few years. Kyocera (KYOCF 7.60%) launched the Echo, an Android device that resembled two phones stuck together, in 2011. Russia's YotaPhone, which went bankrupt earlier this year, launched a trio of dual-screen phones with e-ink displays. In 2017, Chinese tech company ZTE (ZTCOY) launched another dual-screen Android device called the Axon M. 

None of these devices caught on, for three simple reasons: They were pricier than single-screen phones, mobile apps weren't optimized for dual-screen displays, and the screens were bisected by unsightly bezels.

Samsung (OTC: SSNLF), Huawei, and other phone makers tried to solve the bezel issue by launching devices with single foldable screens with unbroken displays. But those phones are still prohibitively expensive: Samsung's Galaxy Fold costs about $2,000, and Huawei's Mate X costs $2,600.

Microsoft likely thought that a Duo with a single foldable screen would be too costly to produce, so it stuck with the older dual-screen design. That could be a bad move -- previous dual-screen devices flopped because they were considered awkward, impractical, and gimmicky.

Samsung's Galaxy Fold.

Samsung's Galaxy Fold. Image source: Samsung.

Leveraging the Surface brand

Over the past few years, Microsoft phased out Windows Phone and the Lumia brand it acquired from Nokia. At the same time, it expanded its Surface brand into a full line of 2-in-1 devices, laptops, all-in-one PCs, and a wall-mounted interactive whiteboard. This was a smart move because it showcased the versatility of Windows 10 while sparking a form factor revolution in the stagnant PC market.

Microsoft's devices revenue, which mainly came from Surface products, rose 19% to $6.1 billion last year and accounted for 5% of its top line. With the Duo, Microsoft is trying to leverage the strength of the Surface brand to return to the smartphone market.

Instead of trying to expand its own OS again, it's wisely sticking with Android but pre-installing its own mobile apps. To differentiate itself in a crowded market, it's offering a dual-screen device. Those strategies are logical, but the Surface Duo faces an uphill battle, for three simple reasons.

First, global smartphone shipments fell 4% last year, according to IDC, and are expected to dip again this year. That shrinking market makes it tough for any newcomers, even ones as large as Microsoft, to gain ground against market leaders like Samsung, Huawei, and Apple.

Second, Microsoft plans to launch the Duo in late 2020, and its price has yet to be determined. By then, Samsung, Huawei, and other OEMs could launch cheaper foldable-screen devices and render the Duo obsolete. Lastly, Microsoft will struggle to convince consumers that they actually need a dual-screen device when most apps are optimized for single displays.

The key takeaways

Microsoft wants to blur the line between laptops and mobile devices with the Duo, but it just looks like two Android phones folded together. Therefore, it should remain a niche device which won't gain much traction in the mobile market -- unless Microsoft somehow rallies developers to create compelling dual-screen apps.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Microsoft. The Motley Fool owns shares of Nokia and has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

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