Editorial: The mysterious failure of Microsoft's Surface RT

Posted:
in iPad edited January 2014
This last week, Microsoft announced disappointing earnings that reflected the battered market for PCs and the company's inability to gain traction in smartphones. But most notable was the $900 million "inventory adjustment" related to Surface RT, Microsoft's beleaguered iPad contender. How could it have failed so badly?

surface

Flop flop, fizzle fizzle in tablets

Three years ago, Apple launched the original iPad to a Yerba Buena Gardens audience of tech journalists who largely scoffed at the notion of anyone buying it. CNET interviewed me at the event, but didn't ever use the footage, apparently because I wasn't scoffing.

But iPads rapidly began selling, so much so that Samsung and an "avalanche" of other vendors rushed their own tablets to market by the end of that year. Microsoft had already launched its own Slate PC concept with HP, a product the original iPad immediately shoved off the table and into the trash bin (where, come on, it rightly belonged).

Microsoft, along with everyone else, wanted to cash in on the new tablet craze that the iPad had launched, particularly after suffering through a decade of Tablet PC and UMPC failures in the 2000s while trying to replicate the original vision of Apple's 1993 Newton Message Pad tablet, albeit centered around Windows.

1990s tablets


Bold predictions that everyone else would soon sell more tablets than Apple were quickly backed up by hastily gathered "market research" that instantly assigned Samsung a large share of the market that fall, solely through the creative accounting of inventory "shipments." As it turned out, the market actually needed buyers, not just sellers with units to ship.

The next year, in early 2011, Google unveiled its own Android 3.0 Honeycomb release specifically suited to delivering tablets, showcased by Motorola's unfortunately named Xoom. That product turned out to be a spectacular failure for so many reasons that it's hard to pin down the most lethal culprit: Unfinished? Expensive? Useless?

Android 3.0 Honeycomb more like Tablet PC than iPad


Motorola was joined by a variety of other Android licensees, including Samsung, who also cranked out tablets nobody wanted to buy. Many Android fans wanted somebody to buy these terrible first generation devices so they could later buy their better successors.

Incredibly, it turned out pretty much nobody wanted to be the guinea pig tasked with beta testing Honeycomb tablets that were not quite there yet, didn't support web standards very well, didn't have any great tablet-optimized apps, and didn't provide very good value for the premium prices they demanded.

Phil Schiller contrasts iOS iPad optimized apps with stretched smartphone apps on Android tablets


After another year passed, Microsoft decided to make the world forget about the epic failures of 2010's Slate PC and 2007's Surface bathtub-kiosk by resurrecting the Surface name as a new sort-of convertible tablet device running the "full Windows" without compromise, albeit in a version that couldn't really run Windows software because it was ported to run on ARM chips, whereas all Windows software is designed to run on an x86 chip.

The icing on top would be that this new Surface would adopt the Metro user interface that nobody wanted when it was on the Zune, and that nobody wanted when it was on Windows Phone 7. Surely the third time around would be the Charm, especially if it were forced upon the entire Windows 8 PC audience as well, because Windows users were so graciously welcoming of the even less significant changes bundled with Windows Vista in 2006.

So at this point, I know what you're thinking: "how could this all-around winning Surface RT strategy not fail to beat back the iPad and take over the tablet world in a way that all of Samsung's hardware expertise and all of Google's software savvy had failed to do over the previous two years as Microsoft toiled to port Windows to ARM and blogged about its incremental progress along the way?"

I mean, really. Quite inconceivable.

The mysterious failure of Microsoft's hardware endeavors

Mary Jo Foley, writing for ZDNet, wondered this very thing. Literally: "How did this happen?"

"The biggest question, to my mind, about today's unexpected Surface RT write-down," Foley wrote, "is how did Microsoft find itself in this predicament in the first place? How did officials seemingly misestimate the number of Surface RTs they should have made and how much they should have charged for them?"

It appears the Surface RT's price was set in 2010 when Apple launched the iPad for $499. Android's Honeycomb tablets aimed higher than that, and were laughed off the stage. So Microsoft picked the same entry level price point as Apple, the very same strategy behind the Zune taking on iPods at virtually identical prices.

Microsoft upped the ante with Surface RT however, giving it twice the memory (32GB) of Apple's entry level iPad (16GB). Of course, Microsoft also squandered all that specification advantage by using Windows, which likes to take up lots of space.

According to the bill of materials estimate by iSuppli, the Surface RT cost Microsoft about $284, of which the firm stated that "Microsoft will generate a profit margin that is greater than the low-end iPad, in percentage terms and on a per-unit basis."

Surface RT BOM
Source: IHS iSuppli


So Microsoft was pretty confident that Surface RT would wipe the floor with Apple's iPad, the same way the company was deadly serious about Windows Phone being such a strong alternative to the iPhone that it staged a mock funeral (for the iPhone, not Windows Phone, which is still regarded as having a pulse at Microsoft).


