The Surface RT debacle

By Kip Kniskern | Posted July 19, 2013 22 comments

Microsoft’s 4th quarter earnings came out yesterday, and while the news was mixed, the big bombshell was news that Microsoft wrote down $900 million on poor sales of the Surface RT, and its subsequent price slashing. Chief Financial Officer Amy Hood explained in the Analysts call shortly after the news was released:

We reduced the price of Surface RT by $150 to $349 per device. As a result of this price change, as well as inventory adjustments for related parts and accessories, we recorded a $900 million charge to our income statement. While this resulted in a -$0.07 impact on earnings, we believe this pricing adjustment will accelerate Surface RT adoption and position us better for long-term success.

So it’s pretty easy to read at least a couple of insights into those two sentences. First, Microsoft made WAYYY too many Surface RTs. Second, they seriously thought they were going to sell a significant number at the original target price of $499 (plus another hundred bucks for a keyboard). Third, nobody believes that Microsoft is serious about RT, and fourth, and by far the most disconcerting, is that Microsoft is somehow oblivious to our observation #3, and appears to believe that dropping the price is going to save Surface RT.
Of course it isn’t. For whatever number of reasons consumers didn’t buy the Surface RT, price was only one of them. Microsoft confused the message by not explaining (or knowing itself) what RT was supposed to be or do, nickel and dimed the pricing by not bundling a keyboard with the Surface, and left the RT out in the cold with a lackluster assortment of apps for the new device. That included an appalling set of Microsoft written core apps that weren’t ready to ship as student projects, let alone as banner apps showing off the power of Windows 8 running on ARM. Oh, and throw in the confusion surrounding the Metro / Modern / what’s it called again? naming debacle, which again confused the message and made Microsoft look like consumer facing fools.

But the mistakes Microsoft made with the Surface RT ran a lot deeper than just marketing mistakes or hastily written apps. First of course, and as usual, Microsoft came late and lame to the game. The Surface might have stood a chance if it came out at the same time or a few months later than the iPad, but 2 ½ years and three generations late and it was game over from the start.

Microsoft made a bet, inexplicably, on ARM, and more specifically full-blown Windows on ARM, and at some point in the process found out that getting it to run wasn’t going to be so easy after all. What happened next was that the “no compromises” promise of Windows 8 turned out to be, in fact, full of compromises. Windows applications wouldn’t run at all, except that you were constantly and jarringly thrown back into the Windows desktop. Battery life was good, but performance was choppy, at best, another compromise. If Windows on ARM had been like the modified version of XP that ran on netbooks, that is, a simple solution putting Windows on all those cheap Android tablets, maybe it might have made some sense, and maybe that was in the original thinking. Instead, Microsoft wound up with an overpriced, underpowered prototype with an ecosystem that was going nowhere, fast.

It’s an open secret that Microsoft is moving toward having a single app system for both Windows and Windows Phone, but until that happens, counting on popular and interesting apps to show up on “Metro” is a fool’s bet. Microsoft trained their cadre of developers and their fans not to count on any app development platform to stick around for long. .Net?, Silverlight?, XNA?… these technologies suddenly appeared to be shipping with the question marks attached, and we’re supposed to get behind an app system that Microsoft can’t even be bothered to name?

Microsoft’s stock is tanking since the quarterly report was released yesterday, down some 11% in just a few hours. Yet it’s interesting that Microsoft would take such a big hit and blame it so prominently on a single product (Microsoft pointed the finger directly at Surface RT, and not at Surface itself). Any random passerby could have told you the Surface RT wasn’t going to stand a chance in a market already dominated by the iPad. The thought that Microsoft blew through nearly a billion dollars on it in less than a year should be enough to send the stock spiraling downward. Still, it’s interesting that Microsoft was so eager to clear the books so early. While Surface GM Brian Hall says Microsoft remains committed to the RT, taking the hit now means the books are clear for a newly reorganized Microsoft to move forward, without the baggage of a Sinofsky led battle over who controls the operating systems for new devices, and operate as One Microsoft.

