The Surface Family Evolves: Where Does It Go from Here?

On May 20, Microsoft officials announced the latest entry in the family of Surface devices, the Surface Pro 3. This device is a larger form with many updates to the existing pro device, the Surface Pro 2, and comes only eight months since the launch of the Surface Pro 2. So now, Microsoft has launched three generations of Surface in the span of less than two years, being incredible for a company which only recently pivoted to devices and services from software.

Surface Pro 3
Surface Pro 3

The launch of Surface Pro 3 however raised several questions: why isn’t there a Surface 3 (the ARM-based version) to complement the Surface Pro 3? Why also, didn’t the much-rumored Surface Mini launch alongside the Surface Pro 3? What is the goal of these Surface devices, according to Microsoft?


Where is Windows RT?

The first two questions have a common thread, and that is Windows RT. The ARM-based version of Windows has had very little success both from OEM adoption as well as sales perspectives. OEMs have slowly been pulling out of making such devices, and with Nokia’s devices group now a part of Microsoft, Microsoft is the only company that makes Windows RT devices. The operating systems group at Microsoft is undergoing some level of consolidation and transformation, and there is a possibility of some fundamental changes coming to the Windows RT OS as it merges with Windows Phone OS. It would be somewhat silly to offer a Windows RT device that may need some major updates in a few months when the operating system makes potentially big underlying changes. Also, let’s not forget that Nokia also makes a Windows RT device (Lumia 2520) which may now become a contender to be the only Windows RT device Microsoft produces. Hence, the lack of ARM-based Surface at this point in time.


No room for Surface Mini

Surface Mini on the other hand, has a bigger issue. The rumors were that it would be an 8” device and regardless of whether it was going to be an Intel-based device or an ARM-based device, it would really offer no differentiation from the several other 8” Windows devices in the market today. All of the existing devices are Intel-based and as a result, are able to run old Windows desktop programs just fine. Most of these existing devices are also priced at the very low end and as a result, Microsoft would have to start competing on the low end which I am not sure they want to do. There are also rumors that Microsoft CEO Satya Nadella and the new devices chief Stephen Elop decided to remove that device from the announcement for precisely that reason – it offered no differentiation from whatever else is out there in the market. If that is in fact the case, I commend them for doing so since it is not easy to change directions this way and at the last moment.


Who is the Surface for? What does Surface mean for Microsoft?

That brings us to the last question – what is the role of Surface devices? Microsoft executives have constantly said that Surface is not meant to compete with the OEMs but instead be a reference design for OEMs. However, the huge write-off Microsoft took at the end of the past fiscal year related to excess inventory of the original Surface shows that at least someone at Microsoft expected to sell these devices in larger volumes.

The Surface Pro 3 is indeed unlike anything else in the market today, both from a Windows devices perspective as well as the competition’s devices. There are Android tablets of all shapes and sizes that are selling quite well, but they are limited to a maximum of 10” form factor, and while there have been rumors of an “iPad Pro” sporting a larger display than the current iPad, those have been simply rumors. At the launch event, Microsoft made the point that the Surface Pro 3 is aimed squarely at the laptop user (there were a *lot* of MacBook Air comparisons) rather than the tablet user. The viewpoint they provided was that most of the iPad customers also have or buy a laptop, so why not make a device that can do both the tasks well? The Surface Pro 3 specifications are obviously more “computer”-like than “tablet”-like, starting with the processor which is not an Atom variant but in fact, it is a Core processor. At the same time, it is so much lighter than a laptop – even MacBook Air that they compared to at the event – that you could see yourself using it as a tablet every so often.

The Surface Pro 3 pricing is in line with a mid- to high-end laptop, depending on the configuration you choose. You could get the entry-level model with a Core i3 processor and 64GB storage for $799 and the highest-end model with a Core i7 processor and 512GB storage for $1,949. Both the ends of that spectrum are higher than the average for a Windows laptop with similar specifications.

