Office on Surface Pro suggests a shift in Microsoft's sales strategy

Surface Pro tablets to be sold in Japan will come with fully-licensed copy of Office Home & Business 2013

Microsoft yesterday announced that Surface Pro tablets it will start selling in Japan on June 7 will come with a fully-functional copy of Office, a bundle one analyst said hints at a change in Microsoft's sales strategy for its homegrown hardware.

Both Japanese configurations of the Surface Pro -- one with 128GB of storage space, another with 256GB -- will include Office Home & Business 2013, Microsoft confirmed Wednesday. The productivity suite will be a fully-licensed version, not a time-limited trial.

According to a press release issued by Microsoft Japan, the 128GB Surface Pro will sell for 99,800 yen, including taxes, or $986 at current exchange rates. The 256GB model will cost 119,800 yen, or approximately $1,184.

The tablets sold in Japan will not be the first from Microsoft to bundle Office: More than a month ago the company launched a special edition Surface Pro in China that included Office Home & Student 2013. But the Japanese configurations will be the first to come with a commercial-use edition of Office -- one that can legally be used for work and in the workplace -- and on a tablet powered by Windows 8 Pro. The special Chinese Surface Pro bundle relied on Windows 8, the consumer-grade OS.

Microsoft has also included Office Home & Student RT with all Windows RT-powered tablets, its own Surface RT among them. Like the Surface Pro in China, however, Office on a Surface RT is not licensed for work, and lacks the Outlook email client. Outlook is included with Home & Business 2013.

Surface Pro tablets now sold in the U.S. come with a one-month trial of Office 365 Home Premium, Microsoft's rent-not-buy subscription service for the suite. That, too, is for personal use only, and not licensed for work.

The addition of Office Home & Business to the Surface Pro in Japan sparked speculation from analysts.

"I think it's possible this means Microsoft will do the same elsewhere to firm up the footprint [of the Surface Pro] in the market," said Ezra Gottheil, of Technology Business Research. "After all, the cost of goods for software is zero."

Wes Miller, of Directions on Microsoft, echoed Gottheil. "Definitely possible," he said of Microsoft tossing Office Home & Business 2013 into all Surface Pro tablets. "This could reflect a different angle on selling the Surface Pro."

Both analysts noted that the move would be in keeping with Microsoft's apparent strategy to use Office as a prime selling point for its Surface line, and Windows 8-powered tablets in general.

By using Office as a carrot for Windows, the theory goes, Microsoft has decided to forego revenue it would generate if it released versions for Android and iOS -- reportedly slating those editions for late-2014 shipping -- instead putting all its horses in Windows' traces.

Adding Office Home & Business 2013 would also reinforce Microsoft's implied contention that the Surface Pro is for work, said Miller. And it would be a concession that the Surface Pro's $899-$999 price can't compete in the consumer space.

The Japanese price for the 128GB Surface Pro is close enough to the U.S. price, said Miller, that if Microsoft does pre-load Office in America, it will probably maintain the current cost. "You'd get Office included for the same price," Miller said.

According to a Microsoft price sheet, the pre-tax price of the 128GB Surface Pro in Japan is 95,048 yen, or about $944, just $45 more than in the U.S.

Gottheil and Miller both said that if Microsoft does pull the trigger on bundling Office Home & Business 2013, it would almost certainly extend a deal of some sort to its OEM (original equipment manufacturer) partners for their Windows 8 tablets.

"They won't do this to hurt OEMs, so maybe Microsoft will define a set of products that compete head-to-head with the Surface Pro, and make those OEMs the same deal, or a price cut on Office," said Gottheil.

"I would expect some kind of similar pricing to OEMs," said Miller, "or Microsoft risks more conflict with OEMs."

Microsoft's relationships with its partners has been rockier in the past year, kick started last June when the Redmond, Wash. developer surprised everyone -- OEMs included -- by unveiling its Surface line, the first-ever computing hardware designed in-house. The lackluster performance of Windows 8 and Windows RT has further strained those relationships, with several long-time partners dissing the latter and Dell, the world's third-largest computer maker, blaming Windows 8 for some of its financial woes.

Japan's Surface Pro configurations -- 128GB and 256GB, with the current 64GB model missing -- may also signal that Microsoft will kill off the 64GB Surface Pro in all markets. That entry-level model has come under fire because the storage space available to users is a relatively meager 28GB.

