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7/31/2013
11:44 AM
Michael Endler
Michael Endler
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Can Microsoft Rebound From Surface Flop?

Clearly, Microsoft's Surface tablets have bombed. Now what will the company do about it, and what does it mean for customers?

Tablet Buying Demystified: 10 Tips
(click image for larger view and for slideshow)
Tablet Buying Demystified: 10 Tips
Like an overmatched but determined boxer, Microsoft's Surface line has been absorbing abuse for months -- and on Tuesday, the devices took a punch straight to the chin.

In its annual 10-K report to the SEC, Microsoft revealed that its Surface products are hemorrhaging even more cash than previously thought. CEO Steve Ballmer's reorganized company now faces a tough question: Can it increase adoption before its Surface line -- particularly the RT model -- is down for the count?

Tuesday's report added new dimension to the scope of Microsoft's problem. The company evidently took in only $853 million in Surface-related revenue in all of its fiscal 2013, which started in July 2012. That's almost $50 million less than the $900 million write-down Microsoft recently took to accommodate a $150 Surface RT price reduction.

What's more, Microsoft increased its marketing budget by almost $1 billion during the reported period, mostly to advertise Windows 8 and the Surface products. Because Windows 8 and the Surface RT didn't hit the market until late October, Microsoft's tablet revenue represents only two-thirds of the fiscal year, which means that in only 8 months, the company spent a gargantuan amount of money attempting -- and failing -- to attract consumers.

[ Windows 8.1 Enterprise includes a lot to assuage business users, but plenty of questions remain. Read Microsoft Releases Windows 8.1 Enterprise Preview. ]

To be fair, there are only a few tech companies that can casually absorb billion-dollar losses, and Microsoft is one of them. Still, the situation is bleak for several reasons.

The $853 million in revenue includes both the Surface Pro and the Surface RT. In May, IDC estimated that Microsoft sold about 900,000 combined Surface units in the first three months of the year. This is a relatively paltry sum (IDC estimated that Apple sold 19 million iPads over the same period), but some had speculated that the Surface Pro, which arrived months after the RT model and was initially subject to stock shortages, was selling better than its sibling. Microsoft's disclosure suggests that both tablets have struggled, however.

The SEC report is also just the latest in a two-week barrage of negative Windows RT news. Other examples include Steve Ballmer's uncharacteristically direct admission that the device has underperformed, as well as Asus's decision to abandon development of Win RT products. Asus chairman Jonny Shih told All Things D that the OS is "not very promising," and virtually all of Microsoft's OEM partners have now dumped their Windows RT plans.

With the PC market in disarray and Windows 8 still struggling, Microsoft's Surface woes are only one facet of the company's larger challenges. The company hopes to improve sales of both PCs and tablets with Windows 8.1, however, and Ballmer confirmed in July that new Surface models are in development. The OS update should help Windows 8 overall -- but the question still remains: How is Microsoft going to reverse the Surface's dreadful performance?

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normcf
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normcf,
User Rank: Apprentice
8/4/2013 | 10:00:01 PM
re: Can Microsoft Rebound From Surface Flop?
I think microsoft's decision makers are all geared towards squeezing as much money as possible from a monopoly. This means figuring out what the best price is to maximize profits, or taking a new business by bundling a proprietary product on their OS (e.g. IE to wipe out netscape, hyper V to wipe out VMware). microsoft does not know how to operate in a competitive environment where users have real choice.
Michael Endler
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Michael Endler,
User Rank: Author
8/1/2013 | 6:32:39 PM
re: Can Microsoft Rebound From Surface Flop?
Agreed, with a few minor caveats.

I know some people aren't bothered by the small screen, but I wonder if this group of people will ever constitute more than a niche community. Personally, I use my Win 8 tablet's desktop mode in specific situations--e.g. on a train or airplane, the tablet is more portable than my laptop, so even though the laptop makes it easier to use Word, the tablet is the one I bring. I actually use the tablet's Modern UI substantially more than I use its desktop side. When I want to use a desktop app, I'm most likely to use my Windows 7 laptop or my iMac.

All that side, I've been surprised at how effectively I've been able to use Adobe Lightroom on a Surface Pro. The touch support is a bit awkward-- but at least it's there, which is more than I can say of any other desktop apps. It's actually possible to process and edit a RAW file with a few taps, which is pretty cool-- and not something an iPad can do. I wouldn't attempt pixel-level edits or anything, but if you were, say, a photographer or journalist working on the road, the Surface is a more viable tool than I would have thought. All things being equal, I'd rather fire up Lightroom on a 30-inch monitor, though. Again, niche uses, but not mass market appeal.

