When Microsoft (NASDAQ:MSFT) introduced the Surface Pro 3, the company specifically pushed it as an alternative to both Apple's (NASDAQ:AAPL) MacBook Air and iPad. Now, Microsoft is taking further aim at its rival, offering up to $650 toward buying its Windows 8.1 tablet/laptop hybrid for anyone who trades in a MacBook Air.
In its May launch of the Surface Pro 3, Microsoft left no doubt that it saw the device as a way for people to ditch multiple Apple devices.
Surface Pro 3 is a tablet and a laptop: multiple processor, RAM and storage options intersect with a sleek design that, with a simple snap or click, transform the device from a perfectly balanced tablet to a full-functioning laptop and back again -- all in a beautiful package that is 30% thinner than an 11-inch MacBook Air.
When the original Surface was introduced, most saw it as a tablet with some laptop-like functionality. Microsoft was unclear in its early marketing, but the idea of replacing a laptop with the hybrid tablet was not mentioned. That made the model of the device running Windows RT -- the stripped-down version of the operating system that does not run regular Windows software -- an iPad alternative sold at a similar price to the well-established Apple device. The full Windows version started at less than a MacBook Air but more than some similarly sleek Windows laptops.
That marketing strategy positioned Surface as a reasonable alternative to an iPad for people who felt they needed Windows. That's a niche audience and initial sales for Surface reflected that -- Gartner reported that Microsoft ended 2013 with 4.1 million Surfaces sold, representing 2.1% of the tablet market. Apple sold over 70 million iPads in 2013 for a 36% market share while tablets running Google's (NASDAQ:GOOG) Android accounted for nearly 70% of the market with 121 million sold.
In launching the Surface Pro 3 the company is clearly targeting a broader swatch of the market. If Surface can replace both an entry-level iPad, which costs $599, and an entry-level Macbook at $899, then it could actually be perceived as a bargain. The same can be said to a lesser extent of using the device as a replacement for the pairing of a Windows laptop and an iPad or Android tablet.
A look at the deal
A $650 rebate goes a long way toward the $799 an entry level Surface Pro 3 costs, but that price is a bit misleading -- it doesn't include the $129 detachable Type cover keyboard needed to make the device a true laptop replacement. Additionally, unlike some earlier Surface models the Pro 3 does not come with a free copy of Microsoft Office and nearly everyone interested in a PC laptop/tablet hybrid will likely also have to pay to add the software, costing at least another $69.99 (for a one-year subscription).
That brings the total cost of purchasing a Surface Pro 3 to just under $1,000. A $650 rebate takes some sting out of that, but the customer is trading in a device for which he paid at least $899 for that $650 return.
This is not the first time Microsoft has offered trade-in dollars on Apple products. The company offered people who traded in an iPhone or iPad up to $350 last year toward a Windows tablet or Windows Phone.
Whether it will work is a big question -- no matter how great the Surface Pro 3 is, it's hard to imagine it will have the same perceived value as a MacBook Air. This promotion is unlikely to entice a lot of MacBook users to make the trade, but that's likely not the point. Microsoft is unlikely to lure in die-hard Mac users. The real benefit of the promotion is more psychological. By promoting the Surface Pro 3 as a MacBook Air replacement the company is elevating it above tablet status. That helps justify the price and puts the Windows device in a heavier weight class.
In many ways it's like when a less famous rapper calls out a more successful artist in a song. Sometimes just the linkage makes the up and comer seem bigger. Microsoft may be Yelawolf (yes, that's a real hip hop artist) dissing Jay-Z (clearly the more seasoned of the two artists), but at least people are talking about Surface and MacBook in the same context, and that can only benefit Microsoft.
Microsoft is going for it
While the original Surface marketing was unclear, that's no longer the case.
"So many people carry both a laptop and a tablet but really want just one device that serves all purposes," said Panos Panay, corporate vice president, Microsoft Surface. "Surface Pro 3 is the tablet that can replace your laptop -- packing all the performance of a fully powered laptop into a thin, light and beautifully designed device. You'll love being able to carry a single device for your next class, workday or weekend getaway knowing you have all the power you need."
With traditional PC sales falling, Surface Pro 3 is an attempt for Microsoft to create a new category. It's not crazy to think that business users would be happy to have one less device. If the company can convince people that Surface is not just a tablet with a keyboard option but a genuine laptop that also works as a tablet, there might be a market for it. Getting individuals to pay almost $1,000 for the device might be unrealistic. But businesses -- which still primarily operate on the Windows platform -- may see the immediate cash savings and the long-term support savings.
Many companies that used to be entirely Windows-based have been forced to support iPads. Surface Pro 3 would theoretically allow those businesses to offer employees a single device instead of a laptop and a tablet. At the same time the Windows hybrid product would remove the need for dealing with the IT hassles of maintaining documents, email, and other files across a multi-OS environment.
Microsoft has a long way to go to convince companies that Surface Pro 3 can do everything well. If it can then theoretically Surface Pro 3 can take market share away from iPad (and other tablets) as well as from the various laptop makers. In offering a $650 rebate with the trade-in of a MacBook Air, the company is continuing to position the latest Surface as more than a tablet. Whether customers -- specifically large-volume business ones -- see it as such will depend on whether early adopters truly find themselves using it instead of multiple devices.
It seems unlikely that this play will lead to Microsoft increasing its market share quickly, but in the long run as people look to upgrade it's possible that the idea of owning one device that functions as two will appeal to a growing audience.
Daniel Kline is long Microsoft and Apple. He owns the original Surface. 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.