What Will Happen To Microsoft Surface Brand After Nokia Deal?


3, 2013

Microsoft yesterday announced that they are acquiring Nokia’s Devices and Services division for about $7.1 Billion. While Microsoft has revealed almost all the information on what the deal with Nokia is and how they will approach it, we are yet to know the changes inside Microsoft after the Nokia deal. The biggest question I have in mind is about the future of Surface brand and the team.

The History Of Surface:

  • Microsoft created the Surface brand and released their first device Windows RT back in November in an effort to showcase Windows 8.
  • After three months, they released Surface Pro device running full versions of Windows 8 focusing on enterprise users.
  • During last financial quarter, Microsoft announced a $900 million write off due to unsold inventory.
  • Microsoft has just started expanding the availability of Surface devices to over dozen countries through partner retailers.
  • They just started limited channel availability  of Surface in US.
  • The marketing for Surface device was widely criticized for not making an impact among consumers.
  • Nvidia CEO recently confirmed that they are working with Microsoft for next generation of Surface based on ARM.
  • Microsoft is expected to release a Intel Hasewell based Surface Pro devices by end of this year.

The Future Of Surface is in question:

  • As per lots of reports in the past few months, Nokia is set to unveil its  own Windows Tablet later this month.
  • The device design will be in line with existing Lumia devices with availability in different colors.
  • The device will have a instant retail/channel availability across the world, thanks to Nokia’s existing retail structure.
  • Nokia has worked on no.of new features that will enable Lumia devices to integrate smartly with the upcoming tablets.
  • Buying a phone and tablet from same brand like Nokia is a great choice for consumer as opposed to buying a tablet from Microsoft and phone from Nokia.
  • Nokia’s existing marketing team has done a great job for promoting their devices which includes Lumia Windows Phone devices.
  • Nokia has supply chain in place for producing tablets at scale.
  • Nokia has both hardware engineering and design talent better than Microsoft
  • Nokia has a long experience of creating devices than Microsoft.

Even though the Surface RT and Surface Pro were greatly designed devices, I think Microsoft can end the Surface brand and continue their tablet strategy with Nokia’s. There are lots of issues like integrating Microsoft Hardware team which designed Surface and the Nokia tablet team. First, they are geographically located apart, culturally different, and many more. We will have to wait and see how Microsoft proceeds with it. What do you think?

From Q&A Session,

WALTER PRITCHARD:  Great.  Thanks for taking the question.  Steve Ballmer, on the tablet side, obviously, we could say many of the same things as you’ve put into this slide deck as rationale for doing an acquisition on the phone side as we could say about the tablet side including picking up more gross margin.

I’m wondering how this transaction impacts the strategy going forward in tablets and whether or not you need to, in a sense, double down further on first-party hardware in the tablet market.  And then just have one follow up.

STEVE BALLMER:  Okay.  Terry, do you want to talk a little bit about that?  That would be great.

TERRY MYERSON:  Well, phones and tablets are definitely a continuum.  You know, we see the phone products growing up, the screen sizes and the user experience we have on the phones.  We’ve now made that available in our Windows tablets, our application platform spans from phone to tablet.  And I think it’s fair to say that our customers are expecting us to offer great tablets that look and feel and act in every way like our phones.  We’ll be pursuing a strategy along those lines.

STEVE BALLMER:  Tablets is an area where we absolutely have our own first-party hardware, as you know, and see opportunities to continue to build and strengthen.  And it’s an area where we have very strong programs in place with our OEMs, particularly on the Intel Atom-processor-based product lines that people will really get a lot of value on, and you’ll see a range of new products coming for the holiday season.

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