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Technology / Networks

Microsoft Surface to flop like the Zune

Research firm Canalys has released a report on the state of PC sales in 2012, which it believes will continue to see tablet growth. That is, unless you’re holding out for a Microsoft Windows 8 tablet device.

"The information available to date suggests the prices of both will be too high to capture significant market share, and a direct sales approach will prove inadequate. We expect the Surface pads to have a similar impact on the PC industry as the Zune did in portable music players," said Canalys Analyst Tim Coulling.

Microsoft announced last month that it would be going into the PC hardware business for the first time since the 80s, with its Surface Tablet. The device has received a mixed reaction, and is expected to be more expensive than Apple’s devices. Some critics are already describing it as a failure, including Michael Saylor, CEO of MicroStrategy.
Microsoft Surface - to flop like the Zune MP3 player?
Destined to flop like the Zune?

Part of the problem with Windows 8 is that Microsoft expects to keep charging extortionate licensing fees to its hardware partners to use its software, while simultaneously competing with them in the same space (without the same limitations) – effectively handicapping their long loyal partners.

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‘Microsoft has upset some partners by bringing its own hardware to market. Marketing, distributing and servicing such hardware profitably is hard. Once the Surface makes a material dent in Microsoft’s P&L, it will need to repair relationships with PC vendors, who are already preparing lists of demands," said Canalys’ VP Chris Jones.

Canalys goes so far as to advise PC vendors to postpone any launches of Windows RT pads until Microsoft rethinks this high license fee, estimated to be around $50-100 (depending on the hardware). Microsoft wants to launch products at prices ‘comparable’ to the iPad 3 (£399) for the ARM based Windows RT version, and at Ultrabook prices (£800-1000) for the Windows 8 Pro versions – without operating a loss leader strategy.

Canalys believes that while the launch will guarantee some market attention, it won’t have any impact on the market until early 2013. It wants Microsoft to subsidise its OEMs, in order to reach competitive price points. For example, by subsidizing touch panel production costs by $50 to $100 per unit, to kick-start the market.

By way of comparison, Intel invested $300m of its own money in an attempt to develop a eco-system and cohesive marketing strategy for its Ultrabook initiative. Microsoft hasn’t announced any similar plans.

The market has rapidly shifted towards tablets, which now make up an increasing share of all PCs sold. Apple sold the most PCs across the quarter (that includes desktops, laptops and tablets) with 21 million, or 19.4% market share. 17 million of these were iPads, which Apple confirmed in its quarterly report. HP and Lenovo followed with 13.5 million and 13.2 million repectively (12.5% and 12.1%). A total of 108.7 million PCs were shipped in Q2 2012, compared to just 97.3 million.

The difference is almost certainly the iPad, given that a year ago Apple held just 13.6% marketshare, behind HPs 15.7 million (see table).

The new iPad had the biggest single impact on growth rates in the quarter, but Asus and Samsung made progress with their Transformer and Galaxy Tab product lines. Total pad shipments increased 75% to 24 million units, representing 22% of all PCs.
This article is from the CBROnline archive: some formatting and images may not be present.