Microsoft Surface Sales Constrained by Model

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Turns out sales of Microsoft Surface, the company’s first tablet, are capped not just because of supply limits, but also the constrained sales capacity. Microsoft is essentially admitting that Surface’s sales are off to a modest start because it doesn’t have the sales capacity without going through the reseller channel.

Consumers and business users trying to buy a Microsoft Surface, the company’s first tablet and most significant foray into self-developed hardware, are finding themselves waiting in line. The Windows RT version has been on a three-week backorder since selling out Oct. 26, the day they became generally available.

Microsoft Corp. isn’t releasing official figures for Surface sales. In an interview with the French newspaper Le Parisien, CEO Steve Ballmer described Surface sales as “modest.”

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Supply is one challenge facing Microsoft as it pushes its tablet to market. The other problem: the limited sales channel.

Microsoft is testing the limits of its direct sales operation. The Surface is only available through the Microsoft Web site and through 31 retail stores in the United States. Microsoft hasn’t made Surface available to channel partners for resale. Prior to the launch of Surface, channel chief Jon Roskill told Channelnomics nothing had change in Microsoft’s go-to-market strategy with Surface and that the company was taking a wait-and-see approach to releasing the tablets to the channel.

Not much has changed in the three-weeks since Surface hit the market. Microsoft continues to heavily market Surface on the Web and through television commercials. The tablet is getting generally good reviews from publications and users, although some critics say the RT version – designed for the ARM mobile processor – isn’t as robust as Intel versions and users may be surprised when it doesn’t run legacy applications.

What’s surprising is how Microsoft isn’t gearing up its channel army for the forthcoming launch of the high-end version of Surface running Windows 8 Pro, due out in early 2013. This version is built for business, with an Intel Ivy Bridge processor, 4 GB of memory and 128 GB solid state hard drive. This is precisely the device Microsoft hopes to expand the total tablet market by drawing businesses who want more than a consumer device running their data and applications.

Last week, published reports stated Microsoft’s Surface is designed with more profit than the Apple iPad. The revelation, if true, gives credence to those who charge Microsoft with trying to retain margins by not selling the Surface through the channel. Microsoft may save money by keeping Surface out of the channel, but Microsoft’s inability to address the total market with its tablet shows the folly of not selling through the channel.

Meanwhile, sales of Apple’s new iPad Mini, the 7-inch version of its market-leading tablet, sold more than 3 million units in the first three days of general availability. Apple, too, sells its devices mostly through direct channels, augmented by some retail sales. At the same time, Google’s Nexus family of tablets is selling at a pace of more than 1 million per month.

The difference between Microsoft and its tablet rivals: Apple and Google have larger and more mature direct and retail sales systems. Microsoft is just getting started in direct sales. While Microsoft has nearly three dozen retail stores, it’s but a fraction of the near 300 Apple stores or the huge Google online presence.

Microsoft may be keeping Surface out of the IT channel in deference to its OEM partners. Microsoft wrinkled longtime PC allies such as Dell, Hewlett-Packard and Acer when it announced Surface. Most of the major PC vendors are coming out with Windows 8 tablets. HP, in particular, is planning to address the business market with professional tablets running Windows 8. By keeping Surface out of the channel, Microsoft may be clearing the lanes for PC vendors to sell their devices through reseller partners.

Regardless of the rationale, Microsoft’s launch of the Surface tablet is validating the value of the channel is extending sales capacity for vendors. By not working with the tens of thousands of solution providers in the indirect channel, vendors run the risk of capping sales and, by extension, profitability.

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