Why Microsoft Won't Give Up On The Surface

Even if Microsoft's new Surface 2 flops like its predecessor, Redmond isn't likely to give up on it. It simply can't afford to.

Not long ago, a family member emailed me asking for a computer recommendation. She was looking for a sub-$500 laptop for her son, who is in the sixth grade. Before I had a chance to respond, though, she had already made her decision and purchased a Microsoft Surface. She said that with its inexpensive price point, PC-tablet hybrid form factor, and Microsoft Office, it made the most sense. "It is not an Apple product, we know, but considering what he'll use it for, it's the perfect fit," she wrote me, as if trying to preemptively justify buying anything created by Microsoft.

That sentiment was in the back of my mind Monday morning, as I sat through the launch of Microsoft's next-generation Surface 2. As expected, the company's new devices are faster and lighter, with more battery life, a more advanced two-angle kickstand, and improved accessories, such as the 1,000-plus-sensor Touch Cover keyboard. It's easy to anticipate the nitpicks critics will have with the Surface 2 and Surface Pro 2—the same criticisms lobbed at the last versions. But I couldn't help but think back to my cousin and her kid—average consumers—who aren't as concerned with the rough edges of Windows RT, the shortages of its app market, and the like. For them, like any mid-tier PC of the Windows XP era, the Surface meets their needs. And it became clear from Microsoft's presentation yesterday that the company won't give up on its Surface strategy until it can sway the rest of its customers to feel the same.

Microsoft's first foray into manufacturing PC hardware was an almost immediate flop. Though its Surface tablet served as a promising signal that Microsoft was finally ready to compete with Apple and Google in the mobile market, the device was widely panned by the media. It lacked the performance, applications, and wow factor of its rivals' devices. After roughly eight months on the market, Microsoft was forced to take a $900 million write-down related to unused Surface inventory; the company sold just 1.7 million units, according to reports. (Apple, by comparison, sold 14.6 million iPads last quarter alone.)

Yet the Surface's poor market reception hasn't deterred the company or changed its direction. Backwardly, it seems to have reinforced its approach, as if the company was impervious to the product's criticism, and hell-bent on getting it right regardless. Perhaps the company has no choice. The iPhone and iPad generate more revenue than all of Microsoft's assets combined; a nearly billion-dollar write-down is nothing next to the revenue it has already lost out on in the mobile market. "This team that designs this product, they're crazy, and they're not going to stop," boasted Surface group VP Panos Panay on stage. "You're only going to see more and better come from the Surface team."

It's long been said that Microsoft only gets its products right the third or fourth time—never the first go-around, at least. It's been this brute-force approach that has allowed Redmond to remain a constant threat to the industry, long after its golden age. Apple CEO Tim Cook has described Microsoft as a horse who lags far behind in a race but that somehow always manages to sneak up from behind; the late Steve Jobs similarly once related how Microsoft created products "that were terrible," but also how “they kept at it and they made them better."

So while others might've expected a desperate Microsoft to scrap its original Surface strategy and instead aim to roll out more moonshot-style features, that's never been the company's M.O. The Surface 2 turned out to be nothing more than an upgrade. No fingerprint scanners or Siri-like Cortana functionality; just refined hardware and refined software. The company also leveraged its services, offering free international Skype calls and 200 gigabytes of free SkyDrive storage. "You don't always need to be radically different and loud," Microsoft creative director Ralf Groene told me. "We had a very clear vision [for Surface], and that vision hasn't change." In other words: ignore claims of the company's demise, be patient, the customers will come.

To be certain, I'm not lauding this approach. I think Microsoft is in desperate need of attention—of a refreshing product that will give Redmond some positive spin—and I'm very skeptical that the Surface 2 will help its narrative improve. But I think it's short-sighted to say Microsoft's Surface is dead on arrival. The company simply can't afford to give up on the mobile PC business and kill its Surface. It's in the company's DNA to keep at it.

