Is Microsoft's $900 Million Dollar Surface RT Mistake The Writing On The Wall?

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News Posted: Fri, Jul 19 2013 3:43 PM
Nearly one billion dollars. Even for a company as massive, powerful and entrenched as Microsoft, that sum is one that simply cannot be ignored. It just can't be brushed aside. And in the company's latest quarterly earnings, the $900 million charge that it took related to Surface RT inventory adjustments became the focal point. It was honestly hard to look at the company's revenues and profits; the only thing that most critics could focus on was that massive, massive charge. Can you blame them?

Microsoft took center stage back in 2012 when it announced that it would begin shipping its own branded hardware in the tablet space. Surface RT would be the launch product, offering up a unique new twist on Windows that was catered to low-power, energy-sipping ARM chips. The Surface RT caused a huge amount of controversy. For OEM partners, many were perturbed that Microsoft was invading a market that they had long called home. Avid fans of Windows questioned the usability of a Windows build that wouldn't run all Windows applications. And, of course, those who viewed the iPad as an unstoppable force questioned Microsoft's sanity when it priced the base model at $499 -- exactly in line with the base iPad.


What this quarter's $900 million charge finally proved was simple: hardly anyone purchased a Surface RT, and the growth rate isn't going in the right direction. Instead, Microsoft was forced to hack $150 from the purchase price, leaving the tablet at $349 wherever it's still available. But even at that price, one has to wonder if anyone will touch it.

The writing was on the wall. Back in February, reports emerged that uncovered an alarming rate of returns for the Surface RT. It appeared that Microsoft miscalculated just how confusing it would be to ship a Windows-based tablet that couldn't run bona fide Windows applications. Instead, the Surface RT will only run apps stocked in the Windows Store. For those who live and breathe technology, taking a moment to digest the differences isn't asking much. But for the common populace, it largely backfired. People were confused and angered that they were being sold a $500 tablet with a hamstrung edition of Windows onboard. Looking back, it's tough to blame them; that's certainly a rational bone to pick.


Now, Microsoft has to choose. Does it abort Windows RT entirely? The issue is simple: Windows RT was a confusing product from the start, and it only truly stood a chance to survive if it were able to be loaded onto products that were vastly cheaper than those with full-fledged Windows 8 onboard. But let's look at the current market: Acer's Iconia W3 runs a full version of Windows 8 and costs but $379. Lenovo's IdeaTab Lynx can be had for under $400 as well. The point is, there are myriad options available for those who want to use all of Windows, not just a hamstrung version, and those options are now priced right in line with many of the Windows RT models.


The truth is, Microsoft hasn't taken a hit like this from a single product launch in recent memory. It's a scar across an otherwise solid quarter, but it has brought up a ton of questions about Microsoft's vision and its ability to predict what consumers truly want in a post-PC universe. Would Microsoft have been better off to hone Windows 8 for tablet use instead of rushing the Surface RT to market? Would it have done itself less harm by shipping the Surface Pro at a price in line with the iPad in hopes of making up the difference in software sales and new ecosystem subscribers? It's easy to look back and make apt judgements, but life can only be experienced forward, while understood backwards.


At this stage, Microsoft has to make a decision: look at the market reaction to the Surface RT and put its resources elsewhere, or continue to push a hobbled operating system instead of directing all of its marketing attention to Windows 8? We're hoping for the latter, and not because we're against Windows RT. We just feel that there's a huge opportunity for Windows 8; it's currently the only full-fledged operating system that's capable of running fluidly on a tablet, and Microsoft would probably do itself a favor by placing its future focus on that.
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RWilliams replied on Fri, Jul 19 2013 5:53 PM

I feel worse for the people that bought into RT than I do for Microsoft. I just don't have huge confidence that it's a platform that will be supported too long, given these findings. And if Microsoft announces that it'll no longer support RT after this generation, then the app store for the platform is going to die off fast; in effect leaving people with a dead platform on their hands.

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realneil replied on Fri, Jul 19 2013 8:39 PM

Anything that has the Metro interface will not sell well. (that's how it's working out anyway)

Your point about MS bailing on it's customers is probably spot-on too.

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People want the power of windows in a tablet form factor that is workable. The only thing they needed to solve was right click and hover, that is it. Literally instead of touch to click, they needed touch to hover and then another touch for click and a dedicated right click button, something like that. I have a Win 8 tablet, but I sure as hell am glad that it is not RT. I have the full power of windows, but touch is so badly integrated that I bought a bluetooth keyboard/touchpad accessory so I could use Windows the way you are intended.

Android and ios work well with touch because they are built for that interface. Try as they might, windows is not. The programs that you want to use are not. If MS enticed companies to make them more touch friendly, maybe, but they don't, they aren't. On other hand, try as they might, android and ios are not nearly as powerful as windows, not even close. That will not change for years to come.

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3vi1 replied on Sat, Jul 20 2013 5:47 PM

In related news: Microsoft stock dropped 11% yesterday:

http://www.reuters.com/article/2013/07/19/us-microsoft-research-idUSBRE96I0MO20130719

New apps are being written to the browser instead of to the OS, and their products are failing to compete in these internet/mobile arenas where they don't have legacy lock-in. So now they're in all out panic mode, as evidenced by their growing use of lawsuits to try to stop competing products (particularly Android) and recent reorganization.

Let's see how long it takes them to realize that adding a bunch of DRM and caring more about embedded revenue streams than the actual product does not put them at an advantage when the users look at their options.

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?

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