With Sales Soaring, Surface Heads to Governments Too

Microsoft this week is continuing its push to make Surface hardware available to an ever-broadening audience with two initiatives that let the devices be sold to government customers. With Surface finally profitable, it's possible that the software giant has finally found a strategy that makes sense for both it and its potential customers.

With regards to governmental sales of Surface, there are two bits of news.

First, Surface Pro 3 is now available via the United States General Services Administration (GSA) Schedule, which Microsoft describes as a federal procurement process which establishes long-term government-wide contracts with commercial companies. With Surface Pro 3 meeting all GSA criteria, US governmental employees can now purchase the tablet and its accessories through the GSA. You can find out more at Surface.com/Government.

Second, Microsoft has approved a new set of Surface resellers that target the public sector, including government entities and educational institutions. These new partners meet specific government procurement requirements, Microsoft notes, while also delivering a variety of value-added services to the Surface family, such as asset tagging, custom imaging, kitting, onsite service and support, device recycling and data protection. You can find out more at the Surface Blog.

Surface Pro 3 was released about five months ago and while it was originally offered only in a limited set of markets, and in a single configuration, Microsoft now sells five Surface Pro 3 models in almost 30 different markets. That's a pretty quick ramp-up, especially when you consider the steady, measured pace with which Microsoft had established its PC business since the initial launch two years ago.

And Surface, overall, has finally started making money. The firm noted in its most recent quarterly results (fiscal Q1 2015, or calendar year Q3 2014) that gross margins for its Surface business were positive in the quarter for the first time ever. And with almost $1 billion in revenues in the quarter, Surface is now one of several billion-dollar businesses for Microsoft.

This is a pretty amazing turnaround. Most readers probably remember Microsoft's embarrassing $900 million write-down, even though that happened over a year ago and was the result of poor predictions about the ratio of sales between first generation Surface RT and Surface Pro models. The firm had really bet big on the device future and over-stocked Surface RT, while under-estimating the success of Surface Pro, which was a real PC.

As recently as August 2014—again, over a year since that write-down—Computerworld calculated that Microsoft was still losing money on Surface and that, worse, it had in fact lost more in that previous quarter (fiscal Q4 2014, or calendar year Q2 2014) than it had in any previous quarter. It seemed like the Surface was going from disaster to disaster.

And then everything changed.

First was Surface Pro 3, of course. But before we move on to that little bit of "right product, right time and place," we should also briefly consider an equally auspicious and related Microsoft decision: In addition to shipping Surface Pro 3 at mid-year, Microsoft also decided to cancel Surface Mini, a Windows RT-based boondoggle that would have further strained Microsoft's finances and the credibility of the Surface brand. Surface Mini was the wrong product—no one wants Windows RT—at the wrong time: It would have shipped just after the demand for mini-tablets, especially Windows mini-tablets, had essentially disappeared.

Surface Pro 3, once viewed as a side-show at what would have been a consumer- and student-centric Surface Mini launch, was of course the right product at the right time. Microsoft advertises it as the "tablet that can replace your laptop," and the genius of a product that can do such double-duty is only slightly mitigated by the real-world improbability of it doing both jobs very well. But Surface Pro 3 resonated with Microsoft's business customers in ways that Surface Pro and Pro 2—and Surface RT and Surface 2—never did.

The kicker is that it's not any one thing that makes this so, but rather a wide range of reasons.

Yes, it helps that Surface Pro 3 includes a just-big-enough 12-inch screen that you can actually see the thing without needing perfect vision: The comparatively pinched widescreen displays on other Surfaces—Surfaci?—are better for movies than productivity work. But it's so much more than that.

It's a Type Cover that actually works on your lap. It's a variable-angle and frictionless kickstand hinge that makes the device comfortable in so many more scenarios. It's the available range of options that provide different processor, RAM and SSD storage allotments. It's the Docking Station that turns your Surface Pro 3 into a three-in-one, instead of just a two-in-one, letting you replace your desktop PC too. And it's the crazy-perfect Surface Pen that makes the Surface Pro 3 ideal for creative professionals and note-takers alike.

More generally, it's the realization and the admission that Surface Pro is a PC, the same change we're seeing in the Windows team, and I can tell you from a month of experience that Surface Pro 3 gets even better when you upgrade to Windows 10. This is a machines that if not future-proof can at least help you face the future unafraid.

In other words, Surface—well, Surface Pro 3—has succeeded on its own merits. Instead of forcing us down a dubious path as it did with previous models, Microsoft has at last struck the right balance between PC and device, and between the promise of the multi-touch future and the reality of the mouse and keyboard present. Surface Pro 3 isn't perfect—now I'm pining for a 13- 14-inch Surface Ultrabook—but more useful, and usable, and far less of a compromise. With Surface Pro 3, Microsoft has finally found a niche for itself in the PC market. I can't wait to see what it does next.