Microsoft's latest Surface tablets don't dazzle industry analysts

Sticking with larger displays keeps prices up, and Microsoft still has too few Windows RT apps

Microsoft's second-generation Surface tablets didn't dazzle analysts on Monday, even with improved processor speeds, better cameras and longer battery life.

Both the new Surface 2 and Surface Pro 2 will be available on Oct. 22, with the Surface 2 starting at $449 and the Surface Pro 2 starting at $899.

Analysts said Microsoft still must wrestle with tricky issues such as a small installed base for Windows tablets, too few apps for Windows RT and overall prices that are too high compared to many Android tablets, even though Microsoft kicked in freebies such as Skype and cloudstorage.

Surface

Also, both new tablets have the same 10.6-in. displays used in the original two tablets announced last year, which means that Microsoft's costs to build the Surface tablets are kept fairly high when compared to smaller tablets. Meanwhile, the overall tablet market is decidedly moving to smaller sizes.

In keeping the 10.6-in. displays, Microsoft is espousing an even greater focus on worker and student productivity, as compared to selling them primarily as a means of consuming content.

Consumption of video and other content is generally emphasized in the many models of smaller, less expensive -- but more popular -- Android tablets with the 7-in. to 8-in. display size as well as the 7.9-in. Apple iPad mini.

With this strategy, Microsoft is essentially saying that a larger tablet like the Surface Pro 2 or Surface 2 is better for producing and editing documents and spreadsheets, and will function more like a laptop.

Microsoft called the Surface Pro 2 a "true laptop replacement," while dubbing the Surface 2 "the most productive tablet for personal use ... [that] offers all the entertainment and gaming capabilities you expect from a tablet, along with the ability to get work done."

The biggest problem with Microsoft's strategy is that the group wanting that larger tablet running on the Windows platform is a small group, indeed. Gartner expects 90 million Android tablets will ship in 2013, 107 million on iOS and just 3.7 million on Windows.

"I believe Surface 2 will help Microsoft gain tablet share, but that comes from a very small base today," said Patrick Moorhead, an analyst at Moor Insights & Strategy. "Both new tablets offer improvements and unique features, but neither fundamentally changes the competitive landscape. The tablet market has swung to a low price, 7-in. to 8-in. form factor with thousands of speedy and relevant apps."

Microsoft on Monday noted it has increased the number of apps useful for Surface 2 from 10,000 a year ago to 100,000 today. But that's still a fraction of the apps available in Google Play and App Store, analysts said.

Microsoft's message of productivity will likely work best with enterprise workers using the new Surface Pro 2 tablets, which can also run legacy Windows apps, analysts said.

But the Surface 2 running Windows RT 8.1, even with its bundling of the Office 2013 RT suite, will still be a hard sell. "I understand Microsoft thinks they are making Surface 2 more valuable with Office RT and other interesting services, but they are in a market competing with $200 Android tablets and even the $329 iPad mini," said Tom Mainelli, an analyst at IDC.

Larger Android tablets and the iPad with a 9.7-in. display are still used by a stable, installed user base "which isn't going away," Mainelli added. "Adding a lot of new apps for Windows RT is still an unproven entity to end users."

Mainelli predicted that smaller tablets running Windows 8.1 or Windows RT 8.1 will come from Microsoft's manufacturing partners.

"In many ways, Microsoft Surface would be better served by only having the Surface Pro 2, but it's obvious that Microsoft wants to make Windows on ARM a continuing priority," Mainelli added. The Surface 2 runs an ARM-based Nvidia Tegra 4 processor, while the Surface Pro 2 comes with an Intel Core i5 processor.

The $449 starting price for the Surface 2 is $50 less than what Microsoft charged for the original Surface RT last year. "Lowering that price by $50 certainly helps Microsoft, but I'm not sure it's enough to change buyer's minds," Mainelli said.

Microsoft lessened the pain of continued steep prices on both machines by offering free Skype calling to landlines in 60 countries for a year, unlimited Skype Wi-Fi on 2 million hotspots for a year and 200 GB of free SkyDrive storage for two years.

"I think the Skype and SkyDrive offering will help on the price," said Carolina Milanesi, an analyst at Gartner. Milanesi also said buyers will respond to Microsoft's message that the larger Surface tablets, which cost more to make, are more suited for productivity tasks than smaller devices on the market.

But she conceded that to do well, Microsoft has to market the new tablets aggressively and find lots of retailers to sell them.

Jack Gold, an analyst at J. Gold Associates, said the free SkyDrive offer "doesn't matter." Everybody gives away cloud storage now. It's the cost of entry into the marketplace."

Overall, Gold wasn't impressed. "Other than upgraded hardware with chips primarily and better cameras and a somewhat lower price, I don't see much incentive for people to buy these Surface devices," he said.

This article, Microsoft's latest Surface tablets don't thrill industry analysts, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

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This story, "Microsoft's latest Surface tablets don't dazzle industry analysts" was originally published by Computerworld.

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