Microsoft – Surface tension

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Microsoft faces a dilemma with a Surface Phone.

• The next release of a mobile device by Microsoft should give a clear indication of what Microsoft’s intentions are when it comes to its struggling consumer ecosystem.
• There has been a premium, metal based device in the works for some time but this appears to have been cancelled to be replaced with a device that will carry the Surface brand into mobile.
• This means that the device will sit alongside the Surface Pro tablet and Surface Book laptop and, I assume, abandoning the Lumia brand.
• The key question is what is Microsoft hoping to achieve with this product and given the direction taken with Surface so far, could have very little to do with the consumer.
• Consequently, I suspect that the device will be running an Intel processor and powerful enough to perform as a desktop computer when plugged into the right peripherals.
• The problem with this approach is that it has been tried many times before and on every occasion it has failed miserably.
• The reason, I suspect, is because the kind of tasks that one uses a computer for tend to demand the use of a screen at least 10” in size.
• Hence, the user will always be carrying around a screen and so one may as well just integrate the computing power into that.
• Furthermore, the OneDrive service obviates the need to carry work data between home, office or on the road, further weakening the case for a phone that can be a computer.
• This is why I believe that the Surface Pro has been a success and why I think that if Microsoft takes this tack with the Surface Phone, it will fail.
• This leaves the possibility that Microsoft may use a Surface Phone as an attempt to reboot its consumer ecosystem for those users that are already using it for work.
• Here, I would be starting with gaming.
• Gaming is the biggest Digital Life segment and is one that no one has really conquered unlike Search or Social Networking.
• Microsoft has its Xbox asset with around 50m active users but has so far failed to make any real headway with that into mobile games.
• One problem here is that professional users are the ones that spend the least amount of time playing games on their mobiles but it is a place to start as these users will greatly value being able to view their work data on their devices.
• They can already do this with iPhone or Android but it will be Microsoft’s task to make this more compelling and more useful on a Surface Phone than any other.
• Either way, I can’t see a single device reviving Microsoft’s fortunes in mobile where RFM forecasts that its user base is already declining.
• Hence, I remain concerned with the outlook for Microsoft’s consumer ecosystem but I am confident that for prosumers and corporate users, Microsoft is doing all of the right things.
• Fortunately, Microsoft does still not yet need the consumer to drive its share price which I can see rising to $60 just on the strength of the turnaround in the enterprise focused businesses.
• Microsoft, Samsung and Facebook for the long-term remain my top choices.