Microsoft funeral parade for iPhone


Source: Flickr user Trioculus


Microsoft's confidence was adjusted slightly after Surface RT refused to sell. So Microsoft slashed the price to $350, a price Brian Hall, Microsoft's General Manager of Surface Marketing, told Foley that the company believes will begin driving sales. Or at least create an installed base that will begin recommending the device to other buyers.

"We know we need a lot of Surface users to start the fly wheel of people recommending it," Foley cited Hall as saying. Apple didn't need such a "flywheel" for the first iPad because it had a functional and healthy smartphone platform tied to a gangbusters media store in iTunes. Microsoft is starting from scratch.

But apparently Hall hasn't read any reviews of the Surface RT. Perhaps he could read what Foley herself wrote in the same piece that cited him. She noted, "many of the factors beyond price that have contributed to the lackluster demand for the Surface RT haven't changed all that much."

Specifically: "There are still few, if any, 'killer' Windows Store apps that might push someone to choose a Surface RT over an iPad or an Android tablet," Foley noted, adding that "the performance of the Surface RT still feels sluggish."

To Foley's credit, she isn't bamboozled by the fact that Surface RT isn't selling, but rather the question of why Microsoft manufactured so many of the devices and ended up with a huge unsold inventory (apparently around 6 million too many).

"Isn't this a company whose officials have prided themselves on telemetry data and visibility?" She asked.

Inconceivable!

How could Microsoft have done such a poor job of designing, pricing, marketing and logistically managing the production of Surface RT? This is the company that delivered the Xbox, which many Windows enthusiasts (and even many platform agnostic users) like to play.

Ah the Xbox 360. The device that cost Microsoft roughly $8 billion in investment as it sold millions of hardware units at a deep loss for years. The device that, four years into production, was still languishing with a 52 percent return rate due to the Red Ring of Death, the result of sloppy manufacturing.

Xbox RROD


A device that was so troubled that Microsoft had to write off a $1 billion charge for unexpected warranty expenses. A device that just became slightly profitable as it approached its own obsolescence. What a paragon of operational competence that product demonstrates.

As spectacular of a operational failure the Xbox 360 was, it at least generated some software licensing revenue, thanks to very expensive fees third party developers pay along with ongoing royalties. Windows RT doesn't generate any software revenue to speak of. Nobody is going to pay $80 for "Angry Birds" running on a slowpoke ARM tablet, so developers aren't going to pay Microsoft Xbox-style fees to develop software for it.

And as bad as the Xbox 360 was managed, its flaws were completely eclipsed by Microsoft's Zune and KIN, two of the most embarrassing hardware product failures to occur outside of Google.

Microsoft might have some great software and server-side logistics, but its hardware experiments are a series of breathtaking failures, like the playboy sons of a super rich guy who doesn't know how to raise children properly.

The company assured Foley that it's not about to give up on Surface RT or the Windows RT software powering it. While Microsoft also once said the same of the now abandoned Zune, what it really needs to focus on is creating great products, rather than just trying to throw a placeholder into the market created by the iPad.

There isn't some mystery as to why Surface RT isn't selling, even at loss leader pricing. It's not a good product. And it competes against a really good product. Microsoft needs to bring its A game, not just some arrogant swagger.

After getting its teeth kicked out by the iPod, the iPhone and now the iPad, you'd think the company would realize that it needs to stop repeating its me-too strategies that clearly don't work and try something new: focusing on what it's good at, rather than being a terrible copy of Apple.
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Comments

  • Reply 1 of 347
    mcarlingmcarling Posts: 1,106member


    Consumers want real iPads, not fake iPads.

  • Reply 2 of 347
    markbritonmarkbriton Posts: 116member
    I like the editorials, but I'd prefer less sarcasm.
  • Reply 3 of 347
    asciiascii Posts: 5,941member
    The "$80 Angry Birds" point in the article was a great one. Apple (as they have always been open about) develop software and services only to sell more hardware. Microsoft's console-style approach of taking a loss on hardware and making it up on $80 games will not work if Apple got in first and created a commonly "free" software price point in their App Store. And why did Apple get in first? Because in the age of mobile (and soon, not just mobile but wearable) computing, hardware design (Apple's strength) matters more than in the past.
  • Reply 4 of 347
    rogifanrogifan Posts: 10,669member
    Fact is consumers don't need Windows or Office. Microsoft still doesn't get that. Go watch the Surface event from last July. It was all Windows, Windows, Windows. Heck Microsoft's new logo is a Windows logo. The other thing Microsoft doesn't get is people are perfectly fine with tablets being mostly consumption devices. I think we're finding out that a large number of consumers were really using their PCs mostly for consumption purposes. Email, web surfing, watching movies, etc. Tablets now provide all those services in a much more convenient form factor. And since people are using PCs less frequently, the need to upgrade isn't really there. Google and Amazon don't help Microsoft's cause as they're pushing tablets as cheap consumption devices that they don't need to make any money on. Can Microsoft really afford to get in to a race to the bottom there?
  • Reply 5 of 347
    apple ][apple ][ Posts: 8,680member
    markbriton wrote: »
    I like the editorials, but I'd prefer less sarcasm.