A tough day at the office for Microsoft stock watchers who have been quietly giddy as the stock as inched up to over $35 in recent days, and a reality check for anyone who believed Panos Panay’s BS about the magical Surface RT.

Posted July 19th, 2013 at 9:53 am
Category: Opinion
Tags: Microsoft, Surface, Surface RT
  • efjay

    Kill RT now,Bay Trail meets all the needs for long battery life, thin and light, throw in Office and this abomination will be quickly forgotten. Hopefully. :)

  • efjay

    Kill RT now,Bay Trail meets all the needs for long battery life, thin and light, throw in Office and this abomination will be quickly forgotten. Hopefully. :)

  • chinch987

    really shortsighted opinion piece (no surprise)

    RT is a drain and wasteful at the moment thinking short term of course. Duh!!!!!!!!!!!!!!!!!!!!!

    This commentary is like complaining about wasting water or seed after planting crops (in a drought)… the resources (wasted) are needed to bear fruit. Long term it leverages Intel and opens the doors for cheap/fast Windows ARM devices though. Don’t let sales figures confuse the fact.

    Stock prices are not an indicator of much of anything. Except for fanboys or bloggers needing hits.

    Sinofsky was a devisive maniac (and more short-sighted than bloggers) and shown the door a long time ago for good reason.

    • http://www.LiveSide.net Kip Kniskern – LiveSide.net

      Honored to have a real live Spin Doctor on the site, thanks and welcome! :)
      Somehow I don’t think that Intel is shaking in its boots over the “leverage” Microsoft holds over it with Surface RT ;), and take a look at Apple’s stock price vs. Microsoft, and their positions in the consumer market place over the past five years and get back to us on that stock price comment :).
      Sinofsky was a 21 year employee who started as a technical advisor to Bill Gates and rose to shape much of the Windows first mentality that pervades the company even today, and will take much more than the shifting of a few deck chairs to change. That he’s gone we think is a good thing, but he’s still revered within Microsoft in many circles.
      What we find most disconcerting, as we said, is that Microsoft thinks it can drop the price of the Surface RT and make it all good. The problems are far more widespread, and more prevalent, than that.

      • chinch987

        None of your argument dismisses the possibility of windows running (very well) on ARM in the future, sorry.

        Enough of the stock market coverage. Stick to what you know which was windows live coverage please.

        PS – who said everything is “good” with Surfact RTv1 by a price drop? The tech was a little early for the ARM chipset. Everyone knew that even SS for sure. If anyone predicted to sell “a significant number” of RT devices at $599 w/ keyboard then they are a complete and utter moron with a capital MORON, $299 for 10″ and and $199 for 8″ is the sweetspot, not possible anytime soon

  • chinch987

    really shortsighted opinion piece (no surprise)

    RT is a drain and wasteful at the moment thinking short term of course. Duh!!!!!!!!!!!!!!!!!!!!!

    This commentary is like complaining about wasting water or seed after planting crops (in a drought)… the resources (wasted) are needed to bear fruit. Long term it leverages Intel and opens the doors for cheap/fast Windows ARM devices though. Don’t let sales figures confuse the fact.

    Stock prices are not an indicator of much of anything. Except for fanboys or bloggers needing hits.

    Sinofsky was a devisive maniac (and more short-sighted than bloggers) and shown the door a long time ago for good reason.

    • http://www.LiveSide.net Kip Kniskern – LiveSide.net

      Honored to have a real live Spin Doctor on the site, thanks and welcome! :)
      Somehow I don’t think that Intel is shaking in its boots over the “leverage” Microsoft holds over it with Surface RT ;), and take a look at Apple’s stock price vs. Microsoft, and their positions in the consumer market place over the past five years and get back to us on that stock price comment :).
      Sinofsky was a 21 year employee who started as a technical advisor to Bill Gates and rose to shape much of the Windows first mentality that pervades the company even today, and will take much more than the shifting of a few deck chairs to change. That he’s gone we think is a good thing, but he’s still revered within Microsoft in many circles.
      What we find most disconcerting, as we said, is that Microsoft thinks it can drop the price of the Surface RT and make it all good. The problems are far more widespread, and more prevalent, than that.

