How Microsoft plans to sell millions of Surface tablets to businesses
Whatever one thinks about Microsoft, one has to admire its persistence. When it fails in a new business area, it never gives up right away, and seldom makes a big change of course. It simply adjusts, refines, leverages more of its existing strengths, and tries again. You can see it in everything from Windows Server (remember when Windows NT was a joke in the data center?) to Xbox to Bing.
In the case of Surface, Microsoft isn't letting a bunch of unsold Surface RTs change its mind. The company is still resolute about competing in the hardware business, and still thinks there's an opportunity to push hardware boundaries and fill gaps that its PC partners can't match. And with only middling sales to consumers, Microsoft is now leveraging its core strength: It's turning to its traditional software resellers to push Surface to its biggest customers.
The company is on a press tour to trumpet some of its corporate wins, like Delta Airlines and City National Bank. This afternoon, Surface Commercial director Cyril Belikoff told me that the ARM-based version of Surface -- the version that doesn't run traditional Windows apps, and which has sold poorly at retail so far -- is actually notching up bigger wins with corporate customers.
That's because a lot of companies haven't done any large scale tablet deployments yet, and they're looking to the ARM-based Surface RT (old) or Surface 2 (new) as their first line-of-business tablet. They often build custom apps for these tablets, sometimes locking them down so users can only access these apps, and deploy them all at once to employees in particular functions, like retail or mobile salespeople.
In contrast, the Surface Pro is more of a laptop replacement, and will probably trickle in to enterprises according to their regular PC refresh cycle of maybe 10% to 20% new PCs per year. Moreover, some companies are still buying Windows 7 laptops instead of or alongside Windows 8 machines.
I asked Belikoff how Microsoft views a Surface sale versus the sale of any other Windows 8 laptop. If a customer chooses, say, a Dell or Lenovo laptop running Windows 8, is that a loss for Microsoft?
Not at all -- in fact, Microsoft does not offer any extra incentives to partners to sell Surface versus another Windows 8 computer.
Rather, Microsoft's partners let the customer choose the form factor that makes the most sense for their needs. "Customers aren't stupid," he told me. In the case of ARM-based Surface, Microsoft thinks it will appeal to customers who want a most-of-the-time tablet that can occasionally be used as a laptop. For instance, a deployment of Surfaces on a factory floor could replace a single old PC sitting in a corner -- for 90% of the time, managers could walk around with the Surfaces and a custom app to do certain kind of tasks, then take it to the desk, attach the keyboard, and use it for paperwork the other 10% of the time.
The dual form factor also helps the ARM-based Surface win some corporate customers over the iPad.
So if Microsoft simply wants to sell more Windows 8 computers, why be in the hardware business at all? To push the boundaries of what's possible with hardware -- for instance, in the second generation Surfaces, Belikoff said Microsoft is doing things that other PC makers "won't be able to do for months," like working with suppliers to make sure the solid state drives use less energy, and designing the kickstand at the perfect angle so it can be used on a lap as well as a tabletop.
He also said that the idea of "blades" -- detachable flat panes that can take the place of the keyboard, but for special functions -- are drawing some interest in particular verticals. "Anything you can imagine we'd be doing with blades, we're considering," he said. "Maybe there will be a health care blade. Or an education blade." For now, Microsoft is still gathering information, but it might start to work quietly with selected big customers and partners before creating a public development kit to let a million blades bloom.
So why didn't Microsoft sell Surface RT to corporate customers from the get-go? Belikoff didn't exactly answer the question, but said that the company considered the first version to be more of a "personal" device. It really took Windows RT 8.1, with enterprise-friendly updates like Workplace Join, which lets users access corporate resources without joining a domain (which Windows RT can't do) before Microsoft felt the ARM-based Surface had a chance in the enterprise.
Whether this is revisionist history or not, the simple fact is that Microsoft is bringing its enterprise sales muscle to bear in the tablet market, which means the iPad will face more resistance going forward.
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