Can Microsoft Sell a Few Million Surface Tablets?
Microsoft (NASDAQ: MSFT) CEO Steve Ballmer has made a bold (if not understated) claim about the company's upcoming tablet.
According to ZDNET, Ballmer said that Microsoft's goal is to sell "a few million Surface PCs" in the coming year. He also said that there will be 375 million Windows PCs sold in the next 12 months.
The latter figure is impressive, to say the least. At a time when Apple (NASDAQ: AAPL) continues to increase its market share with unprecedented demand for the company's fresh, industry-changing products, Microsoft is confident that it will maintain its success with the Windows platform.
However, ZDNet's Mary Jo Foley questions why Microsoft would aim to sell only a few million tablets. After all, Apple is expected to sell 30 million iPads in 2012 alone. Foley believes that this is proof that Microsoft is in this business to build a high-quality product and not simply to beat Apple and scare its partners into building better products.
She is probably right. But to figure that out, investors did not have to look any farther than Microsoft's previous devices. The Windows maker did not produce Xbox 360 with the goal of defeating Sony (NYSE: SNE) and Nintendo (NTDOY). Microsoft got into the video game business to capture some of the growing market. Then, after building a console that sold only 25 million units while its lead competitor, Sony's PlayStation 2, sold 150 million units, Microsoft wanted to beat the competition. After several years of hard work, it finally has.
Microsoft was able to achieve this goal not only by catering to the core market (gamers) but by serving the broader market of mainstream entertainment consumers.
The company failed to do the same with Zune, an ill-fated MP3 player. By the time the device was released, Apple had already sold millions of iPods, which were faster, smaller, and more efficient than Microsoft's device.
While the quality of these products ultimately dictated their success or failure, their marketing strategies played an important role. With the Xbox 360, Microsoft took a very broad approach, promoting the console to anyone and everyone with a multi-million dollar ad campaign that included a 30-minute special on MTV (which featured music from The Killers, who performed at the conference where Xbox 360 was officially unveiled).
Microsoft did not launch Surface with a sponsored TV program or hire a popular band to play for the press. But by teasing Surface's debut with a vague pre-show announcement, Microsoft did successfully persuade the media to hype its device as the next best thing. When the tablet finally arrived, the whole world was watching.
Long-term, Microsoft might be smart to tackle the tablet market with a softer strategy. It will be almost impossible for the company to sell as many units as the iPad, so why should Microsoft promise to sell more units than it can? By announcing a conservative goal, Microsoft can brag if it beats expectations. But if the company promises to sell 20 million tablets and fails to achieve this goal, critics will say that Surface is just another Zune.
Last month, Global Equities Research analyst Trip Chowdhry called on Microsoft to give Surface away for free.
"One hundred million to two hundred million dollars [worth of these] devices should be given away for free," Chowdhry told Benzinga. "[Give them] to developers, educators, business users, CEOs, for whatever reason."
Chowdhry estimates that Surface will retail for as much as $800.
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