Just a few days ago (September 23 2013), Microsoft unveiled its second generation of Surface tablets at an event in NY City.
The First Generation Flop
The first generation which debuted a year ago represented the software giant’s first consumer-facing hardware product in this computer space.
The original Surface line comprised two products:
The ARM-based Surface RT
And the Intel-based Surface Pro
The first generation was a sales disaster for Microsoft’s last quarter and the company was forced to take a $900 million write-down on losses from the devices.
So What Went Wrong?
Microsoft launched the Surface line along with Windows 8 and featured it in a series of very slick ads, but the marketing for the devices was a confusing mess.
First of all, there were two flavors of Windows 8
RT, which runs only Win 8 apps and Office
And Pro which runs Win 8 apps and legacy Windows X86 programs
And that was a very hard message to get across, and to make things even worse, the two Surface models received a staggered launch!
Surface RT launched in October of 2012, while the much more attractive Surface Pro didn’t come out until February 2013, which was long after the stink of failure had already started to poison the brand.
And The Pricing Problem
The entry-level 32GB Surface RT was originally priced at $500 which was on par with the baseline 16GB iPad with the 9.7-inch screen.
But rather than trying to lure potential users away from the iPad with a bargain, Microsoft priced its device directly against it, and simply asked would-be buyers to compare the devices feature for feature.
And that might have worked to the Surface RT’s advantage, because it has more memory and a larger screen, but it actually worked against it.
Partly because the entry-level 32GB Surface RT has far fewer apps, but ultimately because the Surface line’s, Touch Cover and Type Cover accessories were sold separately.
And that drove up the price up by another $80 to $130, on top of the original $500
Microsoft later cut the price to $350.
So What’s The Next Ploy?
Microsoft is now taking another swing at Surface sales with two new devices:
The Surface 2 which starts at at $449 for 32GB
And Surface Pro 2 which starts at $899 for 64GB
The ARM-based Surface 2 Supports
A super fast Nvidia Tegra 4 processor
A 1080p screen
10-hour battery life
A dual-position kickstand and a new 40-degree angle stopping position which provides for what Microsoft calls, "better lapability".
A USB 3.0 port
Better front and rear cameras.
But Will People Buy Them?
Despite all the improvements and extra incentives it seems likely that the Surface 2 will be a very tough sell for Microsoft, because of the pricing.
Even at $449, the 10.6-inch screen, 32GB Surface 2 will be competing in a marketplace where all the momentum is towards cheaper, smaller-screened devices such as the iPad Mini, Nexus 7, and the Amazon Kindle Fire, and all of them have far deeper app ecosystems than Windows 8.
And what’s worse from a sale’s point of view is that ‘The Surface Pro 2’, is in the same price range as a variety of below $1000 Ultrabooks being sold by Sony, Toshiba, Acer, and others.
But MS Knows How To Play The Long Game
With Xbox, Ms suffered miserable sales on its first generation, but later came to dominate the video game console market with the Xbox 360.
Right now, MS is juggling three hardware ecosystem game consoles and tablets, plus its acquisition of Nokia, and they’re all presently in a state of rapid transition.