If you follow Microsoft (NASDAQ:MSFT), you know this was a big weekend for CEO Steve Ballmer and team. Saturday's rollout of its Surface Pro tablet, with 128GB, sold out almost as fast as it went on sale, according to Panos Panay, Microsoft's leader for all things Surface. Normally, that'd be a good thing; selling out of a recently released product is every retailer's dream. But therein lies the problem.
Announcing an item is "sold out" puts a positive marketing spin on a new rollout, so retailers have long manipulated the perception of sales results -- that's as old as retailing itself. As a longtime supporter of Microsoft as a legitimate undervalued stock play in the midst of transitioning to mobile and cloud computing, I'm pained to see Ballmer and Panay's latest ploy.
Leading up to the weekend
Unfortunately for shareholders, you don't have to look far to find concerns relating to Microsoft's Surface tablet. A glaring problem for the Pro is price. Getting consumers to spend between $899 and $1,000 (and that's without a keyboard) for a tablet was always going to be a challenge, let alone pricing the Surface Pro so it's directly in the firing line of Apple's (NASDAQ:AAPL) popular iPad. Yes, there are certainly differences that Microsoft believes warrants the cost, but for money-conscious consumers, it's not hard to imagine that some will decide to forgo performance for price.
Two more concerns arose before the Pro launch this past weekend: battery life and available storage. According to PCMag, the battery life of Microsoft's Surface Pro is a little more than half that of an iPad. Panay discussed battery concerns in a recent post, saying, "If you compare it to, say, a MacBook Air, you will quickly see that pound for pound in battery size vs. battery life, you will find optimizations that puts Surface best in its class."
Available storage space, after accounting for the Surface's bevy of preloaded apps, also made headlines, and not in a good way. The 64 GB version comes with 29 GB of available space, and the 128 GB Surface Pro gives users about 89GB to play around with. Again, these don't compare favorably, but they can be explained by Microsoft's "hybrid" approach to the Surface. It was never intended to be simply a music download, movie, or gaming tool, but a half-tablet, half-laptop device, providing users with PC-like functionality.
Surface Pro sells out!
Getting actual sales results from Microsoft is like pulling teeth. That's nothing new. Ballmer not-so-deftly sidesteps questions about Microsoft tablet sales, just as Google (NASDAQ:GOOGL) CEO Larry Page does when asked about Nexus sales. To Apple's credit, at least it shares iPad sales numbers: An impressive 22.8 million of them sold last quarter. Even without gracing us with specific figures, Google's early introduction of its Nexus tablets -- along with generally favorable reviews and multiple price points -- gives it an advantage over Microsoft in gaining tablet market share, let alone the challenge Apple's iPad presents.
Leading up to this weekend's release of the Surface Pro, getting a sense for Surface RT sales after its introduction a few months ago depended on which article you read. For every "sky is falling" scenario, there was another rumor shouting "Surface sales right on track!" So I didn't put much credence in the RT sales scuttlebutt, one way or the other. But giving Microsoft the benefit of the doubt regarding its tablet sales just got harder to do.
In the latest Surface-related blog from Panay, he states that the response to Surface "has been amazing." He added: "We're working with our retail partners who are currently out of stock of the 128GB Surface Pro to replenish supplies as quickly as possible." Hey, that's great news, right? Sure, until you read the nearly 100 comments by, almost exclusively, disgruntled Surface consumers. Based on nearly every one of the blog's comments, It's clear Microsoft is playing the retail "sold out" game to the hilt.
After doing some investigative work on their own, consumers responding to Panay's blog found that many Best Buy and Staples stores received nothing more than a demo version of the Surface Pro. As you can imagine, Best Buy and Staples "sold out" of Surface Pros in a hurry -- easy to do when you don't have any to begin with.
To date, I've given Microsoft some leeway in its Surface sales totals; there was too much disparate information to determine how things were really coming along. But according to some estimates, Best Buy and Staples received only 30,000 or so Surface tablets in total. For a much ballyhooed rollout? That's too obvious a ploy to ignore.
Panay's blog, and, even more importantly, the feedback from potential Surface customers, says it all: Microsoft is playing the game, and consumers are paying the price -- at least for now. Overcoming the price tag, limited battery life, and available storage concerns were going to be challenges for Microsoft, regardless. But letting the marketing department dictate the Surface Pro rollout, virtually ensuring it would be "sold out," could cost Microsoft dearly in the long run.