For 2nd Generation of Surface, Tweaks From Microsoft

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REDMOND, Wash. -- Weak reaction to important new Microsoft products rarely discourages the company -- instead, it usually tweaks the products over and over.

So it goes with the Surface, Microsoft's poorly selling answer to the iPad and a crucial cog in the company's headlong push into hardware. On Monday, Microsoft introduced a second generation of Surface tablets with only subtle adjustments from the originals, a sign that the company still believes in its vision of devices that blend the benefits of tablets and laptop computers. The most meaningful changes are under the hood, providing faster performance, better battery life and sharper screens.

"We're right now focused 100 percent on building the best tablets for the world," Panos Panay, a Microsoft corporate vice president, said last week. "We haven't slowed down or lifted our heads a bit."

If anything, the company is doubling down on making hardware central to Microsoft's future. Microsoft's pending $7.2 billion acquisition of Nokia's handset and services business will bring tens of thousands of employees to the company who are specialists in designing and making mobile devices.

It is not clear yet how the addition of Nokia's products and people will transform Surface, especially since the Surface group is already planning for products two years away. But sales of the Surface could use a complete makeover. So poor were the sales of the cheaper version of Surface, known as Surface RT, that Microsoft took a $900 million charge last quarter to reflect a $150 price cut on the product.

For its full fiscal year, which ended June 30, total Surface sales were only $853 million, Microsoft said in its annual report. By comparison, Apple's iPad sales during roughly the same time frame were $33.2 billion.

And it appears that Microsoft will be leaving many tablet sales to the competition with the new offerings, too. The latest Surface tablets will not be available in smaller 7- to 8-inch versions, the most popular size in the market. The iPad mini and other devices in that size have become clear favorites among tablet shoppers because their compactness makes them easier to hold with one hand.

The Surface tablets have 10.6-inch screens, behemoths by tablet standards. This year, 57 percent of worldwide tablet shipments are expected to be in the 7- to 8-inch category, while 17.8 percent will be in 9- to 10-inch category, estimates IDC, the research firm. Tablets with 10- to 11-inch screens, like the Surface, are forecast to account for about 17.4 percent of the market.

Mr. Panay suggested that Microsoft will eventually offer a mini version of the Surface, but not until it is confident that it has the right product.

"You want to make sure the experience is spot on," he said.

As before, the new Surface family includes two products, Surface 2 and Surface Pro 2. The Surface 2, called the RT in the first version, competes more directly with the iPad, because it runs on the class of ARM microprocessors inside nearly all smartphones and tablets, including Apple's. The Surface Pro 2 is a more expensive, full-blown PC running an Intel chip so that any legacy PC applications -- from accounting software to iTunes -- can run on it. The new devices will be in stores on Oct. 22.

Little has changed about the exterior of the devices, other than a subtle color change on one of the models. Both have an integrated kickstand that props the Surface screen up at a 24-degree angle for watching movies on an airplane or typing on a keyboard. On the new models, the kickstand also clicks into a 40-degree position to improve what Microsoft calls "lapability," so people can cradle it comfortably on their thighs while sitting.

Microsoft paid special attention to improving the Pro version's battery life, which Mr. Panay described as "awful" in the original, getting as little as three to four hours. The company redesigned the guts of the system so that the Surface Pro 2 can run for seven to 10 hours depending on how it is being used. He said people who bought the original Surface Pro loved it except for the battery life.

The company has created a new docking station that clamps onto the sides of the Surface Pro, with connectors for up to two external displays.

"For the relaunch, we don't want to reinvent the wheel," Mr. Panay said. "We really wanted it to be a subtle change."

Microsoft will sell Surface 2 for a starting price of $449. That is $50 less than both the initial price of the earlier version and Apple's latest full-size iPad. But it is still more than the price for Android tablets from Google and Amazon with comparable screen sizes. (Microsoft intends to keep selling last year's model for $349.)

"I think it's tough to come in at that price point when you are not that differentiated," said Carolina Milanesi, an analyst at Gartner. "Maybe with bundling they'll be able to make it more interesting."

Microsoft is using its online services to sweeten the deal for Surface, including a year of free international voice calling on Skype to conventional phone numbers. Surface customers will get 200 gigabytes of free storage for two years on Microsoft's SkyDrive service, far more than most people will need for their photos, videos and documents.

Microsoft said it would also sharpen its advertising for the product, which in earlier versions showcased troupes of dancers doing percussive moves and acrobatic stunts with their Surface tablets.

For instance, Microsoft in its marketing will be more clear that the Surface Pro product is aimed squarely at people in the market for a laptop who also want the touch capabilities of a tablet. That approach could make the $899 starting price of a Surface Pro 2 more palatable since that is closer to what laptops cost.

And since this is Microsoft, it is safe to say the second iteration -- and the marketing -- is still only the beginning.

Brian Hall, general manager of Surface sales and marketing, said: "This time around we get to tell the first Surface story."

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This article originally appeared in The New York Times.


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