The Japanese offering, however, may not herald a shift, cautioned Gottheil. "Microsoft may simply be experimenting with ways for a broader distribution of the Surface Pro," he said of the bundling.

And other problems surface -- no pun intended -- with the inclusion of Office Home & Business 2013, Miller added. "If they're branding the Pro as the business [system], what exactly is the Surface RT for?" he asked.

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Microsoft alum: Windows 8 "a much deadlier assault weapon" than Windows 7

Former Microsoft senior VP says Windows 8 on ARM tablets is a "scale 9 earthquake"


Windows 8 is just what Microsoft needs to take advantage of the ongoing irreversible shift from PCs to handheld devices including iPads, iPhones and other form factors yet to be designed, according to the company's former OEM chief.

Just as Windows 7 won instant popularity after the debacle of Vista, Windows 8 is poised to capture business from phone and tablet leaders such as Apple, only to greater effect, says Joachim Kempin, former Microsoft senior vice president in charge of OEMs who worked for the company from 1983 to 2002.

"Windows 7 spearheaded a comparably small rejuvenation," Kempin says in his just-released book "Resolve and Fortitude: Microsoft's Secret Power Broker Breaks his Silence". "I predict Windows 8 is readied as a much deadlier assault weapon."

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He says the main intent of Windows 8 is to push the operating system into low-powered mobile devices running ARM processors vs traditional x86 chips. He says that when Microsoft introduced Windows 8 nearly two years ago it "flabbergasted the IT world by running on a tablet powered by NVidia's ARM-based CPU. I consider this move to ARM a scale 9 earthquake and wake-up call for MS's longtime allies Intel and AMD."

He says that shift potentially signals the end of notebooks and PCs, not just media tablets. A strength of Windows 8 is its common interface and navigation across all devices, he says.

"No need to bother with the annoyance of having to remember different key strokes or gestures when switching between devices or operating them with a mouse or a touch screen," Kempin says. "Neither Apple nor Google have ever accomplished such uniformity."

He praises the design of Microsoft's two Surface tablet models but dooms them to failure.

He thinks they will anger OEMs that were working on their own Windows 8 tablets and notebooks and who now may be driven to make them with Linux or Google operating systems.

In addition, he doubts the devices themselves can be profitable. "MS does not own a factory and has a track record of having trouble with sourcing hardware components and producing devices as cheaply as her competitors," he says. "I do not know who did the math on this project. The slim revenue gain with not much hope for real profits combined with losing partners' trust and loyalties seems not worth that risk."

Instead, Microsoft should spin off a startup with the mission of making Windows 8 devices, putting a distance between the devices and Microsoft itself and creating just another OEM that competes with current OEMs.

Still, he likes Surface RT. "Adding an innovative wireless keyboard makes it a hybrid located between today's notebooks and tablets," he says. "When combined with the slick design promises to totally obsolete notebooks in a few years when solid state drives will become cheap and small enough to replace traditional hard drive storage units."

He admires the strategy of porting Office applications to Windows 8 tablets based on ARM, known as Windows RT. Other tablets can support Office but only via remote services, not locally. "Less need for constant connectivity for 8-powered tablets when running MS-Office applications means a further leg up over Google's solution," he writes.

Apparently the book was written before Microsoft's Windows 8 leader Steven Sinofsky quit the company just after Windows 8 launched Oct. 26. Kempin says the company should tap Sinofsky to champion Surface as a product fanatic as focused as Steve Jobs was at Apple.

"Like others I always wait for a service pack to be released before trusting a new OS version," Kempin says. "[Sinofsky] will need to correct this notion with product excellence right out of the chute to gain vital momentum. This is in particular important for changing MS's fortune in the media tablet market where Apple, Google and Amazon are seen as leaders.

Blindly mimicking Apple in order to take sales from it is a mistake, and that means getting rid of its new brick and mortar Windows Stores. "The company needs to get rid of all distractions like her doomed retail stores," he writes.

He says Microsoft's investment in Barnes & Noble and its Nook e-reader represent an assault on Amazon and its Kindle tablets and e-readers. He says Microsoft miscalculated the market for them when it devoted research into the devices in 1998. "But the developers involved in this effort were told to shut down because their solution was not Windows centric enough," he says.

That was the wrong way to look at it, though. "You do not need Windows to read a book - MS-DOS would have sufficed and could have easily been replaced with more advanced technology later," he says.

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