Foley on Microsoft

What's the Future for Surface Tablets?

Will Nadella's Microsoft look to stop its Surface push? Or will the company give it some more time to grow?

• By Mary Jo Foley
• 08/29/2014

What a difference a couple of years can make. When Microsoft debuted its first Surface tablets in 2012, it seemed like the company was going all-in with making its own PC and tablet hardware, despite howls from its PC-making partners. But much has changed since then.

Microsoft ended up writing down its Surface RT to the tune of $900 million. The company has a new CEO who is placing a different emphasis on hardware, treating it more as a showcase for Microsoft software and services, rather than as a "core" business. That new CEO, Satya Nadella, for example, nixed at the 11th hour an ARM-based Surface Mini device because it wasn't differentiated enough.

A number of Microsoft watchers, customers and partners are wondering how long Nadella will be willing to endure Surface losses before backing out of the PC/tablet hardware business altogether. Nadella already has made it clear that Microsoft won't be "in hardware for hardware's sake," and has cut more than 12,000 former Nokia workers' jobs, with many of those falling into the hardware-manufacturing category.

When Steve Ballmer was running the company, Microsoft was an incubator for a number of long-term investments. Microsoft lost billions on the Xbox during its first decade, even after substantially reining in costs and requiring that team to adhere to tough metrics to hit break-even.

But will Nadella's Microsoft, which seems to be bowing more to pressures from Wall Street as well as the company's board, be willing to continue to invest in Surface for years in the hopes of ultimately making money?

Right now, it looks like Microsoft will continue to stick with the Surface line. Microsoft finally began selling its Surface Pro 3 outside the United States last month, expanding its distribution to 25 new countries, including many in Europe, China, Australia and Canada. Microsoft continues to struggle with figuring out its Surface supply chain, but increasingly, Surfaces and related Surface peripherals are in stock in Microsoft's online stores.

That said, there are some potentially worrisome signs. Microsoft does sell Surfaces through certain retail outlets like Best Buy and Staples, in addition to its own online and brick-and-mortar stores. The company also has been working behind the scenes on establishing a program that would allow its resellers and integrators to sell Surface hardware. But while Microsoft already authorized a small number of distributors to carry Surfaces, so far, that program hasn't materialized, limiting the distribution and corporate uptake of the devices.

Although the Surface team has hinted that more "blades" and other peripherals are coming that will plug into the Surface spine/connectors, nothing has appeared on that front, either. Microsoft launched its blade program with a music-mixing blade for the Surface, but has since discontinued making those music blades.

There's no word if and when Microsoft will attempt again to launch some kind of mini 7- or 8-inch Surface device. But it's unlikely to happen this year, given the company won't be releasing its touch-first, Metro-style Office apps, known as "Gemini," until spring 2015, according to tipsters.

As far as we Microsoft watchers know, the Microsoft Surface team is continuing to toil away on new ARM- and Intel-based Surfaces and Surface prototypes. Microsoft is continuing to spend big on promoting Surfaces, primarily the Surface Pro 3 model, in print, TV and other kinds of advertising. Microsoft launched a $150 off back-to-college Surface promotion running through early September. But the company's overall marketing campaign for the Surface Pro 3 -- "the tablet that can replace your laptop" (and in particular, the MacBook Air) -- hasn't been well-received by some, especially tech reviewers on whose judgment many new devices live or die.

My guess is Nadella isn't going to nix the Surface any time soon. But I'd bet its place in the Microsoft product lineup is going to change. Its main purpose will be to help show off Microsoft services and software in the best light possible. Like the Lumia phones, the role of the Surface in the new Microsoft will be a supporting, not a starring one. As a result, I could see Microsoft's investment in the Surface -- from both a monetary and staffing perspective -- being downsized, accordingly.