      • chinch987

        None of your argument dismisses the possibility of windows running (very well) on ARM in the future, sorry.

        Enough of the stock market coverage. Stick to what you know which was windows live coverage please.

        PS – who said everything is “good” with Surfact RTv1 by a price drop? The tech was a little early for the ARM chipset. Everyone knew that even SS for sure. If anyone predicted to sell “a significant number” of RT devices at $599 w/ keyboard then they are a complete and utter moron with a capital MORON, $299 for 10″ and and $199 for 8″ is the sweetspot, not possible anytime soon

  • uberlaff

    The only question I have for this is:

    Why did they order so much stock of a v1 product?!!! That is ridiculous! Someone’s head should roll! (or maybe it already has)

    Windows RT is the ultimate case of too many cooks in the kitchen. It should have never existed with a desktop. It only existed because the Office team wasn’t ready; or because the Windows team thought it was necessary. Including the desktop confuses customers and says to Devs that Microsoft wasn’t serious about Metro and neither should you. Including the desktop is a vote of no confidence in WinRT.

    I still believe that Panos built the best possible product in Surface… but I don’t believe that the Windows team built the best possible product with Windows RT.

    Sadly, 8.1 does not fix this; which gives me low expectations for Surface RT2.

  • uberlaff

    The only question I have for this is:

    Why did they order so much stock of a v1 product?!!! That is ridiculous! Someone’s head should roll! (or maybe it already has)

    Windows RT is the ultimate case of too many cooks in the kitchen. It should have never existed with a desktop. It only existed because the Office team wasn’t ready; or because the Windows team thought it was necessary. Including the desktop confuses customers and says to Devs that Microsoft wasn’t serious about Metro and neither should you. Including the desktop is a vote of no confidence in WinRT.

    I still believe that Panos built the best possible product in Surface… but I don’t believe that the Windows team built the best possible product with Windows RT.

    Sadly, 8.1 does not fix this; which gives me low expectations for Surface RT2.

  • Ed West

    I don’t understand the fuss, yes it was overpriced, and yes the app store is still lacking, but I have shown my Surface RT to iPad users and seen them turn green with envy, especially with USB ports and Office included
    I’m now running with 8.1 and its even better, especially when running multiple apps

  • Ed West

    I don’t understand the fuss, yes it was overpriced, and yes the app store is still lacking, but I have shown my Surface RT to iPad users and seen them turn green with envy, especially with USB ports and Office included
    I’m now running with 8.1 and its even better, especially when running multiple apps

  • http://cid-280a1538334a1cb9.profile.live.com/ Seika

    It won’t save Surface RT, but price cut would make it sell more, if the price is where buyers are valuing it. Like that HP’s tablet firesale. Think of it as a price correction. (imagine if the government have a Value Reduced Tax in addition to the Value Added Tax)
    Still, the current price is still more expensive than the value though, and not like it’s available everywhere during release, other than in country tech press cared about most.

  • http://cid-280a1538334a1cb9.profile.live.com/ Seika

    It won’t save Surface RT, but price cut would make it sell more, if the price is where buyers are valuing it. Like that HP’s tablet firesale. Think of it as a price correction. (imagine if the government have a Value Reduced Tax in addition to the Value Added Tax)
    Still, the current price is still more expensive than the value though, and not like it’s available everywhere during release, other than in country tech press cared about most.

  • Charles Gruber

    Why won’t MS open up the RT desktop to run non-windows store applications? Jailbroken RT devices can run recompiled versions of Notepad++, 7-Zip and many others. If these “legacy” apps become officially available and easy to run, it could save the platform.

