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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.

Why Microsoft Won't Give Up On The Surface

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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