Microsoft Surface 3: Hurry Up and Wait

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Microsoft released Surface 3 hybrid PC/tablet to much fanfare, but is keeping would-be business and consumer buyers waiting for weeks to get the new device.

Surface Pro 3The reviews of Microsoft’s Surface 3 are pouring in. Thus far, those who have had a chance to play with the PC/tablet hybrid are giving it generally high marks for its functionality, design and value. Most agree that it’s not a special tablet, but it does advance the art of getting PC features out of a slate.

Microsoft strategically placed the Surface 3 in the hands of testers and bloggers, hoping they would continue to amplify the message they broadcast at the May 20 launch: Surface 3 is a game changer. And, consequently, these reviews would translate into orders. Or, more aptly put, “pre-orders.”

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When Apple, Dell or Samsung launch a product – particularly a consumer product – people are able to buy the same day. Not Surface 3, which will only have one configuration generally available on June 20, a full month after the launch. Other lower-priced versions won’t ship until late August, Microsoft confirmed to Channelnomics

Microsoft confirmed the shipping schedules, saying the first configuration to hit the market is the one with the Intel Core i5 processor with 128 GB onboard storage, which retails for $999 without the type cover.

A Microsoft spokesperson tells Channelnomics pre-order release strategy is consistent with how previous versions of Surface were handled. Reports are circulating that Microsoft may rush some models into its retails stores as soon as this weekend to meet the growing demand for the new device.

The Surface 3 is the third generation of Microsoft’s homegrown devices in the 19 months since the first model, Surface RT, was launched. While Microsoft has scored points for innovation, it’s also failed thus far to capture significant market share against competitors such as Apple and Samsung. Most reviewers and users agree the Surface family is good, but not significantly different from other tablets and mobile devices.

Since embarking on a hardware program, Microsoft has reportedly lost $1.2 billion on the Surface family. In June 2013, Microsoft wrote off $900 million in unsold Surface devices and accessories. While Surface sales picked up during the 2013 holiday season, they fell off by nearly one-half in the first quarter of 2014.

Microsoft is launching Surface 3 amid a general slump in tablet sales. Apple iPad sales are off by nearly one-third as the market reaches saturation and phablets – larger format smartphones – pickup in sales. Microsoft doesn’t see the Surface 3 competing against tablets, but rather ultrabooks – in particularly, the Apple MacBook Air.

As an ultrabook alternative, Surface 3 is earning generally high marks. It’s light and has processing power. While it doesn’t have the battery life of a tablet, it does run as long as an ultrabook. Some reviewers believe Surface 3 could give Apple a run for its money. And Microsoft is hitting Apple at a time when its Mac PCs are declining in sales; last year, Lenovo overtook Apple for third place in North America PC sales.

So why is Microsoft staggering its Surface 3 releases? Why isn’t there a pile of them in Amazon warehouses and falling off the shelves at Microsoft stores? Microsoft is probably hedging its bets and avoiding the trap Hewlett-Packard fell into when it launched its TouchPad.

Microsoft confirmed Surfaces are manufactured by a fabricator in China. The lead times for ordering different models, plus the five to seven day standard delivery windows, are consistent with just-in-time manufacturing. Microsoft may be building Surface’s to order; avoiding the potential buildup of unsold inventory. And it could be containing its own upfront costs by not ordering launch inventory.

When HP launched its TouchPad in 2011, it had a huge inventory built for the release. That inventory didn’t sell, and pallets of the devices clogged warehouses, amplifying the embarrassment of the instant flop. HP quickly discontinued the TouchPad and put the unsold inventory on fire sale. HP is still recovering from the debacle.

So, the pre-order strategy does give Microsoft insulation against suffering an HP-scale disaster.

Regardless of when Surface 3 becomes generally available, business and consumer buyers will still have to go through Microsoft’s Web sites, retail stores or select retailers to obtain the devices. Microsoft hasn’t changed its channel position on Surface 3, continuing to say that it’s “measured and phased approached to Surface channel expansion.”

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