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June 29, 2016

The Microsoft Surface mystery

According to numerous reports online, Microsoft will apparently stop offering the Surface 3 tablet by the end of 2016 and it's not certain if there'll ever be a Surface 4. Microsoft, of course, has had a checkered past with its forays into hardware, and many of the company's hardware partners likely have mixed feelings about the Surface tablets that are direct competition for their own products.

Yet, the Surface tablets appeared to have been quite successful. After a rocky start with the wing-clipped Windows RT tablets, sales of Surface tablets running real Windows looked very good. Back in February 2016 we reported on IDC estimates of 1.6 million Surface tablets sold in Q4 of 2015. Most of them were Surface Pro models and not the lower end Surface 3, but anytime a tablet product line sells in the millions, we'd see that as a success. For the full fiscal 2015, Surface sales amounted to US$3.6 billion, a big increase over 2014's US$2.2 billion, which already had greatly exceeded 2013's sales of under US$1 billion.

So what do we make of that? Why would Microsoft give up on the Surface 3 and perhaps not even offer a Surface 4? Most likely because selling low-end tablets is just not profitable. The predicament's clear: with "white box" tablets practically being given away, and even brand name tablets selling for very little, price is an issue in the tablet market where differentiation in anything but performance is difficult.

And performance costs money. Even mid-range Intel Core processors cost hundreds of dollars at a time when even good Android tablets can be had for a fraction of that amount. So in order to compete, Windows tablets had to resort to low-end Intel processors, mostly from the Atom and perhaps Celeron lines. Some Atom chips cost no more than 20 bucks or so in quantity, and so there's plenty of temptation to use them in lower-end Windows tablets.

Which is almost always a big mistake. The mobile computing market is littered with failed products whose designers had tried to keep costs down by using cheap Atom chips. The low, low price of netbooks had seduced tens of millions, who then quickly found out that acceptable performance just wasn't there. Same with numerous rugged tablet designs, almost all of which ended up switching to higher-end processors.

So perhaps the retreat from low-end Surface tablets is just an admission that for general purpose Windows computing, low-end processors just can't hack it. So between unhappy customers on the one side, and unhappy beancounters who don't see much profit from these low-cost Windows tablets on the other, it's a losing proposition. This does not mean that Intel's non-Core chips are generically bad choices for personal computing devices, just that there's a very delicate tipping point where the plus of a low price is outweighed by the minus of lower performance.

So perhaps that means Microsoft will be concentrating on the higher end of the tablet market, where the Surface Pro models have done well and the profit margins are higher. Add to that the Microsoft Surface Book and the raising interest in 2-in-1 hybrid tablet devices, and Microsoft's retreat from low end tablets may just be a clever shift in market focus.

2-in-1s, of course, have their own issues. While a device that can both be used as a tablet and as a conventional laptop is a compelling idea, it's surprisingly difficult to implement. The concept has been around for a quarter of a century, but with few actual products that reached more than specialized niche markets. So anyone entering that market would be well advised to examine earlier 2-in-1s, and what kept them from breaking through.

Posted by conradb212 at June 29, 2016 02:43 PM

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