Microsoft Polishes Surface, But Its Prospects Still Look Hazy

Ever since the arrival of the iPad in 2010, Microsoft has been trying to catch up with a tablet of its own that could put even a small dent in the popularity of Apple's mega-hit product. Yesterday's updates to Microsoft's two different Surface tablets, though, suggest that the software giant is still aiming at the wrong target. Though both the cheaper Surface 2 (formerly the RT) and the laptop-replacement Surface Pro 2 have received some upgrades, neither is likely to do much to juice up their anemic sales. Who's to blame? Perhaps outgoing CEO Steve Ballmer.

Back in 2010, Ballmer was talking to financial analysts about the early success of the iPad. He was sure he knew how to respond:

So, we think about these devices and I don't think there really is one size that fits all.  I don't think everybody wants a slate.  I've been to too many meetings with journalists who'd spend the first 10 minutes of the meeting setting up their iPad to look like a laptop.

Laptops actually are well designed for a lot of things ... But some people are going to want that [tablet] form factor.  Some people are going to want probably a screen that they take with them and maybe they throw it back into the keyboard.  Some people are going to want a device that is screen and keyboard that spins around for inking purposes.

Microsoft knew what it was going to build: Not just one machine, but several. Not really a tablet, but some kind of laptop/tablet hybrid that you "throw back into the keyboard." They were sure what people wanted was a machine you could make into a laptop and maybe use a tablet. And they're still sure of it. They're just not sure whether you want the machine to be a real laptop or some kind of cheaper laptop that doesn't truly run Windows.

Two are still worse than one

So Surface 2 still runs Windows RT, though Microsoft is de-emphasizing that name. What this means is that it can't run regular Windows programs, but it can run Microsoft Office, which is bundled with the tablet. This is the same tablet that led to a $900 million writedown recently and saw its price cut from $499 to $349. But Microsoft in its wisdom believes the new version should go back to $449.

That price buys you an upgraded screen (1080p now!) and processor from the original and a better kickstand but still doesn't include the keyboard that Microsoft is sure you'll want. Keyboards, too, are improved from the originals. But you still have to choose between spending $119 on the Touch Cover (which lacks real keys but is apparently much improved with a host of new sensors to improve accuracy) or $129 for the Type Cover (which has real keys, though they travel less than before allowing it to be faster and quieter).

While the Surface 2 is about an ounce lighter, it's nearly as thick as before, shaving off less than half a millimeter. With it's bizarre pointed edges, it's still not going to be fun to hold, especially vertically, where the 16:9 ratio screen has been odd from the beginning and makes it top heavy. And perhaps more importantly, by the time it ships in October, it will likely be squaring off against a lighter, smaller iPad. The same iPad that's killing it in the marketplace. The one which assumes most people will use it without a keyboard.

Apple, unlike Microsoft and to the annoyance of a small but vocal corner of the tech community, doesn't figure that the best way to satisfy customers is to offer an endless array of choices. Instead, it tries to figure out how to satisfy a larger number of people with a small number of products. It's hardly infallible, backing off Steve Jobs' negative stance toward 7-inch tablets with the iPad Mini, but it's often right. To that end, the iPad has managed to sell 155 million units since its introduction.

While Surface 2 is marginally less expensive, it's hard to imagine too many people choosing one over an iPad. Yes, you get Office and 200GB of cloud storage with Microsoft's SkyDrive, but these aren't valuable to the vast majority of tablet users. And no, I don't just mean the 50% who primarily buy tablets for entertainment. Vertical market customers, like airlines and health care also won't value what Surface offers over the iPad. The relative dearth of apps versus iPad and Android tablets won't help matters with Microsoft still touting 100,000 Windows RT apps, the same number it was touting back in July.

Microsoft has lost most third-party manufacturer support for Windows RT and will soon own Nokia's smartphone division, becoming the main (perhaps lone?) manufacturer of Windows Phone devices as well. Whether it can move either of them beyond niche status as this point is very much an open question, but nothing in Surface 2 seems likely to catalyze that shift.

Pros for the Pro?

Perhaps, then, the prospects for the $899 and up Surface Pro 2 look better? That machine is essentially an ultra-light laptop with a detachable keyboard, like competing convertible machines from HP and Lenovo. But unlike competitors, the keyboard still can't hold the machine upright without help from Microsoft's improved kickstand. The flip-out device now offers two angles instead of one, but doesn't really help you use the machine on a lap or uneven surface since the edge of the kickstand is still sharp.

And as a tablet, Surface Pro remains heavy and even more awkward than its little brother. It does pack Intel's newest Haswell chip, improving its battery life from what was pretty awful to what should be fairly excellent. The chip has taken Apple's Macbook Air and Sony's Vaio Pro into the 10+ hour territory on battery. Microsoft might not get there, but in 2014 a third version of the keyboard that includes an additional battery should do that.

Still, Surface Pro 2 is expensive. The $899 configuration only includes a 64GB drive and a good deal of that will be swallowed up by Windows 8.1, which will come with the new machines. For $100 more you get 128GB, enough for most people. But Microsoft is offering configurations with more memory (8GB instead of 4GB) and additional storage (256 or 512GB) for $1300 and $1800. At those prices, you can buy some of the nicest touch-screen Windows machines on the market.

Each will have a tradeoff: Some are just straight laptops, albeit with touchscreens. Some of the convertibles are not fabulous at being tablets, some less good at being laptops. But Surface Pro 2 is in good company in that regard. It's not especially good at being tablet or a laptop. And it's not especially well priced such that you'll accept its limitations without shopping the competition.

Better off than yesterday?

Microsoft's low-end tablets not only face continued competition from iPads and Android, but also from low-end Intel-based products that will run the full version of Windows. Based on a new chip, these will start even cheaper than Surface 2 and arguably be the best choice in the bargain laptop category for anyone looking for some tablet functionality in a Windows machine.

At the high end, Surface Pro 2 will be an interesting option, but still a bit of an odd duck (Tablet + laptop = tabtop?). Microsoft wants you to choose between the two machines, both of which run Office and a version of Windows and the two keyboards and the two very different price levels. And it will likely keep telling you why they're both better than an iPad. Alas, it keeps missing the point, so it keeps missing the mark.

Follow me on Twitter. Find the rest of my Forbes posts here.