Microsoft’s China-First Tablet Sales Challenge Apple

Microsoft’s Surface Tablet Lacks Apps to Compete With Apple IPad
Panos Panay, general manager of Surface at Microsoft Corp., speaks at a news conference launching the company's Surface tablet computer at Milk Studios in Los Angeles, California, U.S.. Photographer: Jonathan Alcorn/Bloomberg

Microsoft Corp. sold its first Surface tablet at a department store in northwest Beijing as the company seeks to challenge Apple Inc., which had offered the last iPad in China months after its U.S. debut.

“This is the first place in the world where people will be able to get Surface devices in their hands,” Ralph Haupter, Microsoft’s chief executive officer for China, said in an interview today at the Suning Appliance Co. store in Beijing. “Having it here in China is addressing the capability of the China market, the fact that we produce these devices here and can bring it to a big, big addressable consumer market.”

Consumers in China, the world’s largest personal computer market, typically must wait months to get the latest Apple devices. The third generation of Apple’s iPad, which went on sale in the U.S. in March, wasn’t sold in China until four months later. Still, a commitment to earlier China sales alone won’t be enough for Microsoft to unseat Apple, said Shaw Wu, an analyst at Sterne Agee & Leach Inc.

“I would agree that launching in China makes sense but Apple is already there with the third-generation iPad,” Wu said in an Oct. 24 e-mail. “At the end of the day, the product has to appeal with its usability and ecosystem and it isn’t clear that Microsoft can deliver.”

Suning will sell the devices at 500 locations across China, Haupter said, declining to comment on sales or market share forecasts for the device in China.

“We all recognize China is a great market to have devices,” Haupter said. “The pure number of people using devices in China is giving us a huge opportunity.”

Chinese Cities

In addition to the nation’s capital, Microsoft is holding similar events in four other Chinese cities: Shanghai, Shenzhen, Guangzhou and Nanjing, Haupter said. Sales will follow today in the U.S. and markets including Australia, Canada, France, Germany, Hong Kong, and the United Kingdom.

More than 600 people lined up outside the Beijing location to collect a number needed to buy the device at the midnight debut, said Xu Lei, a Suning spokesman.

The first person in line was Chen Shi, a 25-year-old electrician from Beijing, who said he camped out from 6 p.m. the night before to be first in line. He said Microsoft’s decision to debut the Surface first in China was “very important.”

“This shows the proper respect for the China market, which Apple doesn’t always do,” Chen said. “China is a great consumer market and that needs to be recognized.”

Second in line was Zhou Qiaochuan, a 26-year-old publisher, who said he arrived at 9 a.m. He said he’s “very excited” as a long-time Windows user who also owns an iPhone and has been frustrated by Apple’s delayed introduction in China.

‘Really Angry’

“Why do you make us wait so long,” he said. “It makes me really angry. China is such an important consumer market and Apple doesn’t recognize it. That’s laughable. Microsoft is doing it right.”

While Apple’s products are sold later in China than the U.S., many Chinese still get them when they travel abroad, Wu said.

Consumers in China who can’t travel to get Apple’s products before the local release are forced to pay a markup to smugglers who bring the devices from Hong Kong, said Bryan Ma, a Singapore-based analyst at research firm IDC. Microsoft could win over some buyers by providing an escape from that routine, he said.

“For most Apple products, people have to pay a premium to get products on the gray market in the months it takes Apple to launch officially in China,” Ma said. “Microsoft putting China first in the priority list could help to make buyers feel special.”

Global Dominance

Still, that won’t translate into unseating Apple from its global dominance, Ma said. IDC forecasts Apple’s share of the tablet market will rise to 61 percent next year, from 60 percent this year. The share for all tablets running Windows software will rise to 6 percent next year, from 4 percent this year, Ma said. Google Inc.’s Android system will drop to 33 percent next year, from 35 percent this year.

Apple’s Beijing-based spokeswoman Carolyn Wu declined to comment on Microsoft’s tablet strategy, or how it would affect iPad sales in China.

Tablets and mobile devices running the new Windows 8 system are key for Microsoft, as personal computer sales are forecast to decline this year for the first time since 2001, according to IHS iSuppli.

The Windows 8 operating system is an overhaul of the product to add touch controls for tablet computers. Windows 8 also features a new design that drops the start button introduced in Windows 95, replacing it with tiles for each of the user’s applications, as well as ones displaying snippets of information such as weather, news and people.

Tablet Revenue

As in the similar Windows Phone design, the tiles automatically update as new content, such as an e-mail or change in the weather, comes in.

Revenue from tablet PCs is expected to grow 26 percent to $79.4 billion next year, according to market research firm NPD DisplaySearch.

— With assistance by Edmond Lococo

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