Partners Say Microsoft's Apple Envy Is Sinking Surface2:55 PM EST Fri. Dec. 14, 2012
Even as Microsoft expands retail distribution for its Surface with Windows RT product, Microsoft partners say the software giant's Apple-focused consumer strategy for its fledgling tablet is sinking Surface and taking its toll on Windows 8.
Partners responding to Microsoft's move this week to let retailers like Staples carry Surface with Windows RT predicted the distribution shift will have little impact. They said the real problem with the Surface strategy is Microsoft's failure to capitalize on its robust position in the business market by leveraging its vast partner network.
"I think this additional distribution will have minimal impact," said Arlin Sorenson, the founder and CEO of HTG Peer Groups, a 350-member peer-to-peer solution provider organization headquartered in Harlan, Iowa that has been working with Apple on iPad consultant certifications for its peer-to-peer members over the last year. "I haven't had anybody tell me they prefer Surface over the iPad."
Microsoft, which up until now has been selling Surface with Windows RT through 31 Microsoft retail stores and 34 smaller holiday specialty stores, as well as through its website, began selling the product through other retailers this week, including Staples and Amazon.com. What's more, Microsoft extended the offering of the product through all of its holiday specialty stores into the new year and announced that the specialty stores will be transitioned into either permanent brick and mortar Microsoft retail outlets or specialty store locations.
Microsoft insists it always planned to expand the retail presence for Surface after the first of the year. But, the additional retail distribution announcement came only seven days after Detwiler Fenton & Co., a Boston-based brokerage, reported that it expects Microsoft to ship just 500,000 to 600,000 Surface tablets in the current quarter, significantly below its previous forecast of 1 million to 2 million units. In contrast, one analyst, Sameer Singh at Tech-Thoughts, has estimated that Apple could ship anywhere from 24 million to 26 million iPads in the current quarter.
Microsoft has offered no details on whether it plans to sell Microsoft Surface through solution providers.
Microsoft declined to provide an interview to discuss the Surface distribution strategy with Jon Roskill, corporate vice president and head of Microsoft's Worldwide Partner Group.
In response to CRN questions on how the shift will impact partners, Microsoft released a prepared statement: "Our plan has always been to expand the distribution channel for Surface after the initial launch. Based on the consumer response as well as interest from other retailers, it is a natural time to provide consumers with additional locations to get their Surface with Windows RT. Yesterday's announcement will impact production and distribution of Surface with Windows RT specifically. With regards to Surface with Windows 8 Pro or additional distribution channels, we have nothing further to share at this time."
NEXT: Microsoft's 'Strategic Miscalculation'
HTG's Sorenson, for his part, says Microsoft has made a strategic miscalculation by trying to copy Apple's product, sales and marketing strategy, even adopting Apple's tight lipped communications stance when it comes to Windows 8 and Surface. That decision not to work closely with partners, he says, has set the Windows 8 channel sales effort back six months.
"We didn't get started with Windows 8 nearly as early as we should have," said Sorenson, noting it was a complete break from all previous releases of Windows. "As a result we are still learning it and not really selling it as we would have been with other releases. They made a mistake in the way they approached the market, not allowing partners access with early testing. That has slowed the whole rollout process. We have been living in kind of a [Windows 8] black hole for the last year."
"I have never seen this from Microsoft," added Sorenson. "It is totally different than from the way they brought product to the market in the past. It was a calculated decision. I understand the logic in it, but they kind of overdid it. They are not Apple. They tried to be Apple, and it was the wrong approach in my opinion."
Sorenson isn't the only one that feels that way. A number of Microsoft partners say that Microsoft's Surface effort has been flummoxed by Apple envy.
"I am not surprised that Microsoft is looking for greater distribution for Surface," said Bob Nitrio, CEO of Ranvest Associates, an Orangevale, Calif.-based small business-focused Microsoft partner.
"It makes sense from the standpoint that they want additional sales. But, I honestly feel they botched the entire Windows 8 launch, including Surface. It's obvious to me they are looking at ways to emulate the Apple ecosystem, and they have in place new elements to do that with a cross-platform effort from the phone to tablet to desktop to server with Windows 8. But, then Microsoft goes out and says we are going to distribute Surface through retail stores just like Apple and sell it themselves. The SMB community is asking: 'What is going on here? Are they truly becoming just like Apple -- so everything goes direct?"
