Microsoft’s Surface and the Problem of Branding

Huge South Korean electronics company LG Electronics will abandon its tablet PC effort, according to Bloomberg. LG is among the five largest cellphone makers in the world. It should have the ability to make it in the tablet sector. But its management knows it does not have the brand to carry it in a market controlled by Apple (NASDAQ: AAPL) and Amazon.com (NASDAQ: AMZN). The cost of entry is too expensive and risks too steep. Microsoft is about to face the same problem.

The launch of the Microsoft (NASDAQ: MSFT) Surface has issues similar to LG’s. But Microsoft’s are worse. It does not have a huge presence in the smartphone industry. Its Windows mobile OS has nearly no market share. Its smartphone partner, Nokia (NYSE: NOK), is moving quickly toward oblivion. Microsoft’s only advantage is that it has shown a willingness to spend billions of dollars to support new products. That did not help it when it released its Zune multimedia player, which it later killed. And a massive investment has not helped it chase down Google (NASDAQ: GOOG) in search.

The tablet market is akin to the smartphone one in an important way for companies that want to play in it. Early sales have to be extraordinary, the way that Apple’s are when it releases a new smartphone or tablet. Massive early sales create the aura of success. Very few products have come close to this. The only recent product to do as well as Apple’s iPad is the Samsung Galaxy S III, which has stormed ahead with large numbers of preorders followed by similar sales. Apple has been keen to keep the Samsung product off the market and has even gone so far as to fight the product through court patent battles. Apple understands that if the Galaxy S III has iPhone-like sales it will be considered a worthy rival.

Microsoft’s Surface has all of the makings of a successful tablet. The screen is big and high definition. It has the right processor and cameras. It weighs little and has a long battery life. It should be a formidable match for the iPad and Kindle Fire.

However, Microsoft lacks the key element to be a success in the tablet industry. No one associates its brands with portable smartphones or tablets. A brand without a platform has very, very long odds at succeeding. Microsoft will see that by the time the Surface has been available for a week.

Douglas A. McIntyre