    Well that's just you. I like sarcasm, and this POS tablet deserves to be mocked and so does anybody who defended this POS tablet on this forum in the past.

    This was an obvious flop from the very beginning and anybody who didn't see that is extremely out of touch.
    brakken
  • Reply 6 of 347
    vadaniavadania Posts: 425member

    Quote:

    Originally Posted by AppleInsider View Post





    Three years ago, Apple launched the original iPad to a Yerba Buena Gardens audience of tech journalists who largely scoffed at the notion of anyone buying it. CNET interviewed me at the event, but didn't ever use the footage, apparently because I wasn't scoffing.

     


    Honestly, I've done a very small amount of research based upon your research.


     


    Did they know it was an interview, or did you just suddenly force your way to a mic?  Did they disclose that they were interviewing you, or did you just speak to someone after everyone left and went to the product trial area?


     


    I saw you there during this last WDC.  I even made it a point to shake your hand.


     


    I never did see you in any of the developer booths after that.  Could be chance due to schedules.  I'm starting to wonder though...


     


    This whole article could have been summed up in three sentences and two pictures.

  • Reply 7 of 347
    apple ][apple ][ Posts: 8,680member
    rogifan wrote: »
    Email, web surfing, watching movies, etc. Tablets now provide all those services in a much more convenient form factor.

    Exactly. This year is the first year that I went on vacation and I only brought along an iPad with me. I wasn't sure how that was going to work out, since I'd been so used to bringing Macbooks with me in the past, but it's worked out pretty good so far. Last year I brought along both a Macbook and an iPad, but I decided to leave the laptop at home this time, to save a few pounds, since certain airlines are getting stingier and stingier with their luggage allowances.

    I check the internet, i check emails, I occasionally troll forums, I watch movies, I listen to music and I even create music every once in a while. I don't need to do any heavy duty computing on my vacation, and an iPad has worked out great. I'm even writing this post on the iPad, and I'm actually pretty damn fast at typing on the iPad now.

    For the average person, an iPad is all that they'll ever need.
  • Reply 8 of 347
    vadaniavadania Posts: 425member

    Quote:

    Originally Posted by Apple ][ View Post





    Well that's just you. I like sarcasm, and this POS tablet deserves to be mocked and so does anybody who defended this POS tablet on this forum in the past.



    This was an obvious flop from the very beginning and anybody who didn't see that is extremely out of touch.


    I understand you want technology to stand still.  I suppose it makes sense on a psychological point of view.


     


    I'd prefer that you looked at it through a different lens.  Mine may have a bit more estrogen in it, but the more Microsoft spends on it's tablet the better the iPad will be in the future.


     


    I think we should all cheer Microsoft on and encourage them to spend an absorbent amount of money researching what really does work.

  • Reply 9 of 347
    ombra2105ombra2105 Posts: 114member

    Quote:

    Originally Posted by markbriton View Post



    I like the editorials, but I'd prefer less sarcasm.


    +1

  • Reply 10 of 347
    lukefrenchlukefrench Posts: 102member
    Woah, that is really pushing the sarcasm knob to eleven !

    Now, what is strange is that so few pundits will do that. All the tech press should be out with pitchforks on the RT, but . . . nothing !
    brakken
  • Reply 11 of 347
    apple ][apple ][ Posts: 8,680member
    vadania wrote: »
    I understand you want technology to stand still.  I suppose it makes sense on a psychological point of view.

    I'd prefer that you looked at it through a different lens.  Mine may have a bit more estrogen in it, but the more Microsoft spends on it's tablet the better the iPad will be in the future.

    I think we should all cheer Microsoft on and encourage them to spend an absorbent amount of money researching what really does work.

    You obviously have a completely mistaken understanding of things.

    Making second rate products and copying Apple is not advancing technology at all.

    I am at the forefront of technology, using the best tablet in the world. I don't have any time for kickstands or people dancing around like morons or outdated operating systems that take up an obscene amount of RAM.
  • Reply 12 of 347
    markbritonmarkbriton Posts: 116member
    apple ][ wrote: »
    Well that's just you. I like sarcasm, and this POS tablet deserves to be mocked and so does anybody who defended this POS tablet on this forum in the past.

    This was an obvious flop from the very beginning and anybody who didn't see that is extremely out of touch.

