Microsoft Surface and the Channel

There’s a reason for Redmond’s direct sales strategy for Surface, and it has little to do with the channel. By James E. Gaskin

In the past,Microsoft’s hardware products meant keyboards, mice, and a few other accessories. No dealers felt resentment over those sales. When the first Surface tablet, a full Windows computer in tablet format, hit the market in 2013 (the non-Windows RT model appeared in 2012), dealers were left out. Sales channels at release time? Microsoft Stores, Microsoft’s online store, and Best Buy.

“With hardware, Microsoft is trying not to piss off the OEMs that much by competing with them. Initially they just wanted [Surface] to be used as a Microsoft Store draw—a reason to go into Microsoft Stores (located near Apple Stores but pulling a fraction of the traffic). Eventually Microsoft moved the tablets into broader distribution but were still trying not to rub OEMs faces in them,” says Rob Enderle, president and principal analyst at the Enderle Group. From one viewpoint, the Redmond, Wash.-based devices and services company just wanted other manufacturers to make better Windows tablets, and Enderle believes they have succeeded. “Windows tablets have improved sharply in general.”

It’s not just about Microsoft competing with Apple at retail, though, but providing competition to Apple in general, especially in the ultra-high end of the market where few of its OEM partners operate.

Resellers who are disappointed in not having access to Surface Pro models still must keep their customers happy. “Arterian is an HP partner primarily. I am typing this email on an HP EliteBook Revolve 810. We sell the various HP options, and we have also sold the Lenovo Yoga to some folks, which is a great option,” wrote Jamison West, founder and CEO of Arterian, a large IT services company in Seattle, in response to an email query for this article. The HP EliteBook Revolve 810 is a notebook PC that transforms into a touchscreen tablet, providing Surface Pro functionality and more for a similar price.

But West still wants the Surface Pro. “We are not, unfortunately, authorized to sell the Surface. The direct strategy by Microsoft is a huge disappointment for us, but I fully believe the company will correct that. I will be first in line to get authorized once it is available. We love the device and would love to sell it.”

Who is authorized? Starting July 2013, 10 companies sell Surface tablets, all of which are Microsoft large account resellers: CDW, CompuCom Systems, En Pointe Technologies, Insight Enterprises, PC Connection, PCM, Softchoice, Softmart, SHI International, and Zones.

Another channel pro who loves the device—and is authorized to sell it—is Mike Hogan, general manager, Microsoft alliance for En Pointe Technologies, headquartered in Gardena, Calif. “When we got a chance to sign up it was almost a beta version. We knew there would be a bumpy road, but the first-generation Surface Pro was good. Academic and local and state government sales are taking off, and we’ve sold several batches of 25 to 50 Surface Pros at a time to universities.”

What makes Surface so marketable? According to Hogan, “The Pro works as a laptop replacement. Ultrabooks with touchscreens still feel like laptops, but the Pros are much more portable, and the docking station makes them a real replacement for those laptops.” Plus, most of Hogan’s Surface Pro sales include keyboards, increasing the likelihood the devices will be used in lieu of laptops. Hogan also believes that Windows Phone’s increasing market share will help the Surface tablets expand.

The Tablet Market and Resellers
Anurag Agrawal, principal analyst at Techaisle LLC, studies the SMB market and believes none of the tablet vendors have a decent channel strategy. “The good news for Microsoft is that a large number of buyers are undecided with respect to the OS for their next tablet. The bad news is they are likely debating between another iOS device and a new Android unit,” he says. “None of the vendors have done a good job of including the commercial channel in the tablet market. Microsoft is inherently better at the commercial channel than Samsung, which is better than Apple. Apple is not good at the commercial channel, but absolutely everyone is better than Google.”

In spite of poor marketing by tablet manufacturers, the lust for tablets added up to more than 195 million worldwide tablet sales in 2013, according to Gartner Inc. Microsoft’s Surface tablets lag far behind Android (61.9 percent) and iOS Apple (36 percent) at just over 4 million units sold, making up 2.1 percent of the global market share. At least Microsoft more than doubled its 1.0 percent market share over 2012, although the company’s tablets weren’t on the market the full year of their release. The 2.1 market share includes Windows tablets from all vendors—not just Microsoft.

New Surface models such as the third-generation Surface Pro 3 unveiled on May 20 and a future 8-inch RT may provide an opportunity for Microsoft to improve its channel support. The long-awaited 8-inch Surface Mini has again been delayed, and some analysts speculate that Microsoft doesn’t believe the product has enough differentiation from OEM offerings. Other industry watchers take the delay as acknowledgment from Microsoft that the Surface Mini would not provide an ideal experience until a future combination of Windows RT and Windows Phone becomes available.

Microsoft would not make a spokesperson available for this article, but sent this statement: “Surface is now commercially available in 29 markets. We are taking a measured and phased approach to the availability of Surface in order to meet customer demand and partner expectations. Our plan has always been to distribute Surface in a way that ensures the best experience for our partners and customers.”