Microsoft's Surface Pro Will Be A Success

| About: Microsoft Corporation (MSFT)

I always shook my head at Microsoft's (NASDAQ:MSFT) decision to plow any amount of money into porting the Windows operating system to the ARM (NASDAQ:ARMH) instruction set architecture. The reasoning behind this was actually quite cunning on Microsoft's part, but it would ultimately be destined to fail: break legacy software compatibility and force users to adopt a brand-new Windows ecosystem in which Microsoft made money from each application sold. ARM and its licensees began to publicly salivate over this "opportunity." However, even from a mile away, it is clear that Windows RT has no business existing. Why?

  • Compatibility Is The Selling Point: The main reason to even want to buy a Windows tablet isn't for the "Metro" UI interface (yes, Microsoft, I'm calling it "Metro" -- you drilled it into me!), but for the very deep value proposition of being able to dual-purpose the tablet as a "tablet" as well as a traditional laptop (or even desktop) PC. Without backwards compatibility, users may as well buy a device running Google's (GOOG) Android or Apple's (NASDAQ:AAPL) iOS.
  • Confusing Customers Is A Bad Idea: While it can be somewhat shrugged off that older "desktop" applications don't work on the new Windows RT if the device is used strictly as a media consumption device, companies are trying to sell Windows RT devices as laptops! This will undoubtedly lead to returns, frustration, and sadness among customers. Some may even get the idea that "Windows 8 isn't compatible with my apps" and then make the switch to a different ecosystem if compatibility had kept them reeled in.
  • Performance Isn't Great: Modern laptop chips such as Intel's (NASDAQ:INTC) Core i3/i5/i7 and AMD's (NASDAQ:AMD) A4/A6/A8/A10 are quite powerful. Contrary to the "prevailing" notion, performance is important. The overall smoothness of the experience is critical, and powering $800 laptops with $20 tablet processors using smartphone-level ARM processors is a bad idea. Why would anybody be remotely enticed to upgrade to something that may be slower than their 3-5 year old laptop?

The Microsoft Surface RT is actually a beautiful device. Well designed and uses quality materials. The kick-stand is a really useful feature and the "Metro" UI is quite good. I wish the keyboard were more solid (you literally can't put it atop of your lap and use it) and "real," but overall it's a nice device. The problems with the device are squarely due to the fact that it is using Windows RT and a much-slower-than-a-real-PC-chip Nvidia (NASDAQ:NVDA) Tegra 3.

Enter the Microsoft "Surface Pro".

What Is It?

The Surface Pro is more-or-less the same thing as a Surface RT. Same screen size, slightly thicker, and with -- unfortunately -- substantially worse battery life (4-5 hours v.s. 8-9). However, the advantages are clear:

  • Intel Core i5 versus the Nvidia Tegra 3 (the performance delta is quite large -- on the order of a 5x)
  • 4GB of RAM versus 2GB in the Surface RT
  • 64GB - 128GB flash memory versus 32GB - 64GB
  • 1920x1080 display versus 1366x768 display (so don't blame just the CPU for the power increase...the nicer screen eats up more power)
  • $899+ price tag versus $499+ price tag

Why Is It Better Than Surface RT?

The Surface Pro is "better" than the Surface RT for the following reasons:

  • Full compatibility with legacy Windows applications (so it could very well be a laptop or desktop replacement for many).
  • It's much faster.
  • The significantly sharper screen is likely to give a stronger impression of quality, especially with tablets such as the Apple iPad and the Google Nexus 10 sporting 2048x1536 and 2560x1600 displays, respectively.

In particular, if enterprise adoption of the iPad is "good," then I strongly suspect that they will love the Surface Pro. It's a little pricey, sure, but many businesses routinely hand out $1,000+ laptops to employees. Wouldn't a slim and convenient $899 - $999 tablet with full Windows 8 compatibility and very strong compute power fit the bill just a nicely?

Reviews Are Quite Good

Many journalists and technology buffs got their hands on the Surface Pro during CES 2013. The impressions were actually quite strong, according to eWeek (which cited a number of impressions from various sites). Essentially, the reviews mirror what I thought (and I've never actually used a Surface Pro!): it really does the "Surface" idea justice.

Microsoft: You've Done Good

Microsoft's Surface Pro looks like it will be a success. But just how do we define "success." Will it outsell the iPad? Nope. Will it sell reasonably well? Probably. But neither of these questions are really relevant to the true metric of success here. Microsoft is not in the business of building hardware to compete with its customers -- it just wants to sell a boatload of Windows 8 licenses and bring back the "excitement" to the Windows ecosystem. I believe that a device that shows just how powerful the hybrid desktop and Metro is will spur interest in Windows 8 powered convertibles and hybrids. Some will go with the Surface Pro. Others will go with the Lenovo Yoga, and still others will go for other designs.

But the point is: Windows 8 is here, it's a great tablet OS, and it's every-bit-as-good as Windows 7 as a desktop OS. There's no need to buy two devices if you're in the Windows ecosystem and need portability: Windows 8 and the efforts from Intel on the CPU side will truly allow "one device to rule them all." Good job bridging the gap between the tablet and the notebook, Microsoft. Leveraging the competitive advantages of Windows 8 (and not RT) is critical to taking back market share from Apple and curbing cannibalization by Android tablets trying to play laptop.

All I ask? Could someone PLEASE get a 2560x1600 Windows 8 tablet and Ultrabooks out, pronto?

Disclosure: I am long MSFT, NVDA, INTC, AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own ARMH puts.

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