Should Microsoft Kill the Surface?

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When Microsoft  unveiled its latest Surface 2 and Surface Pro 2 tablets, it really tried its best to bring an Apple-like flair to the launch event. It's clear that Microsoft is serious about its Surface products. Contrary to the notion that these products are merely "reference designs" for Microsoft's many OEM partners to work from, it wants them to succeed in the marketplace. While Microsoft's Surface efforts are good, it looks as though the devices coming from Microsoft's longtime hardware partners are even better.

Dell's Venue lineup looks great
Dell launched a flurry of both Windows 8.1 and Android tablets and convertibles at its Oct. 2 event. In particular, the company's Venue 8 Pro and Venue 11 Pro look to be even more attractive than Microsoft's own offerings. For starters, both of the Dell devices feature the full version of Windows 8.1 and not the scaled-down Windows RT that can't run legacy applications or work with many legacy peripherals. This means that users -- particularly those interested in the 11 Pro -- can run all of their standard desktop applications while at the same time running the latest touch-enabled "Modern UI." Only Microsoft's bulky and expensive Surface Pro 2 can claim this functionality -- but at nearly twice the price.

Further, there is a clear trend toward smaller tablets (7-8 inches seems to be the sweet spot for pure tablets). These are attractive due to both their relatively low price points as well as their ease of use. Dell's launch of an 8-inch, $299 tablet that comes with an Intel  quad core Atom, full Windows 8.1, and a copy of Office Home & Student really seems to hit exactly what customers are likely to want from a pure tablet. While there's little doubt that Microsoft will roll out its own 8-inch device, it will likely again come packed with Windows RT (not full Windows 8.1), which could damage the value proposition.

Should Microsoft just kill the Surface?
It looks as though Dell has done a great job. If marketed correctly, the new products should help drive share for Dell, Intel's tablet processors, and Microsoft's Windows 8.1 OS. However, seeing Dell execute so well on these devices seriously calls into question the need and the viability of Microsoft's strategy. If Dell can make truly quality devices, then other equally experienced PC vendors such as ASUS, HP, and Lenovo are sure to be out with their own highly compelling devices. And, as companies used to the low-margin, cutthroat commodity hardware game, they will be much more likely to thrive than Microsoft will.

The problem here is that Microsoft likely sees Apple's hardware margins, and instead of being content with software license revenue and the cut that it will receive when users buy Windows Store applications, it now wants to play the hardware game. Should Microsoft's hardware partners all up and leave for Android, then aggressively building and selling its own hardware would be a last resort. But with more-than-competent hardware partners offering excellent designs, on the other hand, it just seems like a pointless exercise.

The Foolish bottom line
Does this make Microsoft a bad investment? No. Its hardware partners are likely to sell a bunch of these gorgeous Windows 8.1 tablet designs. But would it be better if Microsoft were to focus its energies solely on marketing devices from its partners and to position itself as the "mother" of the Windows ecosystem? You bet.

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The article Should Microsoft Kill the Surface? originally appeared on

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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