LNVGY Lenovo Group Ltd (PK)

By Jay Greene 

Microsoft Corp. and its partners unveiled new laptops aimed at challenging Alphabet Inc.'s Google at the low-end of the education market and Apple Inc. at higher prices.

The marquee device was Microsoft's new Surface Laptop, a sleek $999 device that comes in four colors and is meant to compete with Apple's MacBook Air.

Microsoft's partners, including Acer Inc., Lenovo Group Ltd. and HP Inc., also rolled out new low-cost laptops for students and teachers starting at $189. Those devices are aimed helping Microsoft catch up in the education market, which Google has seized with its Chrome operating system designed for low-cost laptops.

Devices running Chrome OS accounted for 58% of operating-system shipments to the U.S. kindergarten-through-12th-grade market in 2016, according to Futuresource Consulting Ltd. Windows registered a 22% share.

All of the new devices run Windows 10 S, a new variant of Microsoft's flagship operating system. The new OS only permits users to run apps obtained through Microsoft's online Windows Store, which the company says makes the devices more secure and easier to manage.

While on stage, Terry Myerson, executive vice president of the Windows and Devices Group, said the S stands for "streamlined, significant performance, security." He added, "I personally like to think of it as the soul of today's Windows."

The new devices come after Microsoft revealed its struggles with Surface computers in the quarter ended March 31. Revenue for the hardware line plummeted 26% in the quarter as Microsoft wrestled with older models in the market, as well as increased price competition.

Chromebooks have been particularly popular with students and teachers because they are easy to manage. Customers who use the devices, which can cost as little as $150, spend much of their time in browser-based apps such as Gmail and Google Docs. The devices and apps are updated automatically, making them particularly appealing to schools, which often don't have technical staff to manage devices.

While the $189 starting price for Windows 10 S devices is higher than the entry-level prices for Chromebooks, Microsoft said the laptops will support pen-based computing and apps that make use of augmented reality.

The company is also introducing updates to the education version of its Office 365 productivity application that will run in Windows 10 S and will be available free to students, faculty and school staff. They will also get a free one-year subscription to an education version of Microsoft's popular Minecraft game that schools can use to teach coding.

"We think we're entirely competitive in terms of price," Microsoft corporate vice president Joe Belfiore said in an interview.

Other than limiting apps to those from the Windows Store, there is little difference between Windows 10 S and the widely used Windows 10 Pro, the version sold to businesses. If customers want to use apps not available in the Windows Store, such as Apple's iTunes or Google's Chrome browser, they can pay $49 to upgrade.

Microsoft said its Surface Laptop can be preordered and will be available June 15. The other devices will be available this summer, in time for the back-to-school shopping. Schools will be able to buy them in bulk, and consumers will be able to pick them up at retail.

The new Surface Laptop weighs 2.76 lbs. and measures 14.47 millimeters at its thickest point. It has a 13.5-inch screen, and a fabric-covered keyboard. According to Microsoft, the battery will last for 14.5 hours.

Microsoft also updated the version of Office 365 offered to students and teachers. The company added Teams, a workplace-collaboration service introduced in November that competes with Slack Technologies Inc. The service includes features to let teachers run quizzes and help students join forces on school projects.

The new products should "stem the bleeding" for Microsoft in the education market, Forrester Research Inc. analyst J.P. Gownder said.

"The cost of Windows was way too high for schools," he said.

Microsoft's focus on reducing device-management costs and headaches will likely lure some schools to the devices, Mr. Gownder said. He said he believes schools will be willing to pay a bit more for the Windows 10 S devices because of the Office 365 and Minecraft tie-ins.

"You can't do that with Chromebooks," he said.

Still, one challenge Microsoft might face is with consumers choosing between PCs running different variants of Windows. Five years ago, the software giant introduced Windows RT, a version of the operating system focused on the tablet market that only worked with a specific type of computer chip. Windows RT struggled, in part, because consumers got frustrated by the limited number of apps it ran.

Customers who buy Windows 10 S devices could be similarly frustrated by the inability to sync their iPhones, since iTunes isn't available in the Windows Store. Microsoft will need to be clear in its marketing around the operating system, Mr. Gownder said.

Microsoft's Mr. Belfiore believes customers will understand the difference, and said those who buy Windows 10 S devices can easily upgrade.

"If you need to switch out to Pro, that's OK," Mr. Belfiore said. "That's how we designed the system."

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

May 02, 2017 12:59 ET (16:59 GMT)

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