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Analyst: Microsoft Must Expand Its Surface Resale Program

Microsoft must eventually expand the resale opportunity for its Surface line of tablets to a wider partner base, according to Forrester Research.

In a blog post last week, Forrester senior analyst Tirthankar Sen outlined some of the hurdles Microsoft faces related to its Microsoft Devices Program (MDP). Launched in early July, the MDP allows a very select portion of Microsoft's partner channel to resell the Surface.

Under the program, three distributors (Ingram Micro Inc., Synnex Corp. and Tech Data Corp.) are authorized to supply Surface devices to 10 large account resellers (CDW, CompuCom Systems, En Pointe Technologies, Insight Enterprises Inc., PC Connection Inc., PCM Inc., Softchoice, Softmart, SHI International Corp. and Zones Inc.).

Before the MDP, the Surface was available for purchase only from Microsoft's online and brick-and-mortar stores, and a few third-party retailers such as Best Buy and Staples. The MDP represents the first opportunity for at least a few of Microsoft's channel partners to sell the Surface.

However, while Microsoft has said it plans to eventually expand the roster of LARs that can sell the Surface under the MDP, the sense is that the company will prioritize larger partners that are able to reach more customers over smaller ones.

Some see Microsoft's selectivity with the MDP as another example of how the company has mishandled its partners ever since the Surface launched late last year -- both original equipment manufacturers, whose own Windows devices compete directly with the Surface, and resellers, who until now have been shut out of selling the device. Sen noted in his blog that many Microsoft partners, especially solution providers, feel slighted at being excluded from the program.

"Microsoft's U.S. partners, solution providers in particular, have expressed dissatisfaction with Microsoft's selective approach towards partnering for Surface," he wrote. "Solution providers feel MSFT is ignoring the opportunity to deliver 'wrap-around services' around Surface, which they could have delivered."

However, Sen noted that there are good reasons for Microsoft to limit the number of partners in the MDP, at least in the outset. First, it is easier to collect feedback and make corrections to a new program when there are only a few members, he said. Second, keeping down the number of partners that can resell the Surface can protect those partners' profitability, as they will have less pressure to compete on price.

"If Microsoft were to open up the resale market in the enterprise space to all the partners, most in the long run would start seeing shrinking margins," Sen wrote. "With less competition, Microsoft's selected partners are more likely to remain both healthy and wealthy."

However, for the Surface to gain any meaningful market share in the tablet market and differentiate itself from its more entrenched competitors, Microsoft in the long-term must focus on selling businesses value-added solutions for the Surface instead of simply moving inventory, Sen said. And to do that, it must open the opportunity to sell the Surface to a greater number -- and a wider variety -- of partners.

"Microsoft should ultimately focus on creating an ecosystem of partners (distributors, resellers, ISVs, SIs) that can add value to Surface, including the delivery of integrated solutions to enterprise customers," he wrote. "Solutions can include vertical specific applications, scenario or use-case specific security features, collaboration features, etc., preloaded or customized for the device/organization. ... Microsoft will eventually need to open the market to a larger base of partners, including its solution providers. This is critical for expanding geographic reach and targeting the enormous base of mid-market and SMBs while also driving increased value by bundling the Surface with business solutions."

So far, the Surface has not caught on with either consumers or businesses. According to Microsoft's most recent 10-K filing with the Securities and Exchange Commission, since the product's launch the company has earned $853 million in revenue from Surface sales -- less than the $900 million write-down it took in its fiscal fourth quarter for "Surface RT inventory adjustments."

In the space of one month, Microsoft has slashed the cost of the Surface Pro by $100 and the Surface RT by $150.

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About the Author

Gladys Rama is the senior site producer for Redmondmag.com, RCPmag.com and MCPmag.com.