Microsoft's Tablet Moves Show Serious Trouble Beneath the Surface

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Microsoft SurfaceSometimes you have to read between the lines.

Microsoft (MSFT) put out a chest-thumping press release on Tuesday afternoon, expanding on its efforts to get its nascent Surface tablet noticed.

"The public reaction to Surface has been exciting to see," Surface GM Panos Panay is quoted as saying in the release. "We've increased production and are expanding the ways in which customers can interact with, experience and purchase Surface."

The consumer "reaction" being "exciting" doesn't sound like a lot of sales, and naturally Microsoft isn't telling us about any meaty milestones the way that market leader Apple (AAPL) routinely does.

That's fine. Microsoft isn't the only one being tight lipped when it comes to divulging material metrics. Amazon.com (AMZN) has never come out with an actual Kindle Fire unit sales figure either.

However, if you're going to brag about expanding distribution, would it hurt Microsoft to put out a number?

Oh, right.

Surface Tension

The reason for ramping up production is that Microsoft plans to begin selling Surface through retailers in a few days -- instead of waiting until early next year as originally planned.

But what does the change of plans really say? Are we looking at a desperate gamble here?

Limiting distribution to Microsoft.com sales and its dozens of Microsoft stores and temporary holiday kiosks was supposed to give the company an edge. It meant that the company wouldn't have to market its tablet directly alongside cheaper Android tablets or the similarly priced iPad.

However, letting third-party retailers get a crack at selling them will be the ultimate test. It won't be able to disguise a failure. If Surface tablets begin to collect dust the platform will be dead even before Microsoft gets to put out its more powerful -- and pricier -- Surface tablets running Windows Pro next month.

Cool Commercial, Questionable Demand

Microsoft seemed to be on to something when it rolled out its first Surface commercial just ahead of October's launch.

The ad played up the magnetic keyboard that snaps into place, the kickstand that lets the tablet stand up on its own, and the slick tile-centric Windows RT interface.

With less than 70 places around the country to physically try and buy a Surface, the ads should have funneled a lot of traffic to the dedicated website. The day of the launch, Microsoft's online store showed a three-week delay on new orders.

Some investors and gadgetry watchers interpreted that as a strong indication of initial demand, but was it a PR move as well orchestrated as the Surface ad itself?

Just two weeks later, there was no longer any wait to get a Surface on Microsoft's website.

Microsoft didn't get any help from the mixed reviews on the leading tech blogs. The initial critiques knocked the tablet's slow response times and the surprisingly steep learning curve to get the hang of Windows RT. Then came reports of audio stuttering and magnetic covers fraying to the point where wiring was exposed.

Microsoft Has Too Much to Lose

Surface isn't going away, unlike the Microsoft Kin -- a smartphone that Microsoft shelved after just two months of uninspiring sales. Microsoft has too much at stake here. As Android and iOS tablets corner the market, traditional PC sales are getting hammered. The transition to smartphones and tablets is killing Microsoft's flagship operating system software business.

It needs to matter in tablets. Its livelihood depends on it.

If the Surface flops -- and if other Windows tablets sputter -- the company itself could peak. Microsoft doesn't want to that to happen, and you can be sure that it will discount Surface tablets if it has to.

So if the retail push that will kick in next week exposes Surface as mortal, Microsoft may have no choice but to lower prices and try a new approach to woo tablet shoppers.

The clock is ticking.


Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, and Microsoft.


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Jenny Jones

I prefer the Kindle Fire HD. The interface is amazing and it's very easy to use. It's a great combination of functional and simple. Check out its Amazon page(bit.ly/S1CzWe) if you want to compare what they bring to the table.

December 28 2012 at 4:52 PM Report abuse rate up rate down Reply