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Surface do-or-die moment? Not so fast

Gregg Keizer | May 19, 2014
Next week's new tablets may be important to Microsoft's hardware dreams, but it's still in it for the long haul, analysts believe.

In particular, analysts see promise in the Surface Pro line, the second-generation tablet, called Surface Pro 2, and a rumored third-generation that may be unveiled next week.

"Surface Pro is making some headway in corporate environments," said Ross Rubin, an independent analyst at Reticle Research, in an email reply to questions. "The big improvements we saw in the Pro 2 in terms of performance, thickness and battery life made it a much more appealing offering, although it seems that much of the adoption is still in verticals such as healthcare."

Powered by Windows 8, and able to run not only the newer "Metro" apps but also traditional Windows software, the Surface Pro line has been touted by Microsoft as a 2-in-1, a device able to function alternately as a tablet and a notebook replacement.

The jury is still out on the viability of 2-in-1s, although some researchers, Gartner especially, are bullish on the concept.

But the high price of the Surface Pro has been a big barrier. The least-expensive 64GB model currently costs $899, with another $130 for a keyboard. Those prices are far higher than comparable tablets, higher, too, than a typical notebook, and closer to premium ultra-lights like the MacBook Air, which recently got a price cut to bring its entry-level 128GB model down to the same $899, keyboard included.

To make any headway, Microsoft must price its Surface, particularly the anticipated 7- on 8-in. Surface Mini, more aggressively, said Moorhead. "I expect a premium price point [for the smaller Surface] but it has to be less than Apple's," said Moorhead. "The question is, what features will they take out to make this a competitive device?"

Apple prices its Retina-equipped iPad Mini — a 7.9-in. tablet — at $399, and 2012's first-generation iPad Mini, which sports a lower-resolution screen, at $299.

"Microsoft has to take market share away from Apple, but if they price [the Surface Mini] like other Surface products, that won't happen," said Moorhead.

No matter what Microsoft shows off on Tuesday, analysts expect the company to stick with tablets. "I get the sense that they're thinking long term and in innovative ways about how [the Surface] can leverage their platform and services," said O'Donnell. "We have to start thinking about this as a big hardware business that consists of multiple pieces, everything from keyboards and mice to tablets and smartphones, all under one hardware division."


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