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Microsoft Continues Surface Expansion

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Microsoft Corp. (MSFT - Free Report) recently announced that it would expand the availability of its Surface family of tablets to businesses, allowing customers to purchase the devices from authorized resellers in the United States.

Earlier, Surface was available only through the Microsoft Store in the U.S. and Canada. But now, a number of authorized distributors (Ingram Micro, SYNNEX Corp and Tech Data Corp)will sell the devices to authorized resellers, which will distribute the Surface through their brick and mortar stores around the world. These resellers include CDW, CompuCom Systems Inc., En Pointe Technologies, Insight Enterprises Inc., PC Connection Inc., PCM Inc., SHI International Corp., Softchoice, Softmart and Zones Inc.

Additionally, Microsoft is introducing a new program called AppsForSurface for independent software vendors (ISVs). Under the program, Microsoft will provide devices and funds for Surface-specific software development for their easy adoption at enterprise, government and academic organizations. This move could potentially boost enterprise adoption of Microsoft’s Windows 8 and RT tablets.

Microsoft Surface was launched worldwide on Oct 26, 2012, with a price tag of $499.0, which makes it comparatively expensive. Microsoft offers two versions of its Surface tablets to the consumer, one with Windows RT and another with Windows 8 Pro.

According to IDC, only 900,000 Surface tablets were sold during the fourth quarter of 2012 and the first quarter of 2013 and its market share was just 1.8%. In comparison, Apple (AAPL - Free Report) led the race with a 39.6% share of the worldwide tablet market, followed by Samsung with a 17.9%share, and ASUS with a 5.5% share.

The addition of authorized resellers is just the latest effort by the company to expand the availability of its Surface range in 2013. Last month, Microsoft reduced the price of the Surface RT model to $199 from $499 for schools purchasing it directly from Microsoft. In mid-December, the company added more retail outlets from where its tablet could be sold. Further, Microsoft transformed several holiday stores into permanent Microsoft retail outlets. Most recently, it tied up with Best Buy to create Windows Stores within Best Buy stores.

So far, Surface has been sold only at Microsoft stores and the apps have focused on consumers and individual business users. But this new move should help Microsoft expand its presence in the enterprise segment, which has been its greatest support in the PC segment.

Although Microsoft has fallen back in the tablet race, there is still time to create its own niche. Combining the functionality of a tablet and laptop, Surface can create interest and attract new users. We should also not forget its deep pockets, which gives it the power to conceive of and implement strategies like AppsForSurface.

Microsoft is a late entrant in the tablet market and beating the competition at this point will be an uphill task. Other successful tablets such as Apple’s iPads, Google’s Nexus 7, Samsung’s Galaxy tablets and Amazon’s (AMZN - Free Report) Kindle Fire already have a strong presence in the market.

The popularity of tablets has eaten into Microsoft’s core computing market, with the weak economic conditions making matters worse. Given its dominant position in the PC market, Microsoft has been one of the worst affected by this weakness.

Currently, Microsoft has a Zacks Rank #4 (Sell).

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