Another example to understand where Microsoft is going with this family of devices is the included (and completely re-done) pen. There is a deep integration built into the pen which enables the customer to launch OneNote even when the screen is locked. The OneNote emphasis shows not just the integration aspects but also the intended, or expected, use of the device.


Surface Pro 3 Numbers
Surface Pro 3 Numbers

The screen at an excellent 2160×1440 resolution, the aspect ratio which is a much better 3:2 than 16:9, the higher power processor and the pricing all point to a realization at Microsoft that it is better to compete with the laptop than with the iPad. Think creative professionals like artists, medical professionals, or the “information worker” in corporations. Think students on a budget, who have the funds to buy only one device which needs to be their television, book reader as well as productivity tool. These are the customers Microsoft seems to be aiming at with their Surface Pro devices now.

So Microsoft is clearly going for the laptop user and giving that user the choice of using that device as a tablet. They know that the OEMs are able to compete at the low-end, especially with the recent announcement of making Windows free for 9” and lower screens. Knowing that Apple has consistently outsold Windows in the PC sales for the past several years, it makes sense for Microsoft to address the high margin area so they don’t have to sell extremely large volumes in order to justify the business.

I still expect Microsoft to release the mini tablet, and there are multiple possibilities there too: a productivity mini tablet which would have the upcoming touch version of Office (codename Gemini); a larger phablet-style device like the Lumia 1520 and of course, a gaming-oriented mini tablet with some type of Xbox brand and tie-in. All of those have dependencies that need to be addressed before these products can come to market in order to differentiate themselves from the competition.

There is an empirical truth to Microsoft products: by version 3, they perfect the product. Surface Pro 3 surely looks like a “perfect” product, we will see if the market agrees with Microsoft or not. The Surface business has steadily grown in volume and with Windows 8.1, Microsoft may have enough to get CIOs interested in upgrading to Windows 8.1. If so, there is a large-sized market opportunity that is for Microsoft to dominate, given their past relationships and reputation in the enterprise. If that happens, it may create the virtuous cycle that Microsoft has been able to create in the past with Windows and even now with Office. Many will use these devices in school and workplace and would like to continue that experience at home.

Microsoft certainly seems to demonstrate that it is in the devices market for the long run. Naturally, mastering manufacturing cannot happen overnight. It is now up to the customers to decide if all of that is worth it, by speaking with their wallets.

Are you interested in the Surface Pro 3? Were you disappointed by the absence of the Surface Mini? Sound off in the comments below.

(All images and the video, courtesy Microsoft’s official websites)

Microsoft’s Surface Pro “Sold Out”

Microsoft made its new member of the Surface family, Surface Windows 8 Pro, available for sale starting February 9, 2013. The Surface Pro, as I would like to call it, is being sold via Microsoft’s online store, their few retail stores and Best Buy and Staples retail stores.

Within hours, news started rolling in of the 128GB model going “out of stock”. The 64GB was available in most places, but the higher-end model was showing no stock at most of the retailers.

What does it mean? Unfortunately, besides the simple math of demand being more than the supply, nothing. The supply was not enough to keep up with the demand, which for a robust manufacturing organization means a supply chain disaster. How can a company botch supply on launch day? It is the one day the company gets to be in the press more than any other day, at least from that product’s standpoint, and they are unable to fulfil demand.

However, despite their keyboards and mice, as well as their Xbox and now Surface RT, I don’t consider Microsoft a “robust manufacturing company”. Also, the Surface Pro is not a run-of-the-mill product, or an iteration of an existing product. It has a complex screen and specialized materials. There very well could be issues in larger scale manufacturing of those components. In fact, after promising that the Surface Pro would be released about 90 days after the Surface RT, Microsoft ended up releasing the former about 2 weeks later. That hints at a possible issue (or a set of issues) they may have faced during the manufacturing.

There were also anecdotes from individuals going to or calling retail stores in their area and finding out that the stock at these stores was in many cases in single digits. While those are still anecdotes, it is worthwhile to remember that the stock is ordered by the store, and not by Microsoft. Regardless, the customer experience ended up being bad because they could not buy the product they wanted to.

