Microsoft Surface “is the new Zune”

Microsoft’s Surface tablet could suffer a similar fate to the company’s failed Zune media players, according to a leading analyst.

The report from Canalys predicts Microsoft’s first own-brand tablet will have “a similar impact on the PC industry as the Zune did in portable music players”. The Zune was discontinued last year, after failing to dent sales of Apple’s iPod devices.

Canalys claims Surface will be priced out of the market. “Look at other products that have come to market that have been priced above the entry-level iPad,” analyst Tim Coulling told PC Pro. “In the case of the Windows RT Surface, you’re looking at a price around $600 – I don’t think the Windows operating system and Office is going to be enough to see that ship in large volumes.”

Microsoft hasn’t revealed final pricing for Surface, and CEO Steve Ballmer has assured PC makers that it doesn’t plan to dominate the Windows tablet market.

Coulling added Surface may be a “short-term initiative”, but said it had “damaged the relationship with the PC vendors and it will be hard for Microsoft to fix that” – a fact Microsoft itself has admitted.

Price wars

Coulling said the low price was key to the Google Nexus 7’s success, suggesting the only way Windows PCs and tablets could take on Apple was price.

“It’s unique,” Coulling said. “No-one else has iOS… if you look at what Apple has, it has unique products which have a unique operating system.

“When you get to the PC space, you’re looking at multiple devices, but all with the Windows OS,” he said. “You’re faced with a lineup of PCs, and you become more price sensitive – making it very difficult to justify the price difference between one device or the other, unless you’re very technically savvy and you know exactly what you’re buying into in terms of processor. Most people tend to go for a lower-priced product.”

That’s bad news for PC makers, which have been looking for ways to boost shrinking margins, with both HP and Dell refocusing on higher-end computers.

“Hardware is really commoditised, it’s really hard to make good margins on hardware, especially if you’re not Apple,” Coulling said, predicting vendors will offer more services and applications to carve out additional profit. “There are ways of getting people to pay more for their notebooks – additional services, maybe a concierge service, or software and solutions. It’s difficult to get people to part with more money.”

Ultrabooks were also hoped to challenge Apple’s iPad dominance and boost margins for PC makers, but aren’t yet having much success. Coulling admitted that “it’s still early days” and predicted better specs and lower prices as manufacturing processes improve. “Ultrabooks are a work in progress. They aren’t the finished article.”