When I ask Microsoft veteran Julie Larson-Green, the new head of the company's hardware division, why the Surface 2 will succeed where its original version failed, she says the company has always been persistent by nature. "If you look at history, the first Xbox, it didn't have [the right] balance either," she says. "There weren't enough games to make it [a success]." The original Xbox is said to have cost the company around $3.7 billion in its early years in the market before it turned the corner.

The company has been willing to endure significant losses in order to move the needle even slightly—undoubtedly a costly way to innovate. It's not always worked. Microsoft finally abandoned Zune, for example, despite years of iterating on its music player. And the division that oversees Bing is said to have lost around $11 billion competing with Google, with little show for it.

With so much riding on the Surface though—the future of Windows 8, its hardware business, its mobile strategy, its app store—Microsoft won't surrender its gains anytime soon, however insignificant. Panay said on stage that the third and fourth versions of the Surface are already in the works. The company just has to hold out until average customers like my cousin give Microsoft another chance.

As Larson-Green told me, "Now, if [customers] looked at [the original] Surface before and decided it didn't have enough apps or it didn't have the performance they wanted, they should look again, because the full package is there this time."

And if not this time, then certainly next time. Or the time after that. Or the time after that...

[Images courtesy of Microsoft]

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8 Comments

  • Mickey_Mouth

    I've been interested in a Surface Pro 2, but haven't purchased for some of the reasons mentioned here. And your comments about the Microsoft mentality I can personally verify. My brother is a former Microsoft employee who still staunchly defends every misstep they make out of undying loyalty. It was comical to me to talk to him after spending some time at the Microsoft store test driving a Pro 2. When I complained about the lack of tablet apps he insisted that the problem was mine for thinking that Surface was a tablet at all. "It's just a form factor! It's a PC that LOOKS like a tablet!" I opined that perhaps they shouldn't advertise it as a hybrid then, and he shook his head and reiterated how stupid consumers are. Still, I like the direction if only they'll move that way more fully. Maybe I'll wait for 3 or 4 as you suggest.

  • Renato Murakami

    Lots of those strategies from Microsoft are exactly why it can't get a bigger crowd, specially when they launch a new product.

    I mean, if they accept releasing subpar products at start and slowly improving them at a point when it gets "ok", no one is going to buy them in the beginning.
    XBox shouldn't be a showcase that their strategy is right, just that the strategy for the first console was wrong.
    And the flashy stuff is exactly what gets the attention of a bigger crowd - if they want to compete with the big ones, they have to do something different, not fall into the same ol' with small specs improvements no one is going to notice. Not that they should copy Android and iOS strategies, but they have to do something entirely different from them.
    I'd ask for Austin to call back that family member and see how the tablet usage is going. And then compare it to options on similar products... like hybrids, laptops, and such.
    They might have impulse bought it, but it doesn't mean they are satisfied with it, or didn't already notice it was a bad purchase in comparison with other options.
    Because let me tell you, and I'm not trying to offend anyone, but if Microsoft strategy is "trying to sell it based on brand for uninformed costumers", then of course the products will end up as a failure.
    See, I'm not a Microsoft hater by any means. Both my PCs are on Windows, and I'm buying a Windows Mobile smartphone soon.
    But after reading about Surface Pro 2, it's quite obvious to me that they are going the wrong way, and this generation will be yet another failure. There were absolutely no announcements to turn the tables. The only thing that got some attention was the DJ keyboard thing, and let's be honest here, even if it was all that impressive (with devices like iPad having way more interesting stuff on that area), it's still reserved to a niche crowd. They missed the target entirely.
     
    First of all: prices. Not only the prices are ridiculous, at the same level of the competition which has products miles away better than they have right now in several different areas, but also with all the ridiculous prices they are putting on keyboards, stands and other accessories, it all sums up to the price of a higher spec'd hybrid tablet/computer like LeNovo Yoga or the upcoming Sony one (and I think even older models).
    If Austin's relative knew about this, she'd get an Ultrabook instead. The platform is exactly what her son needs (not a lower spec'd tablet), the platform is already estabilished, and the price is the same (or even less if you go to the lower end of specs). 
     
