Microsoft's (NASDAQ:MSFT) Surface hasn't made much of a dent in the tablet market in its freshman year, but it's ready to give it another shot.
The software giant has set up a media event for September 23 to update its Surface line.
The chatter has been pretty consistent. The new tablets will have slightly improved specs. Microsoft will drop the RT name from the entry-level model, though it will still run the scaled-back Windows RT 8.1 mobile operating system that has failed to catch on since it doesn't run traditional Windows programs.
There won't be a lot of buzz for Surface 2 and Surface 2 Pro, and that's on Microsoft. Despite spending a lot of money on advertising to show off the stylish tablet and the inventive flat touch keyboard that snaps on magnetically, the original Surface RT and Surface Pro were failures.
Microsoft's share of the tablet market is a forgettable 4%, and that won't woo developers to actively support a platform that's only reaching one out of every 25 buyers.
A lot can change if Microsoft gets it right on pricing. The original Surface RT hit the market at $500 late last year. It was a colossal mistake to introduce a new tablet at the same starting price point as Apple's (NASDAQ:AAPL) iPad. It may have had some superior specs, but it clearly wasn't enough to take on Apple at the high end.
Google's (NASDAQ:GOOGL) Android -- which over the past year has surpassed Apple in global market share -- is open source, and that makes it freely available for hardware makers to flood the market with devices across all price points.
It was Android's presence -- and not Apple's -- that doomed the Surface. Apple actually sold fewer iPads in its most recent quarter than it did a year earlier. It moved 14% fewer tablets, even though industry tracker IDC shows that global shipments have soared 60% over the past year. The cruel math for the iPad here is that its share of the market has gone from 60% a year ago to 32% now.
Earlier this summer, in a desperate move, Microsoft slashed the price of its RT by $150 to $350. It's also offering refurbished Surface RTs for just $300, but who are we kidding? Don't you have to sell tablets first before getting enough returns to polish them up and resell them as refurbished? It wouldn't be a surprise if those refurbished tablets are new.
Some argue that the Surface RT price cut is merely to clear out inventory, but Microsoft will be repeating last year's mistake if it hits the market again at $500 for the Surface 2.
Microsoft can't blow this. Tablets aren't just a passing craze.
IDC reported yesterday that it's forecasting 84.1 million tablets will be shipped during this seasonally potent holiday quarter. It also sees just 83.1 million laptops and desktops rolling out. This will be the first quarter that finds tablet shipments exceeding PCs on a unit basis.
It won't be the last.
Microsoft knows that it has to matter here, and it has to realize that last year's overpriced Surface RT was such a flop at that price point that it has to burn the RT name in the same incinerator where Zune, Kin, and Vista turned to ash.
New Surfaces are coming, and if Microsoft isn't willing to sacrifice margins for the sake of market share this time around, there won't be anyone to care about next year's Surface 3.
You only get one chance to reSurface.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google. It also owns shares of 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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