Microsoft will not unveil a smaller-sized Surface tablet tomorrow, according to multiple sources familiar with Microsoft's plans.
The anticipated Surface, which many had assumed would be a device with a 7- or 8-in. screen -- dubbed by wags as the "Surface Mini" -- will, in fact, not be unveiled Tuesday at Microsoft's New York event.
Instead, Microsoft will, the sources agreed, increase the size of the Surface Pro's screen, not dive into the smaller form factor market. If accurate, the more recent rumor that a revamp of the Surface Pro will include a 12-in. display is the more accurate of the two themes pundits have put forward.
Microsoft pitches the Surface Pro as a 2-in-1, a device that can serve as either a tablet or an ultra-light notebook, depending on the task at hand.
The Surface Mini was assumed to be more akin to what Microsoft now calls the Surface 2, the second-generation of the Surface RT, a tablet that, while it also sported a 10.6-in. display, was powered by Windows RT, a tablet-only operating system that featured colorful tiles and boasted a new ecosystem of apps.
Talk of the Mini centered around Windows RT, the OS created for the ARM processor architecture, because at 7- or 8-in., there seemed to be little reason to plump for legacy apps that had little or no touch support. Instead, the Mini was to compete with lower-priced tablets from the likes of Apple, Samsung and Amazon. Those tablets, and the glut of even cheaper devices, so-called "white box" tablets, are used almost exclusively to consume content, and are generally seen as unsuitable for creating content.
But Windows RT has had a very rough time. Last year Microsoft was forced to take a $900 million write-down for excess Surface RT inventory. Since then, many analysts have questioned the wisdom of pressing forward on Windows RT, believing that the two operating systems simply confused potential customers.
The lack of a smaller Surface, coupled with a shift to even larger screens, hints that, for the time being, Microsoft's strategy will shift from a consumer-commercial combination -- Surface 2/Surface Mini for the former, Surface Pro for the latter -- to focus more on the enterprise, as well as power users willing to pay top price.
It makes sense: Analysts interviewed last week argued that the Surface Pro, especially the second-generation Surface Pro 2, had gained some traction in corporate environments, both because it runs legacy Windows applications and could conceivably replace both a tablet and a notebook.
With the Surface Pro -- including the anticipated new models of tomorrow -- Microsoft can play to its strengths, which remain in the enterprise and rely heavily on the Office productivity suite. By sticking with corporate offerings only, the company can also more easily charge the premium prices necessary to turn a profit, something Microsoft's tablet business has been unable to do thus far.
"Surface Pro is making some headway in corporate environments," said Ross Rubin, an independent analyst with Reticle Research, in an email reply to questions last week. "The big improvements we saw in the Pro 2 in terms of performance, thickness and battery life made it a much more appealing offering."
Rubin had also pointed out that the smaller-screen market was "a tough, competitive space," and that Microsoft's biggest selling point for Surface, its Office franchise, would have little impact on devices with 7- or 8-in. displays.
Declining to sell a Windows RT-powered Mini not only keeps Microsoft out of the fierce price wars of smaller tablets, but may also be a recognition that the devices are already on the decline. While smaller tablets will continue to account for the majority of those shipped in each of the next five years, their share of the total will continue to shrink as they face pressure from larger-sized smartphones, according to IDC. Part of the small-tablet decline has been attributed to the rise in popularity of bigger smartphones, those with screen sizes 5-in. and larger.
But Microsoft will forgo some benefits by not going low.
"They have to be successful in a smaller format to drive scale," said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in an interview last week. "You have to have scale to buy cheaper components. Right now, Microsoft doesn't have the scale to be profitable or to hit interesting price points."
"There is a downside in not playing in that [smaller] space at all," said Carolina Milanesi, chief of research at Kantar WorldPanel Comtech, when asked today a "what if?" about a lack of a smaller Surface. "But in terms of timing, perhaps there is not a downside. That market may just not be a valuable market for Microsoft at the moment, perhaps because they haven't decided how to drive value around that form factor."
Rather than risk the Surface brand's reputation -- which has consistently been about top-tier hardware and the best-possible Windows experience -- in trying to play in the lower prices, Microsoft could, Milanesi said, use its newly-acquired Nokia division for that market.