Microsoft has yet to find the one true purpose for its Surface tablets. Are they Apple iPad killers, laptop replacements or hybrid two-in-one computers?
That question still applies to the Surface 3, Microsoft's new $499, 10.8-inch tablet announced Tuesday. With it, the company returns to the medium-priced tablet market after a brief hiatus. Unlike the Surface Pro 3, which costs anywhere from $800 to $2,000, this newer mobile computer is aimed at casual consumers.
It also uses different software than past models. Instead of running Windows RT, the software found in earlier lower-powered tablets, the Surface 3 will use a full version of Microsoft's Windows 8.1. Buyers will also get an upgrade to Windows 10 when it's released this summer. (RT is presumed dead.) By paying an additional $50 for a stylus and $130 for a keyboard, you can make the Surface 3 a more competent computer like its pricier older sibling.
"The problem to some degree is that they keep having to reposition [the Surface]," said Roger Kay, an analyst with Endpoint Technologies Associates. "What it stands for isn't really clear because last time you looked it was something else."
See also: Hands-on with Microsoft's new budget-priced Surface Pro 3
All these nuances add up to a Surface stretched between two worlds: work and play, professional users and consumers. This identity crisis is more important than ever now that the tablet market faces an uncertain future.
Five years after Apple released its original iPad, tablet sales have started to slow. Current devices have longer shelf lives thanks to software upgrades and the gifting of older tablets to friends and family. At the same time, larger-screen smartphones, dubbed "phablets," have displaced newer tablets. For those reasons, global tablet shipment growth may fall to 8 percent in 2015 after years of double-digit growth, according to industry research firm Gartner.
That leaves the Surface 3 in the precarious position of having to walk the line between an unnecessary device designed for kicking back and watching Netflix and one that lets you do real work with a keyboard. Not many consumers may want to spend that extra $180 to transform the Surface 3 into the latter.
The device also carries an Intel Atom x7 chip that, while optimized for longer battery life, is a couple rungs lower on the performance ladder than higher-end Surface models. Don't expect the Surface 3 to go head-to-head against a laptop computer as the Surface Pro 3 can.
"A tablet itself doesn't do much without the keyboard," said Mikako Kitagawa, an analyst at Gartner. She believes the only real growth areas for tablets are in 12- and 13-inch, two-in-one devices like the Surface Pro 3. That device's hybrid approach lifted Microsoft's tablet business past the billion-dollar mark last year, largely because it can be used as a portable workhorse. Microsoft even positioned it against Apple's MacBook Air laptop in last year's commercials.
But the tablet market holds little promise for products in the middle -- especially since consumers can spend as little as $200 for a mobile entertainment device. "There are a lot of cheap, good Android tablets out there for content consumption," Kitagawa said.
Google's Android mobile operating system software runs on two out of every three tablets worldwide, according to research firm IDC. In contrast, Microsoft's Windows Phone software powers less than 3 percent of the world's smartphones. And Microsoft controls only about 11 percent of the global tablet market, even after licensing Windows for free last year for devices smaller than nine inches.
To counter that weak market position, Microsoft, the world's largest maker of software, embarked on a major campaign to get its Windows software on as many devices as possible, often by giving away portions of it for free. Last week, the company announced a deal to preinstall Windows apps on new Samsung and Dell tablets. It also made its flagship Office software free on every device with a screen under 10.1 inches.
Microsoft hopes these deals will help rebuild bridges with its traditional partners. Device makers including LG, Dell and Lenovo looked at Microsoft as a competitor after it began making its own tablets in 2012 and purchased Nokia's handset division in 2014. Samsung even stopped paying patent royalties to Microsoft before the two companies quashed the dispute in February.
Given all that, the Surface 3 is not so much a pronouncement of Microsoft's tablet ambitions as it is a question mark, and the company still needs to find an answer.
We know what the Surface provides Microsoft -- it gives the company an opportunity to show off its software, and staying in the hardware game helps inform how it designs those programs. And with sales in the millions of units, Kay said, Surface is a respectable part of Microsoft's business and "doing well enough that you have to keep an eye on it."
What's unclear, however, is what a device like the Surface 3 offers consumers, especially if it's deemed too expensive for casual consumption and too underpowered for serious work to be desirable for either task.
