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Microsoft's Surface Struggling, Will It Go the Way of Kin?

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We don't know how well the device is selling, so I propose a field trip.

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MINYANVILLE ORIGINAL In May 2010, the Microsoft (NASDAQ:MSFT) Kin, a mobile phone designed for social networking, was released online and through Verizon (NYSE:VZ) Wireless stores. Within a mere two months, poor sales drove Verizon to discontinue the phone, and by January 2011, the Kin website was completely shut down. Microsoft gave up very quickly on the poor-selling Kin. Microsoft's new tablet, the Surface, seems to be struggling as well, with some analysts predicting it may not even sell 1 million units this quarter, which is well below the 3 to 5 million Microsoft ordered for production. If the device does sell poorly, cancellation may be considered, but because of a growing trend in computing from traditional machines to tablets, that decision won't be as easy for Microsoft to make with the Surface as it was with the Kin.

According to CEO Steve Ballmer, sales are off to a "modest start." There are no official numbers here to share, and no one really knows how well or how poorly the device is selling (but seriously, do you know anyone who has a Surface?) Moreover, it is not a good sign that Microsoft is pushing up its plans to sell the Surface through retail stores. Originally, this expansion was supposed to come early next year, as it was thought that limiting distribution to Microsoft's few stores and holiday kiosks would lend the new device a competitive edge. Now, in the same space as Apple's (NASDAQ:AAPL) iPad, Amazon's (NASDAQ:AMZN) Kindle, and Google's (NASDAQ:GOOG) Nexus, it will have to butt heads with its intimidating competitors.

Of course, Apple leads that pack. For November, iPad Mini had an average daily growth in sales rate of 28%, and back in September, Apple said iPad held 91% of tablet Internet traffic, but competing devices held 38% of the device market share. Are people really not using these other devices when they buy them? Did someone want an iPad for their birthday but instead received a Kindle Fire and felt too bad to return it? Perhaps. However, this being said, sales of Apple's new iPad Mini may come out under estimates because of shipments being limited by supply constraints.

The launch-day inventory of Microsoft's Surface RT (the entry level device, which will be followed with the more expensive pro model early next year) completely sold out within 24 hours, but the company also admitted that inventory would be limited. This was on the Internet, which means consumers wouldn't have tried the Surface before ordering. And therein lies another problem: There are 253 Apple stores in the United States, but only 58 Microsoft stores. There are kiosks popping up in malls around America where you can play with and buy the Surface (I stopped by one on a whim yesterday, at The Shops at Columbus Circle in New York), but the feel of a store versus the feel of kiosk makes a world of difference. Consider the sleek beauty of the Apple store versus the "as-seen-on-TV" products more traditionally sold at mall kiosks, and think of how effective the Apple store has been at heightening the brand's appeal, with its clean, unique design (no longer unique, of course) and helpful staff. And when we get down to it, every owner of an apple product becomes a salesperson. It seems inevitable. We couldn't wait to get our hands on that new color iPod, the iPhone, and then wow, the iPad. We had all tried them through one of our friends, or maybe a kind stranger. Are people even willing to try the Surface?

Reviews have been mixed for the Surface. The Metro interface has been praised as sleek and innovative, following up on the Windows Phone technology that's been making its way into the smartphone market. The body feels strong and well-designed, though it is obviously a Microsoft machine; it has a bit more clunk to it and a little less of the, well, I don't want to call it magic, but maybe I will, OK, magic of the iPad. The tablet's keypad accessory (which played so prominently in those awesome TV ads) has been lauded, but apparently it doesn't work really well on the lap (but isn't it a laptop/tablet hybrid)? On the negative side, the performance can be sluggish, the Windows Store is barren, the currently available RT model can only run apps from those barren stores, and the desktop interface, Microsoft's sad attempt to hold on to the golden days of yore, is supposedly clunky and bad.

The question that remains pressing: Just how well is the Surface selling? I have a proposal: Tomorrow, I will go to the Microsoft Store at Times Square to see if anyone is buying, or even trying out the Surface. I will also choose one of the five Apple store locations in New York City (probably Fifth Avenue because of the giant cube) and see how sales are going there. More on this tomorrow!
No positions in stocks mentioned.
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