    I was personally interested in the Pro tablets, 'till I heard the prices. My attention immediately switched to hybrids, because they can do far more for less. You don't have to keep wondering if those keyboards are good enough, because hybrids comes with laptop keyboards, which are already estabilished.
    There's no need to keep connecting and disconnecting the whole deal. And there are better options for those wanting to fiddle with specs.
    The small advantage is being able to use Pro solely as a tablet making it lighter to carry around. But with a case which the hybrids doesn't need, this becomes moot point.
     
    Now, it's not that Microsoft should quit the tablet market, or that they must do some radical changes. But at least pay attention to the market. Don't release stuff that makes absolutely no sense to pay for.
    And the thing about continuing this failing strategy is that as long as they go that way, developers also won't be interested in making tablet specific stuff.
    As already mentioned, this can end up like Zune. And regardless of personal opinion about Microsoft products, it's always good to have more competition.

    At this point, it's kinda too late to fix the second gen announcement. They'll have to fix it either lowering prices, announcing killer apps, or something that really sets it apart both from the tablet competition, and other options like Ultrabooks and hybrids. I saw nothing of it so far.

  • Chris

    Please go use a Surface for a week before you comment then I MIGHT believe your opinions contain some level of validity.  If you HAD used a Surface before, you might actually find it to be a superior product.  Thanks for reading, now go back to your iPad.

  • Renato Murakami

    Care to share, since you did use a Surface, why it's better than using a LeNovo Yoga, Sony convertible, or other tablet devices like the iPad?

    Why is it a superior product then?
    I have no easy access to a Surface, and what I commented comes from the image I have after learning about the Surface Pro 2 announcement, Pro tests, knowing about the app collection, specs, prices, among other stuf - plus comparison to several other alternative devices.
    Like I said, I really want the Surface to be competitor in the market, and I considered buying one back sometime, but after all the research, I just found out so many other alternatives that does more for the same price it's not justifiable.
    And the number of sales won't let me lie, it's pretty clear in the article: "the company sold just 1.7 million units, according to reports. (Apple, by comparison, sold 14.6 million iPads last quarter alone.)" 
    Also, no need for the passive-aggressiveness.
    Just don't tell me it's something I "have to have a Surface to know" because you know that's BS. How many other devices did you compare with Surface to consider it superior? If the advantages can't be summarized, then what I said stands true: it's not a product that can compete in the current market, and the Pro 2 will do nothing to help in that stance since it's just and upgrade without anything really different from the predecessor.

  • mrpete987

    I agree with the pricing issue. They either need to reduce the price of the Surface Pro 64GB to $699 or include the keyboard at the price they are charging. They are just too expensive for many consumers, and until they fix that they are going to suffer in sales.

    It's a great product though. I've tried them and I have to say, for most people, they REALLY want this but are swept up in Apple's iPad spell and therefore settle for that because they're popular, easy to use, fun to use, and hip. Most people I know who own an iPad enjoy owning it, yes, but wish it could do more. Basically, they wish it could do what a *computer* can do. 

    EDIT: And because I know people are going to be thinking "well it can do a lot and integrates well with Macs", I know that. But the iPad BY ITSELF is drastically lacking in functional ability, whereas the Surface Pro is truly a device that can stand on its own and accomplish most tasks you would need it to. When you have a full-fledged computer squeezed into a tablet form factor, apps become less meaningful overall, in my opinion, so the lack of them is less relevant to me.

  • MitchRusso.com

    I went into a Microsoft Store ( practically right next door to the Apple Store) and asked to see both the Surface and the Windows phone. I asked how they worked together. I was told apologetically that the phone doesn't have a lot of apps yet since it's only been out less time than Android and iPhone but it shares files on the cloud. I asked about all the things I am used to with my iPhone and Mac, few of those "family" sharing options existed. 

    I was impressed with the hardware and I do need to use MS Office for work, so there was a temptation to switch... again. But not enough incentive. The prices were not lower than the alternative and the ecosystem is hardly there. I will be sticking with my Apple products for now, which have served me well for the past 5 years.

  • Sai Das

    The only real problem with the new Surfaces is the pricing. They are asking Apple prices without having Apple's market share. This will be the likely reason for failure.