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.