Paying $400 million to advertise your competitor isn't "Super." Source: Microsoft.
Microsoft's (MSFT +1.76%) Surface tablet gained, perhaps, its first major endorsement against Apple's (AAPL +0.85%) iPad when it was announced it would become the Official Tablet of the NFL. In a way, the partnership makes sense: The Seattle Seahawk's owner, Paul Allen, is Microsoft's co-founder. With a young, telegenic pitchman in the form of Seahawks quarterback Russell Wilson, the partnership seemed natural and organic.
The NFL, hungry to grow partnership and ad-based revenue, and willing to sell the "Official NFL" moniker for seemingly any product, "rented the shield" for a reported $400 million -- and even allowed the product on its sidelines. On the surface (pun shamelessly intended), this development cemented legitimacy for Microsoft's struggling product. There's just one problem... announcers continue to refer to the device as an iPad.
What? I thought it was an iPad!
The LA Times reports the difficulty for Microsoft. Although the tablet comes in a blue plastic case with a handheld attachment that clearly reads "Surface," football announcers -- apparently, a non-technology inclined bunch -- continue to refer to the product as an iPad.
In week one, NFL viewers were told that the New Orleans quarterback was "not watching movies on his iPad" during the game. This was one of a few errors identifying Microsoft's device. Perhaps the most embarrassing was during Russell Wilson's Seahawks game against the San Diego Chargers. A local TV reporter, once told the teams were using Surface devices, blurted out, "Wait, I thought it was an iPad." And therein lies the problem with the Surface.
In addition to competing on specs and ecosystem, how does the company compete against a brand so entrenched that many refer to the tablet product as a brand? This problem is exacerbated due to the tablet market showing signs of a "good enough" market -- a market in which both growth is slowing, and the trends point toward lower-cost units.
A slowing market
Market-research firm IDC's second-quarter shipment numbers confirm growth deceleration. Although the tablet market did grow 11% on a year-over-year basis, this was sequentially lower than the first quarter by 1.5 percentage points. The firm also estimates 2014 will be a slower-growth year than 2013. IDC's Director of Research for Tablets stated: "As we indicated last quarter, the market is still being affected by the rise of large-screen smartphones and longer than anticipated ownership cycles... We can also attribute the market deceleration to slow commercial adoption of tablets."
In addition, the data appears to confirm a "good enough" market where higher-priced vendors lose market share to lower-priced competitors. As a matter of fact, the top two vendors -- premium brands Apple and Samsung (NASDAQOTH: SSNLF) -- both experienced growth less than the 11% total growth. Apple's market share fell 9.3% on a year-over-year basis; Samsung grew an anemic 1.6%. Low-cost manufacturer Lenovo grew an outstanding 65% -- although that's from a lower base -- to place third.
The tablet that can replace your laptop is selling like one
For what it's worth, Microsoft is not specifically mentioned in the report. Instead, the company is lumped in with the "others" category. And although the "others" category grew its market share to 44% in the second quarter on the back of 33% year-over-year growth, it appears the list is a catch-all category of disparate vendors. Coming in fifth place is Acer, with only 1 million units sold in that quarter; at best, Microsoft is moving fewer than that number.
Microsoft uses the tag line, "The tablet that can replace your laptop," presumably as a way to justify its premium price tag. Unfortunately, it appears to be selling like a PC. IDC reports the PC market dropped 1.7% in the recently reported second quarter, and is expected to drop 6% this year, and continue to drop through 2018.
Final thoughts
For Microsoft's Surface, this is a tall order. How can you as establish yourself as a premium competitor against a brand that is so strong that -- much like Kleenex is to tissues -- the brand is interchangeable with the generic product. In addition, the company is trying to compete in the premium market that is, in itself, losing market share to lower-cost competition. One thing's for sure -- paying $400 million for the NFL to advertise your main competitor isn't a step in the right direction.
