Bill Bennett - Is Microsoft Surface still competitive?

Yesterday's post ‌What is going on with Microsoft Surface? looks at the rapid recent decline in the device's fortunes. This follow up explores less obvious reasons why Microsoft is selling fewer Surfaces.

Could the fall in demand for Surface be because Apple hardware performance is pulling ahead? Or could it be that Microsoft is asking customers to pay too much of a margin?

These are plausible arguments.

Surface customers

Up to a point Apple and Windows devices exist in parallel universes, yet both companies target premium buyers. In demographic terms they draw on a similar pool of customers even if Apple and Windows buyers are distinct tribes.

Unlike HP, Dell, Lenovo and Android tablet makers Microsoft and Apple don't play at the commodity end of the market.

Device buyers might not all see Surface products as directly competing with Apple hardware, but that was a clear, although unstated, message Microsoft sent when it launched its first tablet in 2012.

At the time the iPad was on everyone's mind.

Since those early days Surface has extended from tablets to include laptops and hybrids. Apple continues to sell MacBooks and iPads and in 2015 added the iPad Pro to its range, a move that was at least in part a response to Surface.

Surface is expensive, more so outside the US

In the US, the base model of the Surface Laptop Studio 2 costs US$2000. That is the same price as the base MacBook Pro 14-Inch with an M2 processor.

Microsoft New Zealand doesn't offer the same base model as the US parent company. Here the range starts with a model that includes an Intel i7 processor, 16GB ram, 512 GB SSD and NVIDIA GeForce RTX 4050 graphics. It costs NZ$4900 here compared with US$2400 in the states.

This price difference is a whole other story. Microsoft is

Apple's base MacBook Pro 14-inch is NZ$3700. That makes the base Surface Laptop Studio 2 30 per cent more expensive than the MacBook.

Comparisons

The MacBook is lighter, its screen has more pixels and the battery lasts fractionally longer than the Surface. The Surface Laptop Studio 2 has a touch screen, the MacBook does not.

At the time of writing there are few published benchmarks for the Surface Laptop Studio 2. That makes it hard to compare performance in a meaningful way.

That said, the MacBook wins any benchmark comparisons with other devices that have a similar processor and graphics combination to the Surface by a comfortable margin.

30 per cent more than MacBook Pro.

Which means, if we are being generous and say the two devices are on a par, Microsoft is asking Surface buyers in New Zealand to pay 30 per cent more than the price of a MacBook Pro.

Apple sells its hardware at a premium. It doesn't have direct competition, anyone weighing up a MacBook Pro purchase would be more likely to buy a MacBook Air than a Windows laptop. There is less pressure on Apple's pricing.

Microsoft, in comparison, is up against a raft of lower cost alternatives offering touch-screen Windows devices built around the i7 processor.

New Zealanders can buy a Dell XPS laptop with much the same specs as the Surface Laptop Studio 2 for NZ$3600. That's, in effect, the same hardware for $1300 less. That's an alternative a Surface buyer might well consider. XPS is an upmarket brand for Dell. A less fancy Dell Inspiron with the same specification would cost one third Microsoft's asking price.

Yes, the Surface experience is better, but few would consider it NZ$3000 better.

Experience gap or luxury gap?

This discussion is speculation. There's some hard evidence, but we can't know for sure what people are thinking. Yet it provides a possible answer to why Surface is struggling.

For years Surface was ahead of the Windows pack. In the last two or three years the hardware updates have been incremental. At the same time, the, for want of a better term, experience gap between Surface and other Windows devices has narrowed.

When the world economy was buoyant, when people felt confident, paying well over the odds for a device that was noticeably better wasn't a stretch.

Today, with spending curtailed everywhere, and pressures on company budgets kicking in, asking customers to pay a hefty margin for a device which has is marginal improvement on a rival, is not going to work.

It will be interesting to see what Microsoft does with Surface. The company could abandon the business or go for a slow wind down. It could sell the hardware operation. What does not appear too be on the cards is a doubling down and a substantial fresh investment in the sector.