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Microsoft Faces a Tough Crowd and Hard Sell at Tomorrow's Surface Event

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Surface has torn apart what was once a happy family, at a time when a coordinated approach is more important than ever.

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It was only eight months ago that Microsoft (NASDAQ:MSFT) released the Surface 2 and Surface Pro 2, but here we are again, with a press event scheduled for 11 a.m. EDT tomorrow. Bloomberg believes that Microsoft will show off a smaller, "mini" version of the Surface, as well as upgrades for the current lineup. Details are scarce, and the rumor mill has been relatively quiet about this product announcement --  a silence that, in its own way, speaks volumes.
 
Microsoft's tablets haven't done well. The software giant was forced to write down $900 million on unsold stock last year, and while sales have improved in recent months, this progress owes more to steep price cuts than it does to last September's upgrades. At 2 pounds, the Surface Pro 2 isn't all that portable. Hobbled with Windows RT, the Surface 2 isn't all that useful. Throw in a Windows 8 experience that's still under development, and you've got yourself a tough sell.
 
But consumer apathy is the least of Microsoft's problems. The Surface tablets have elicited a much stronger -- and more negative -- response from hardware partners, who feel threatened by Microsoft's foray into device-making and are refusing to go along with its vision for the future of the PC.
 
This lack of support is proving fatal to Windows RT. The knock against Microsoft's mobile operating system continues to be that there aren't many apps for it, and there aren't many apps because there aren't many Windows RT devices. Dell (NASDAQ:DELL) pulled its lone offering, the XPS 10 tablet, last fall. Hewlett-Packard (NYSE:HPQ) scrapped its own plans for RT tablets the year before that. Acer (TPE:2353) warned Microsoft that it would eat "hard rice" for getting into hardware and never bothered with Windows RT to begin with.
 
The Surface Pro is equally unloved, at least among Microsoft's partners. Despite being the better-selling model and, according to Forrester, attracting "tons of interest" in the business sector, the rest of the industry is refusing to follow Microsoft's lead. Of the top five PC makers, only Acer offers anything directly comparable to the Surface Pro (although with a custom build, Dell's Venue Pro 11 can come pretty close), but few consumers would know it. There may be something attractive about PC hardware and functionality in a tablet form factor, but no one seems eager to compete with Microsoft -- or Microsoft's massive ad budget, which at $2.5 billion is more than HP's and Dell's combined.
 
Surface has torn apart what was once a happy family, at a time when a coordinated approach is more important than ever. It's hard for Microsoft to get software developers and users on board with Metro, the touch-screen half of Windows 8, when most of the PCs coming to market are convertible laptops and hybrid machines with a heavy keyboard focus. At the same time, it's hard for Lenovo's (HKG:0992) Yoga and HP's Spectre to offer a decent user experience when it takes Microsoft a year and a half to get around to keyboard functionality in Windows 8, something that only happened with last month's update.
 
And when Windows 8 tablets finally did hit the market en masse last fall, they were all running 32-bit versions of the operating system, despite being 64-bit capable, because Microsoft assumed that anything built with an Intel (NASDAQ:INTC) Atom processor would be using Windows RT. This meant that Dell's Venue 8 and Asus' (TPE:2357) Transformer Book T100 -- both popular devices and in the top 100 on Amazon's best sellers list -- were hamstrung in the eyes of corporate IT departments.
 
So Microsoft faces a tough crowd at tomorrow's event: not just an indifferent public, but an industry full of hard feelings. The Surface Mini is liable to make matters worse by signaling a further divide between Microsoft and its partners, and a continued commitment to an operating system that few want.

Is there a winning strategy here? If Microsoft can deliver one, then that -- and not the Surface -- will be the star of tomorrow's event.

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