Surface Hub is 2016’s Stealth Hit for Microsoft Corporation (MSFT)

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Microsoft Corporation (NASDAQ: MSFT ) is enjoying a resurgence as it closes out 2016. While rival Apple Inc. (NASDAQ: AAPL ) has repeatedly come under fire for new product releases this year, MSFT has been looking like the innovative company.

Source: Microsoft

Surface sales are on fire. New products like the Surface Studio PC are making rivals look boring in comparison, and MSFT is about to launch Cortana in the home. But, one bit of good news the company shared on its blog may be the true surprise of 2016: the Surface Hub - its massive (and expensive) wall-mounted system - is seeing sales levels that exceed MSFT's hopes and blow away predictions.

Surface Hub Refresher

Chances are you may have forgotten all about the Surface Hub . Microsoft announced the device back in January 2015, but only began shipping it nine months ago.

Surface Hub is a massive, wall-mounted version of the Surface tablet, aimed at enterprise users. It was positioned as a high-tech boardroom centerpiece, an all-in-one solution that would cover video conferencing, collaboration and whiteboard duties.

The Surface Hub was ambitious, and expensive. Prices ranged from $6,999-$19,999. By the time Microsoft actually got around to releasing the product, it had hiked the price $2,000 across the board , making the Surface Hub a minimum $8,999 investment.

Ambitious, expensive, more that a year late - MSFT still had high hopes for the Surface Hub, but there were plenty of skeptics expecting a flop.

Blowing Away Expectations

MSFT published a post on its Windows blog last week, bragging about its success in 2016 with the Surface line. After Apple's MacBook Pro stumble, the company claimed record numbers of MacBook owners traded in their laptops for discount on a new Microsoft Surface device. November saw the highest number of Surface sales ever.

In a separate announcement, MSFT showed off a new premium Cortana-powered smart speaker , set to take on Inc.'s (NASDAQ: AMZN ) Echo speaker in 2017. This will be the first wave of smart devices aimed at the home that will use Microsoft's Cortana instead of Amazon's Alexa or Apple's Siri. And, while Sony Corp (NYSE: SNE ) is still firmly in the lead in the game console wars, MSFT got a shot in the arm when the Xbox One outsold the Playstation 4 as the best-seller on Black Friday .

With this wave of good news, what really stands out as an unlikely success story for MSFT in 2016 is the Surface Hub. Numbers were further down in that Windows blog post, and many people didn't read past the Surface Pro and Surface Book details. However, Microsoft has, apparently, sold a ton of Surface Hubs, exceeding even its own (considered by many to be very optimistic) expectations:

"By the end of 2016, nine months since our launch, we will have shipped Surface Hubs to over 2,000 customers in 24 markets. The average deal size we see in the pipeline is approximately 50 units, but we've seen orders as large as 1,500 units to a large car manufacturer."

On top of the purchase price, MSFT gets a shot at selling plenty of extras and add-ons, from a $2,350 rolling stand to a $3,499 fee for "site survey, unboxing and basic installation" for an 84-inch Surface Hub.

In other words, while no one was really paying attention, the Surface Hub has stealthily become a billion-dollar business for MSFT.

Google Noticed…

Well, not everyone was caught off guard. Alphabet Inc. (NASDAQ: GOOGL ) was clearly watching those Surface Hub sales and decided to get in on the action. As a result, the Google Jamboard is coming in 2017 . It's a 55-inch, wall-mounted digital whiteboard that runs Android instead of Windows 10. And, at $6,000 it is $3,000 less than Microsoft's cheapest Surface Hub option.

However, MSFT isn't sitting still as Google prepares to muscle in on its lucrative new market. The company has been busy adding new features to the Surface Hub and expanding third-party accessory support. The company is also launching a 30-day trial program that lets users test drive a Surface Hub for one month without risk, in the hope that they see the benefit and buy.

The Surface Hub may not be critical to a company the size of Microsoft, but its success is a good sign. It's part of the overall Surface sales wave, and having these devices in corporate settings helps to keep interlopers like Apple and its iPad Pro at bay.

Once the initial wave of installations is over, sales may stabilize - but they could also spur even greater levels of adoption as other companies see results and bite the bullet. At the end of the day, even a company the size of MSFT won't sneeze at a product like the Microsoft Surface Hub, which has managed to become a billion-dollar business in just nine months.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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