What Worries Me Most About Microsoft’s Surface Woes

PC makers may have lost their incentive to make great Windows hybrids.

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With Surface, Microsoft made a big bet that its own tablets would fire up the PC industry and get people interested in Windows 8. So far, it hasn’t worked out.

Filings with the SEC reveal that Microsoft spent more on advertising Surface and Windows 8 than it actually earned by selling its own tablets. Ad spending between October 2012 and June 2013 increased by $898 million, while Surface revenues–not profits–totaled $863 million.

On top of that spending, Microsoft recently took a $900 million write-down after dropping the price of the Surface RT tablet by $150. Microsoft may have produced millions of Surface RT units that it couldn’t sell at their original price.

Although Microsoft clearly overestimated the appeal of the Surface Pro and Surface RT, it’s worth noting that the goal of Surface wasn’t just to sell hardware, but to lead the way for other PC makers. It was supposed to epitomize how hardware could complement Windows 8, combining laptop and tablet into a single device.

Here’s Microsoft CEO Steve Ballmer in February, answering a question by MIT Technology Review about whether he’s pleased with Surface sales:

I’m super-glad we did Surface. I think it is important—and not just for Microsoft, but for the entire Windows ecosystem—to see integrated hardware and software.

Later in the interview, Ballmer said “we’re trying to lead a little bit with Surface Pro” while talking about pen computing, which Microsoft has talked about for years but could never get other PC makers to do.

So here’s what I’m worried about: If Surface was supposed to be the shining example of what a Windows tablet-laptop hybrid should be, and it was largely ignored by consumers despite a billion-dollar ad campaign, why should PC makers put more effort into their own high-end Windows hybrids?

As far as high-end products go, PC makers seem more interested in laptops right now. Acer’s Aspire S7, Asus’ Zenbook Infinity, Sony’s Vaio Pro 11, Samsung’s Ativ Book 9 Plus and Toshiba’s Kirabook are all examples of gorgeous thin-and-light laptops with high-resolution displays. The idea is to compete with Apple’s MacBooks on the premium side, while the budget laptop market gives way to cheap tablets.

But on the hybrid front, Microsoft isn’t exactly rallying the troops. I count at least two companies, Acer and Toshiba, who haven’t announced any new Windows hybrids this year, after both companies gave it a shot last year. Asus hasn’t announced any straight-up Windows hybrids either. (The company’s upcoming Transformer Book Trio actually runs Android, not Windows, when you detach the screen from its base station.)

In fairness, not all PC makers are giving up. Sony’s upcoming Vaio Duo 11 looks like a great attempt at a thin and light convertible. Samsung has announced a similar concept–albeit one that toggles between Windows 8 and Android–in the Ativ Q, and the keyboard case for Samsung’s upcoming Ativ Tab 3 looks interesting. Lenovo keeps cranking out every kind of hybrid imaginable, as it has since Windows 8 launched last fall.

Still, as someone who’s still searching for the perfect hybrid, my hope was that in 2013 we’d see more of them, not less, as PC makers refined their designs from year and took advantage of newer processors like Intel’s Haswell. The failure of Surface, despite Microsoft’s best efforts, might indicate that it’s not worth the effort.

15 comments
trumangeorge
trumangeorge

I love my Surface Pro. I haven't touched my regular laptop in months. I am using one right now. I have no complaints.

DaveZiffer
DaveZiffer

I just bought a Surface RT ($349) and the keyboard ($120) for my wife, who was sick in bed Saturday. It perked her right up and she spent the afternoon exploring the thing. I played with it myself for awhile and I think it's great. Today (Sunday) she went on a trip to the east coast and took her new toy with her. I've never seen her so delighted with a tech product. It's just what she wanted: a tiny laptop she can fit in a carry bag with decent battery life that she can use on trips and that can read Word and Excel and Powerpoint documents natively. And it has her familiar Windows desktop behind the scenes. So it's a bit tiring reading all these post-mortems. The Surface RT is great, and my guess is that the public is missing out on a good thing, and that the only mistake Microsoft has made is in the promotion, which obviously wasn't effective. Microsoft is playing catch-up in a well-developed market, and that is going to be a long-haul expensive slog. Well, welcome to the real world. Meanwhile while everyone plays Monday morning quarterback, my wife is apparently enjoying what might be the best toy (and useful tool) she's ever received. That's worth every penny to me.

BrettTurner
BrettTurner

Serious misleading article, in that it confuses the Surface RT and the Surface Pro.  The Surface RT is the problem and the source of the $900 million writeoff.  It was a terrible product, for which there was minimal demand at the prices Microsoft charged, and probably not very much even at much lowe prices.

