On The Record With Microsoft's Surface Bosses Panos Panay And Brian Hall

TechCrunch flew to Microsoft’s Redmond campus ahead of today’s launch of the Surface 2 and Surface Pro 2. I sat with Brian Hall and Panos Panay, the two key leaders of the Surface team for just under an hour to talk over their new hardware, the OEM market, Microsoft’s larger device strategy, and a few other topics. In between jokes and ordering sparkling water, we covered quite a bit of ground. What follows are excerpted transcriptions of our discussion. Questions have been rewritten for clarity, preserving initial intent. Brian and Panos’s responses have occasionally been lightly edited for clarity (speech to written word is often a bit choppy), but any real insertion or change is marked in brackets. For fairness, the list of questions and answers mirrors our discussion temporally. Margins TechCrunch: Steven Sinofsky, when he was the head of the Surface team, specifically told reporters that the hardware was “a real business.” Is Microsoft preserving that same margin level with the new hardware? Hall: ”We are running this as a business. But we also are running it as a long-term business. Which means that there are different priorities at different times. Take dropping the price of [the first generation Surface RT] to $349. That was to primarily to get it into more people’s hands. That’s because we knew that the most strategic thing is more Surface users. People that used it loved it, and became good advocates. And we had to get that seed planted, watered, and fertilized. We want to have a great portfolio. We recognize that people start from price points in their head. And I think that they will see that each of these at its price point is an amazing value. If there is someone who wants a tablet that can really be productive.” Analysis: So, Microsoft is likely taking different margin points at each of the Surface lineup’s device marks. The $349 Surface RT probably isn’t very profitable, and the higher-end Surface Pro 2 likely is. However, the company appears willing to bear that mix of net margins to ensure that it can sell devices from low dollar amounts to the upper-crust of mobile hardware rates. If Microsoft can’t find a large customer base by straddling this broad of a device demographic, its bet on a productive tablet will have been defeated by market demand. We’ll know in six months how the gambit performed. Surface Pro

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