Your point about apps-- spot on. Microsoft made news when it announced Win 8 will get a native Facebook app-- and it should have, since Microsoft needs consumers too. But what Windows 8 really lacks are tablet-optimized enterprise apps. For desktop software, I suspect a lot of enterprise users will keep using traditional desktops, at least most of the time, and for at least the next few years. So if Microsoft wants to produce the best business tablet, it needs applications suited to the form factor. For Win 8 tablets, legacy software access has to be a perk, not the primary appeal.
df805
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df805,
User Rank: Apprentice
8/1/2013 | 6:05:06 PM
re: Can Microsoft Rebound From Surface Flop?
This is a wonderful time in the computer industry. Microsoft's ability to force upon consumers that which works for Microsoft has notably diminished. Many, but by no means all, computer users now have a choice when before they simply had to use whatever Microsoft self servingly troweled up.
Its the beginning of the end of Microsoft's control of the industry and their ability to leverage their monopolies to impede, impair, and prevent competition and the innovations of their competitors.
It is unlikely Microsoft will change their monopoly abuse business model, but their ability to continue it has been curtailed to at least some extent.
This is a great time for the consumer and innovation in the computer industry.
melgross
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melgross,
User Rank: Ninja
8/1/2013 | 4:06:03 PM
re: Can Microsoft Rebound From Surface Flop?
Microsoft has a problem with pricing. I understand that they want to compete against the iPad. The iPad is the business and government tablet. So that's where they really need to do well. But it's difficult competing against the iPad at the same, or at a higher price level. Right now, there are tens of thousands of business apps for the iPad, as has been pointed out in a number of places. Win 8 software, consisting of mediocre, non business apps won't cut it.

And neither will Desktop software, Office or not. The fact is simply that this software does poorly on such a small screen. It seems as through people are forgetting about the convertible market that Microsoft tried to foist on us in the early 2000's. it didn't work well on 13-15" screens with a stylus, and it's even worse on a 10.6" screen with a stylus. Now they are talking about shoehorning it into an 8" model. What a great idea!

I can run my Mac from my 9.6" iPad. I get the full screen resolution from my Mac on it. But it's a terrible idea. Everything is way too small. I would need to bring my Mac resolution way doe to be able to use it easily, and then I give up that big screen usage model which I need. The same thing happens with the Desktop on the Surface Pro. This is an idea which never should have happened.

I do see IT, and some other specialized departmental use for the Pro. But as for general adoption, no.
LeeB120
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LeeB120,
User Rank: Apprentice
8/1/2013 | 12:51:41 AM
re: Can Microsoft Rebound From Surface Flop?
Simple enough - Drop RT - that was a total waste of time to begin with and should have never left the lab.
Bring Surface pro down to a reasonable price for what you get and the keyboard should come with it and not be a separate purchase. It's simply too expensive at $1000 for what you get.
IT-security-gladiator
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IT-security-gladiator,
User Rank: Strategist
8/1/2013 | 12:31:17 AM
re: Can Microsoft Rebound From Surface Flop?
A 2nd hail mary after the clock went down to 0:00

There are no 2nd chances in Mobile when you

sell over priced junk Klunk notorious virus traps
and your competitors are eating you foir lunch.

Can you say it''s "Curtains time" for MicroFlop?

Yes indeed.
Mordock
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Mordock,
User Rank: Apprentice
7/31/2013 | 8:57:59 PM
re: Can Microsoft Rebound From Surface Flop?
With Dells RT equivalent starting at $299 and their Pro equivalent starting at $499, saying the Surface is over-priced is a gross understatement. They needed to undercut Apple by at least $100 to even get their foot in the door, and instead they thought they could go head to head. Just plain stupid.

8.1 to the rescue, NOT! The new Start button is just a slap in the face of everyone telling them to get the Start MENU back. This has only Pissed Offed their potential core market even more. They haven't made it any easier on themselves unless they back down at the last minute and bring back the Start Menu in the final release of 8.1. Unfortunately, I think they are too pig-headed and just plain too arrogant for that.
EB Quinn
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EB Quinn,
User Rank: Apprentice
7/31/2013 | 8:32:43 PM
re: Can Microsoft Rebound From Surface Flop?
Weak analysis, nothing new here, been "analyzed" this way all over the place.

Microsoft needs more time for Surface to Surface. They haven't had a full holiday season with the channel yet. It is priced way too high. Microsoft doesn't give up easily.

Let's see if they adapt or stand pat. If they stand pat, then this kind of regurgitation of the facts in a quasi-analytical tone might prove out. The market will not support spending north of an iPad price for a Microsoft device - that was just a bad idea. But it is too early, if you want to be analytical rather than just want to stir-the-pot, to sound the death knell of Surface.

It is a pretty cool machine. They will get the kinks out, albeit slowly. If they grease the channel with more consumer-friendly pricing, this thing could still catch on.
Tom Mariner
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Tom Mariner,
User Rank: Strategist
7/31/2013 | 8:18:16 PM
re: Can Microsoft Rebound From Surface Flop?
They wrote off a billion bucks. They would have had them lining up at the store and sold out if they put the money into subsidizing the RT at $300 and the big gun with keyboard Pro $599. if you price like you are going to sell 100, you're going to sell 100 -- but don't get upset if you price over the market, think that massive ad campaigns are going to up the sales. Prius priced like they were going to sell a million, Volt a thousand -- both came true. But Prius made big bucks and Volt cost all of us many billions.

Particularly when you are trying to catch up, you had better bomb the price to get market share or you will have to bomb the price to clear the shelves for the next version. It's Haswell time and those Ivy Bridge i5's are going to be boat anchors. I'd love to get one of those Pro's dirt cheap like most of the folks around here have -- but I'll wait for the Haswell.
Bob Gill
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Bob Gill,
User Rank: Apprentice
7/31/2013 | 8:01:50 PM
re: Can Microsoft Rebound From Surface Flop?
I agree with the RIP. $99 Android tablets have better screens.
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