The Surface Pro was a reasonable product, overpriced certainly, but far from terrible.  We should continue to see bunches of Win 8 hybrids---but they will run regular Win 8/8.1, not Win RT.  The problems is Window RT, not hybrids in general.

newmanjb
newmanjb moderator

@BrettTurner The article makes clear that the $900 million write-off is due to the Surface RT. But then there's the issue of spending more to advertise Surface and Windows 8 (not RT specifically) than the company made on all Surface tablets (again, not RT specifically). I agree that Surface Pro is a more compelling product, but people aren't buying enough of either one for Microsoft to make back what it has spent.

RosaniMasau
RosaniMasau

@newmanjb@BrettTurnerMicrosoft's mistake was it didn't consider two very important things: Compelling Hardware and/or a Reasonable Price. Instead they focused too much on design which for me is only secondary. The Surface did not have compelling hardware, and what I mean by hardware is every aspect, from the screen to the battery life. Surface did not have a reasonable price. 

I'm pretty sure that if Microsoft's Surface Pro had a WQHD/WXGA screen with at least 9 hours of battery life (Haswell and BayTrail will be able to fix the battery life problem) and the Surface RT had an Full HD screen, Microsoft would have sold a lot . 

Or the other scenario would be that the Surface Pro sold at $449 and its Surface RT sold at $249 and get their earnings by bundling Office 365 (similar to Amazon's strategy with Kindle).

TraceAbsence
TraceAbsence

Both the PC and the tablet are dead techs in a sense that PC's must do what tablets do and tablets must do what PCs do. In other words, they must merge. And we are already beginning to see this. As for MS, unless they understand that the key is simplicity, they are dead in the water.

keithbporter
keithbporter like.author.displayName 1 Like

Windows RT and Windows Phone 8 should have been one OS, Windows Mobile 8. There would have been existing apps that developers could tweak for the Surface ARM device and could have attracted more developers to their mobile division, which they sorely need. The ARM based Surface should have been a smaller device 7.5" or so with a lower price point to compete with iPad and Android tablets.

Microsoft completely miscalculated a "pent up demand" for Office on a tablet. People are growing more and more aware that they don't need Office or Windows (with the exception of Enterprise).

TimJordan
TimJordan

Surface was a hybrid but only as a marketing term. In reality it was a pretty poor tablet. Microsoft's attempt at a tablet didn't even come close. It's not a hybrid but rather Microsoft's best attempt at making a tablet and it did not even come close so their marketing department told them to call it a hybrid and reporters bought it or at least reported it but the truth is this is a pretty poor attempt at a tablet. This is the best that they can do. That Surface is the best that Microsoft can do in making a tablet but they call it a hybrid because it is so far off that it is nowhere near a tablet. 

Aksa8
Aksa8

"... Microsoft clearly underestimated the appeal of the Surface Pro and Surface RT...";

Should that read "overestimated"?

brian_st
brian_st

Don't worry, pretty much any of the hybrid designs you fear will be suppressed, will run Android even better!

For example, the new HP Slatebook x2: http://computingcompendium.blogspot.com/2013/07/android-news_30.html

HP is selling it for about $170 less than its similar Windows 8 device.

Seriously, Android has touch, keyboard and mouse support. It uses less memory than Windows and is better structured for a mobile environment.

There will be a large selection of new tablets, hybrids and all-in-ones for the holidays... they just won't be running Windows. Most will run Android, but a fair number will be available running ChromeOS.


newmanjb
newmanjb moderator

@brian_st I'm with you in theory but I don't find Android to be a very good mouse and keyboard experience. I need things like right-click context menus (I believe right clicking simulates the back button on Android), windowing and a proper desktop Web browser to get my work done. Now, if we could just get a dual-booting Chrome OS/Android hybrid...

brian_st
brian_st

@newmanjb @brian_st You might get your wish, though you won't have to dual boot to do this. Android Chrome is already well on its way to being a full Chrome... you can't easily see this as a normal user yet.  Google has already announced that full Chrome Packaged Apps will be working under Android this year. There is also talk of being able to run Android apps under Chrome. It is probably reasonably straightforward for Google to get an Android version to run under Chrome's Native Client. In other words, if you have Chrome, you could then install a Chrome Packaged App that gives you a virtual Android tablet. Thus I am expecting many of the new Chromebooks to have touch. Android's mouse and keyboard support are actually very good, it is the apps not supporting it that is the problem. This is already changing due to the increasing popularity of Android TV sticks. If you consider what Google was pushing at the last I/O, it is not hard to infer that Key Lime Pie is likely to deliver any missing pieces. Oh, and it is clear that the QuickOffice that is currently in testing in Chrome's developer mode is intended to work any where Chrome is, including (eventually) Android. Current rumor is we'll see these pieces come together in October. Overall I think Google thinks in terms of Chrome Packaged Apps being the future, but Android (especially for games) is hardly left out.

JustinD.Hebert
JustinD.Hebert

I'm honestly hoping right now that Microsoft doesn't give up.  I'd really like to see a decent Windows 8 tablet that is both functional and reasonably priced.