However, not all is lost as long as Microsoft can ramp up quickly. If they replenish stocks quick enough and take advantage of the momentum they have unexpectedly received, it may end up working in their favour. These enthusiastic customers will show off their shiny new toy to their friends and family and perhaps create a few more customers out of them.

Here is where Microsoft will have to learn what Apple has mastered — pre-production capital expenses to fulfil the demand expected at launch, accurately predicting launch day demand, and most importantly, making sure more markets are served at launch and soon after, than the previous launches.

In some ways, this situation is better than the opposite situation, which is Microsoft and its retail partners stock a ton of units and no one wants to buy them. At least at this point it does seem like there is unmet demand for the product. It is for Microsoft to ramp up and ensure that their next Surface family member has even better launch day balance between supply and demand.

Who is the Target Customer for Surface Windows 8 Pro?

The embargo lifted on Surface Windows 8 Pro or as I will call it, Surface Pro, reviews and out of the gate, most tech news sites had a “meh” conclusion. The device, they claimed, is neither a great tablet nor a great Ultrabook. Hence, their take away was that it is not a good device for either use case. A few sites mentioned that it is not for all, but for those who need such a device, it is a great one for them.

Who is the target customer for such a device? Is it a big enough market for Microsoft to pursue, or is it a niche that may explode in the future?

First, let’s remove the obvious non-market. This device is not for those who have truly moved into the “post-PC era” and are ok using just a tablet for their computing needs. It means they either don’t need programs that need a “computer”, or they have decent alternatives available in the tablet’s app marketplace to accomplish all their computing on the tablet. For such a market (many of the tech writers may be in this category, since most of their work is writing and with decent keyboard attachments, they can somehow make it work), a tablet like the iPad with a much lower cost and a much better battery life may easily be a better choice than the Surface Pro.

Surface Pro is also not for those who don’t mind carrying two devices around, or having two devices in general. They have a computer, perhaps even an actual desktop PC, where they do all their work. In addition, they have a tablet where they do most of their “play”, and have some sort of connectivity established to their workplace email so they can keep on top of email while they are away from the office. These folks are perfectly ok with two separate devices because they may not be carrying both around much.

There is an important market though, which many/most of the reviewers failed to recognize, either due to ignorance or oversight. The typical office worker. Millions of employees around the world are handed a laptop when they join a company. Earlier, it used to be dull Windows PCs from a single supplier. Nowadays the choice has expanded to include Macs as well. However, many of these office workers also carry tablets around the office because they don’t want to or they don’t need to carry their PCs around to conference rooms and to meetings. These folks will absolutely love the Surface Pro (especially the ones who did not choose a Mac :-)).

For the office worker, the Surface Pro provides a powerful PC for all they do at their desk, but instead of leaving the PC at the desk and carrying a separate tablet to meetings, or to use at home for “play”, they can have the same device for both those purposes. Since the “work PC” is normally plugged in, the lower battery life of Surface Pro compared to the iPad would not be a big factor. Also, since the device won’t be used purely as a tablet, the slightly higher weight compared to most tablets would also not be a concern.

On the other hand, having one device instead of two would be a benefit in favor of the Surface Pro. The Surface Pro would weigh less than the combined weight of a PC and a tablet, and because it is one machine, the office worker would not need to keep shuttling files between the two devices with or without the cloud. Also, there would be no issues about apps and application compatibility and maintaining document fidelity. All these are important considerations for many, many employees around the world.  Needless to say, there were many on the Surface Pro team’s Reddit Ask Me Anything thread who claimed that they would be getting a Surface Pro (or their company is testing the device for mass deployment, or as one person said, it would be great to load Linux and use it!).

From the CIO’s perspective, the Surface Pro offers an ideal solution to the BYOD movement. Since it runs Windows, it is a highly manageable device, and it would work with all the existing management infrastructure. The CIO gets to sleep at night, and the employees get something that is thin, light and works for work and works for play.

There may be other scenarios too, where the Surface Pro may work quite well, but I focused mostly on the biggest piece of the pie, the enterprise worker.

What’s your take? Let me know in the comments!