  • Charles Gruber

    Why won’t MS open up the RT desktop to run non-windows store applications? Jailbroken RT devices can run recompiled versions of Notepad++, 7-Zip and many others. If these “legacy” apps become officially available and easy to run, it could save the platform.

  • TheRickshaw

    It would appear that Microsoft is committed to RT (runtime) as I see a lot of push in that direction on the dev side. See MSDN. And a modern, legacy-free-ish OS running on low cost hardware is still a great idea. RT (the OS) seems to need less legacy code (desktop compatibility), not more, in order to be fully realized (regarding speed, memory, battery). Nothing against desktop, I use it all the time on Windows 8 for applications, but I have RT as well and don’t miss it there because I know that’s not what it’s for.

    If Surface RT was premature and marketed badly, that was unfortunate, but ultimately, the direction they are heading with RT (the new development underpinnings, combined with legacy-free OS) looks reasonable.

    A new name and clear messaging would be good. If there was a more solid understanding of RT it might be harder, but maybe they can still side-step RT’s initial faltering.

  • TheRickshaw

    It would appear that Microsoft is committed to RT (runtime) as I see a lot of push in that direction on the dev side. See MSDN. And a modern, legacy-free-ish OS running on low cost hardware is still a great idea. RT (the OS) seems to need less legacy code (desktop compatibility), not more, in order to be fully realized (regarding speed, memory, battery). Nothing against desktop, I use it all the time on Windows 8 for applications, but I have RT as well and don’t miss it there because I know that’s not what it’s for.

    If Surface RT was premature and marketed badly, that was unfortunate, but ultimately, the direction they are heading with RT (the new development underpinnings, combined with legacy-free OS) looks reasonable.

    A new name and clear messaging would be good. If there was a more solid understanding of RT it might be harder, but maybe they can still side-step RT’s initial faltering.

  • James

    Well, I just bought the Surface RT last week, and installed the 8.1 Preview and absolutely LOVE it. I don’t find it lacking at all one bit. The newly reduced price is what allowed me to buy it, and just as Ed West said above, I’ve made quite a few iPad users envious as well already.
    I’ll admit I was one that also criticized RT before, but after giving into purchasing one, I feel stupid for criticizing it. It’s such a beautiful device and now with 8.1 works so amazing. I can’t wait to take it on my trip in next week =D

    • Davor Balder

      I know this is a belated comment. I bought two RTs for my children. Beautiful and capable device. I bring RT to my meetings on regular basis and make ipad owners jealous. At this moment, Surface is a more capable device than iPad, for sure!
      I cannot criticise the device really. It does what I need it to do: browsing, word, excel. If pushed, I can do most of my spreadsheet and remote access server work from it…
      So far so good… my family loves both RTs! And I still love my Zune HD which is better than ipod, but that’s another topic…
      Sent from my RT…

  • James

    Well, I just bought the Surface RT last week, and installed the 8.1 Preview and absolutely LOVE it. I don’t find it lacking at all one bit. The newly reduced price is what allowed me to buy it, and just as Ed West said above, I’ve made quite a few iPad users envious as well already.
    I’ll admit I was one that also criticized RT before, but after giving into purchasing one, I feel stupid for criticizing it. It’s such a beautiful device and now with 8.1 works so amazing. I can’t wait to take it on my trip in next week =D

    • Davor Balder

      I know this is a belated comment. I bought two RTs for my children. Beautiful and capable device. I bring RT to my meetings on regular basis and make ipad owners jealous. At this moment, Surface is a more capable device than iPad, for sure!
      I cannot criticise the device really. It does what I need it to do: browsing, word, excel. If pushed, I can do most of my spreadsheet and remote access server work from it…
      So far so good… my family loves both RTs! And I still love my Zune HD which is better than ipod, but that’s another topic…
      Sent from my RT…