Microsoft's Surface Damages Channel Relations

Microsoft released its Surface tablets nearly six months ago. In that time, not one unit has been sold through the B2B channel, and Microsoft remains reticent to reveal its plans for expanding tablet sales to the channel. The Surface go-to-market strategy and other awkward moves have solution providers questioning Microsoft’s commitment to the channel.

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Microsoft Corp.'s Surface sales numbers tell a bleak story. Since the release of Surface RT in October 2012 and Surface Pro last month, Microsoft has sold approximately 1.5 million units of its first tablet. By comparison, all other tablet makers shipped more than 123 million units -- most running Google Inc.'s Android platform.

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The stark number that solution providers are fixated on is the volume of Surface tablets flowing through the B2B sales channel: That would be exactly none.

Solution providers that have supported Microsoft products and services for much of the last four decades have been begging for details about the Surface tablet and when they will be able to sell them. Microsoft has been nothing but mute.

Channelnomics posed the following questions to Microsoft about its Surface and its plans for the channel:

  1. When will Microsoft release either Surface RT or Pro to the B2B channel?
  2. As Microsoft is a channel-centric vendor, why hasn’t it released either Surface version sooner?
  3. Does Microsoft have any other products used by business and consumers besides Xbox that is not available for resale by B2B channel partners?
  4. Why do only select resellers such as Staples and Best Buy get to sell Surface?
  5. Does Microsoft believe its partners aren’t prepared or capable of selling or supporting Surface tablets?
  6. Is Microsoft concerned that Surface isn’t selling as well as expected or does Microsoft think analysts and press are distorting the sales estimates?
  7. Is Microsoft at all concerned that OEM partners such as HP and Samsung are discontinuing RT versions of Windows tablets?
  8. If Surface is opened to general B2B partners for resale, can Microsoft’s supply chain and logistics systems support the sales volume?

As Microsoft had done since its Worldwide Partner Conference in Toronto last summer, it provided a polite yet stock response through a spokesperson:

“As the Surface family continues to grow, with products like the Surface Pro and new countries as announced in February, we will continue to take a measured and phased approach to provide customers and partners with the best experience possible. Microsoft is and always has been committed to the channel, and you can expect to hear from us when have more to share.”

What Microsoft is waiting for is beyond most solution providers. Several Microsoft partners have told Channelnomics their inquiries about reselling the Surface have been rebuffed, but their Microsoft reps have essentially told them to buy Surface tablets retail for their own use to support the brand. Solution providers say they fear being treated differently if a Microsoft rep doesn’t see a Surface in their offices.

Analysts say Microsoft’s Surface is struggling. Microsoft may say it’s satisfied with Surface sales, however Reuters reports Microsoft insiders confirm more than 3 million Surface RT units were ordered from manufacturers, which means Microsoft is sitting on an inventory of 1.5 million to 2 million units. And the 1.5 million RT and Pro units sold over five months are just a fraction of the 23 million Apple Inc. iPads sold in the last three months of 2012.

Microsoft initially sold Surface exclusively through its own Microsoft Stores, of which there are now 60 across the United States. Two weeks prior to Christmas, Microsoft raced Surface to retail partners Staples and Best Buy; saying they now had the capacity to sell Surface. Many saw the move as a desperate attempt to bolster flagging sales during the critical holiday season.

The lack of confidence Microsoft’s traditional PC OEM partners have in its tablet strategy is palpable. Microsoft alienated its OEM partners such as Acer Inc., Lenovo Group Ltd. and Hewlett-Packard Co. when it decided to field its own hardware device. Since then, Samsung Electronics Co. has discontinued sales of its Windows RT tablets, citing weak demand, and HP announced it would make Android-based devices. Nearly all PC manufacturers have a version of the Google Chromebook, ultralight computers running the Google Chrome operating system.

Analysts estimate the average Surface RT, which retails for approximately $500, carries a sales margin up to one-quarter higher than the average iPad. The same may hold true for Surface Pro, which retails for $1,200 with accessories that make it a notebook replacement. Solution providers believe part of the reason Microsoft isn’t selling through the channel is because it wants to reap the high margins for itself rather than sharing with partners.

Whatever Microsoft’s plans are for Surface in the channel and its reason for not releasing Surface to reseller partners, these are having an impact on its channel reputation. Microsoft likes to note that 95 percent of its revenue flows through channel partners. Perhaps, but solution providers believe the ratio of direct sales is expanding at their expense.

“When you have them by the [expletive], their hearts and minds will follow. Well, Microsoft no longer has us by the [expletive] and we are not likely to step up and help Microsoft the next time they come back and try to reengage us because they need us in the short-term once again. That ship has sailed for the last time,” one Microsoft reseller told Channelnomics.

Some Microsoft executives have complained they get unfair treatment in the press over the Surface strategy. They’re quick to point out how apathetic and adversarial Apple is to the channel and how Google has a mixed and often confused channel strategy with its overlapping direct and indirect product sales. Both statements are true; the difference is neither Apple nor Google have ever claimed to be a channel-first vendor.

Surface isn’t the only product with a go-to-market strategy rankling Microsoft partners. Many SMB solution providers feel abandoned by Microsoft with the discontinuation of Small Business Server. Others point to Microsoft taking five years to make Office 365, its cloud-based productivity suite, fully available to partners to resell. And there’s a litany of other issues solution providers say are damaging their perceptions of and relationship with Microsoft.

Some solution providers say they've gotten some sympathy from their Microsoft channel account managers and regional executives. However, they say those Microsoft executives are rebuffed when they take channel Surface concerns and requests to higher ups.

Solution providers say Microsoft needs to start listening to how it can help bolster Surface and other product sales rather than relegating them to the sidelines. There’s support for Surface in the channel; a recent CRN poll showed its readers prefer Surface over the iPad. CRN UK (no relation to the U.S. version) has repeatedly reported how British VARs are clamoring to sell Surface. And solution providers tell Channelnomics they could sell integrated suites based on Surface, if given the chance.

If Microsoft is truly committed to developing Surface as a franchise, solution providers ask: Why isn't Microsoft  talking -- at all -- to its global network of tens of thousands of partners? It’s a good question, and Microsoft’s silence could ultimately render the issue moot as resellers seek alternative products.

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