    It could just be me but I think this editorial has more sarcasm than most and it somehow cheapens the points raised. I don't disagree with the article but in my opinion it comes across more as a fanboy rant rather than a sensible and intelligent analysis of the situation which it actually is.
  • Reply 13 of 347
    msuberlymsuberly Posts: 226member
    For years, Microsoft's profits from its Windows division funded all these sideshow hardware products that ultimately failed. But now that PC sales are falling--causing sales of Windows licenses to fall--causing Microsoft's stock price to drop 11%, I wonder if Microsoft's hardware days are numbered. The board should have dumped Ballmer in 2007, but definitely in 2013.
  • Reply 14 of 347
    asciiascii Posts: 5,941member

    Quote:

    Originally Posted by Apple ][ View Post





    Exactly. This year is the first year that I went on vacation and I only brought along an iPad with me. I wasn't sure how that was going to work out, since I'd been so used to bringing Macbooks with me in the past, but it's worked out pretty good so far. Last year I brought along both a Macbook and an iPad, but I decided to leave the laptop at home this time, to save a few pounds, since certain airlines are getting stingier and stingier with their luggage allowances.


    The whole point of a vacation though, is not to do any work, and let yourself recharge. I also took only my iPad on my last holiday. But try using it as your only computing device during work time...

  • Reply 15 of 347
    Great points by rogifan.

    We tend to read a lot of geek types online bemoaning the simplicity and lack of features of the iPad, but a huge segment of consumers buying tablets are "simple" content consumer types.

    1) Surface commercials are absolutely awful. Maybe they thought that clickity click one would especially would appeal to younger audiences but it didn't show a single thing about the tablet and created a thought in consumer's mind: "hey that's cool and something I could use it for"

    2) Simplicity. Although Metro GUI is easier than traditional Windows GUI, it pails in comparison to iOS. This creates a market of consumers that is much larger than just computer savvy buyers. In my family alone we have a 3 year old, a 99 year old, a downs syndrome child, and everyone in between using iPads with ease.
  • Reply 16 of 347
    I'd really like to see Apple turn the AppleTV into an iOS developer store platform with gaming support. It would completely devastate the Xbox and everyone else in it's path.
  • Reply 17 of 347
    apple ][apple ][ Posts: 8,680member
    ascii wrote: »
    The whole point of a vacation though, is not to do any work, and let yourself recharge. I also took only my iPad on my last holiday. But try using it as your only computing device during work time...

    Good point about the vacation and recharging! I'll try to do that, even though it's hard. I even traded some Apple stock a few days ago from my iPad, but you're right that a vacation should be for recharging.

    I plan on going swimming tomorrow, and I definitely won't have any devices with me then, since I have no plans of ending up like a few Chinese people that we have recently been reading about.
  • Reply 18 of 347
    bullheadbullhead Posts: 493member


    article is spot on.  Microosft tablets are a complete failure and should never have been launched.  The horrid, unusable Metro GUI was a failure on Zune, then it failed again on the garbage Windows Phone, failed on Windows 8 and failed on Windows RT.  Anyone involved in the Metro UI should be fired immediately.  Anyone who thought this was a good strategy should be fired for incompetence. how clueless can one be?

  • Reply 19 of 347
    richlrichl Posts: 2,213member
    Ah the Xbox 360. The device that cost Microsoft roughly $8 billion in investment as it sold millions of hardware units at a deep loss for years. The device that, four years into production, was still <a href="http://www.roughlydrafted.com/2010/07/01/reality-check-the-iphone-4-launch-in-perspective/">languishing</a> with a 52 percent return rate due to the Red Ring of Death, the result of sloppy manufacturing.

    That 52% figure is extremely dodgy and I think you know it. I guess that's why you link to your own blog rather than the original source of the figure.

    A device that was so troubled that Microsoft had to write off a $1 billion charge for unexpected warranty expenses. A device that just became slightly profitable as it approached its own obsolescence. What a paragon of operational competence that product demonstrates.

    The Xbox 360 has been profitable since 2008. That's five years ago. The Xbox 360's division reported 8% sale growth this quarter.
  • Reply 20 of 347
    froodfrood Posts: 771member


    This is almost the epitome of the smarmy attitude that makes many people not want to use Apple products.  Never mind that Apple makes great products, they just don't want be associated with, well... this.


     


    Surface RT is a pretty terrible product on all fronts, and probably is partially responsible for taking their core product, Windows, in a direction many users just don't like.


     


    With Apple having a great product and strong lead in tablets, and Android tablets now being quite good, the path for Microsoft to getting in the market is quite slim.


     


    They need to stop their attack ads on both Google and Apple.  It just makes them look kind of desperate and does not focus on how good their products are.   If they are not focusing on how good their products are- they need to make them good so they have something to focus on :p 

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