Nitrio says Microsoft would have been better off pushing forward at the same time as Surface RT with an aggressive launch of Windows 8 Pro-based Surface, which unlike Surface with Windows RT, can run Microsoft Outlook. "Microsoft should have launched the fully vetted [Surface running] Windows 8 Pro at the same time," asserted Nitrio. "There are people in the business community that would like to get their hands on it and are being forced to wait until the first quarter. Surface [Running Windows 8] Pro could really have re-energized the SMB market with the help of partners. Instead Microsoft focused on the consumer side first and tried to emulate Apple." Partners say Microsoft would have seen better sales traction if it exploited its monopoly position and huge installed base in the business-productivity software market with Office and Windows. Instead they say Microsoft CEO Steve Ballmer decided to battle Apple where the iPad and iPhone marketing machine is almost unassailable: in the consumer market.
Microsoft CEO Steve Ballmer admitted that Microsoft is determined not to cede any consumer ground in its battle with Apple when he asserted earlier this year in an interview with CRN that Microsoft would leave no "stone unturned" in its innovation battle with Apple.
"We have our advantages in productivity," Ballmer told CRN in July. "We have our advantages in terms of enterprise management, manageability. We have got our advantages in terms of when you plug into server infrastructure in the enterprise. But we are not going to let any piece of this [go uncontested to Apple]. Not the consumer cloud. Not hardware software innovation. We are not leaving any of that to Apple by itself. Not going to happen."
At the same time, Ballmer told CRN that if Microsoft partners want to buy Surface, they can buy it from Microsoft.com.
NEXT: Defending Microsoft's Channel Commitment
Partners say the consumer-focused Microsoft Surface tablet strategy is also being hobbled by the lack of a significant price delta between Surface for Windows RT and the Apple iPad.
Microsoft Surface for Windows RT tablet -- without the Surface Touch Cover keyboard -- is priced starting at $499 for an entry-level device with 32 GB of storage. That's the same price as the Apple iPad with 16 GB of storage.
Partners say pricing will also be an issue for the Windows 8 Pro-based Surface tablet, which will carry an $899 starting price and a top price of $999 minus what may well be Microsoft's biggest advantage over the iPad --the Surface Touch Keyboard. The Surface Touch Keyboard is being sold separately by Microsoft for $199.99.
Chris Hertz, CEO of New Signature, a fast-growing Microsoft-exclusive solution provider based in Washington, D.C., said Microsoft's move to push Surface through the retail channel indicates that the company is closer to putting it into the IT channel as well.
"Microsoft is not trying to cut out the channel. I believe the Pro Surface product will go through the channel," Hertz said. "Microsoft has always said they are all about the channel. Conspiracy theorists are wrong about Microsoft going direct and cutting out the channel."
Furthermore, Hertz said he believes Surface Pro will be a big hit.
"I was just in three meetings today, and customers were really excited about Surface," he said.
A senior executive for a large Microsoft enterprise partner, who did not want to be identified, said Microsoft's pricing and distribution strategy are limiting sales of Surface RT. "Giving RT to Staples doesn't help us on the business side," he said.
The executive said his company has seen significant interest in Surface RT, but has been forced to send those customers to a Microsoft retail store or Microsoft.com. Allowing partners to sell Surface RT would have opened up a wide range of conversations that could have led to bigger Microsoft software solution engagements around software offerings like SharePoint and Lync, said the executive. That's too bad, the executive said, because those conversations could have led to high-margin solution sales for his company.
Instead, the executive said, his company has been forced to seek out lower-margin iPad-based engagements with Apple. "Ninety-five percent of the companies we are doing deals with are buying iPad," he said. "The guys in Redmond need to get out of the ivory tower and talk to partners like us," he said. "Windows 8 is a great OS, but they screwed up by not putting a start button on it and not putting Surface through solution providers. They need to stop drinking their own Kool Aid."
By not working closely with solution providers in the business market, Microsoft has failed to capitalize on what may well be the iPad's biggest shortcoming, said the CEO for a large enterprise Microsoft partner, who did not want to be identified. "The iPad is an entertainment device," he said. "It's the anti-boredom device. It's for music and movies. It doesn't improve productivity like Microsoft does with Office. If Microsoft wanted Surface to go into the business market, they made a big mistake."
As far as he is concerned, the CEO said Microsoft's decision to focus on the consumer market is just one more sign that the software giant just does not get the channel. "Microsoft is not really a channel company," he said.
Still, New Signature's Hertz said his faith in Microsoft's channel focus remains strong.
"Microsoft has repeatedly stated the channel is important to them," he said. "Microsoft has always been good to the channel. They don't have the capacity to do it on their own. They would be gutting their business if they went direct and abandoned the channel. They have one of the most effective channel organizations in the history of business. That is one of the big reasons they have maintained market share. People can complain, but nothing Microsoft has done is disruptive to the channel. The last several years Microsoft has been relying more heavily on the channel, and it has been good for our business."
PUBLISHED DEC. 14, 2012