Sunday, July 21, 2013 9:50 AM
Microsoft released their earnings report last week, and everyone’s making a huge deal about the fact they took a hit on the Surface RT to the tune of $900 million. This was apparently such a huge disappointment that Microsoft stock took a $4 hit (even though they, again, posted BILLIONS in revenue and profit). Considering how much money Microsoft spends on research and development every year (also in the billions), $900 million seems like an expensive R&D experiment more than a loss.
Along with this announcement came the numerous pundits playing “I Told You So” on the Surface RTs failure, or expounding on their wisdom that they saw this coming and how could Microsoft not see this coming (how many of those pundits have actually created and shipped a product of their own, I’m not sure).
So was the Surface RT really so bad? Well first we have to realize we’re talking about two things here – Microsoft’s Surface RT device and the whole Windows 8 RT platform option. I think the downfall of the Surface RT was the execution of releasing the Win 8 RT platform. Here’s why:
Lack of Applications
There just wasn’t the must-have applications available at launch that there needed to be to really compete with the iPad. Even know, over a year later, Microsoft is still fighting to win over developers and get apps into the store. But quantity means nothing if there’s no quality, an what Windows 8 really needs are more quality software shops signing on to create great games and applications. I absolutely love my Iconia 8” Windows 8 tablet…as a Kindle e-reader. But that’s all I use it for because there’s not enough interesting apps to make it useful beyond that. Even on my Surface Pro, I have more desktop applications installed than Windows Store apps for the same reason.
Lack of Education
People were very confused with this new version of Windows, and to them the idea that you would buy a Windows tablet but not be able to run your Windows applications was just too mind blowing. The perception was that by not allowing Windows applications to be installed, people were missing a key piece of functionality. The two versions – Pro and RT – added to the confusion as people weren’t sure which one they should buy. Imagine explaining this:
“The Surface Pro has a desktop like regular Windows, and you can install regular Windows applications on it. Surface RT has a desktop but you can’t install things on it…except for Office.”
Well why would I pay (that’s coming next) for a Surface RT with a neutered desktop when I could just buy a Pro? Or, why not just buy an iPad which already has a large library of applications, is fashionable, an costs close to the same amount (especially if I’m looking for a consumption device and not a creative one?)
Lack of Value
Right now on BestBuy.ca you can get a 32GB Surface RT for $350, which is currently $150 off on a sale…so regular $500. An Apple iPad with Retina Display an 16 GB of ram is on for $470, $30 dollars off on a sale…so regular $500.
So if I buy a Windows RT device I get a great tablet with lots of memory but little in the way of apps and I can’t install any of my current Windows applications.
If I buy an iPad I get a great tablet with less memory but way more apps and I can’t install any of my current Windows applications but that’s ok because it’s an Apple product so I wouldn’t expect that anyway.
See that last line? Even though both models can’t install current Windows applications, the RT line gets it as a negative while its not-applicable to the iPad. Yeah I know its goofy, but I suggest this is one way people compared the two devices – with a view that Windows took away functionality while Apple is just different and suggesting they support Windows apps would be silly.
So where’s the value in Windows RT? Business folks need more than Office installed (also I *believe* that Windows RT couldn’t be joined to a domain, limiting its business usage as well). Consumers want the best bang for their buck from an experience and usage point of view (read: gimme lots of great apps!). Windows RT just didn’t have a clear value proposition for consumers. Price might have helped sway people, but being at the same price point as an iPad automatically puts it in direct comparison on things beyond price.
Surface RT – An Expensive Market Research Project
I don’t think Surface RT was a bust. Microsoft had to go to market with their own device to really validate the response to the RT platform. They’ve had a year to see how Windows 8 RT performed in the marketplace, and how the Surface RT compared to the Surface Pro and other competing Windows 8 devices in addition to competing platforms like the iPad.
The Surface RT was necessary to validate the RT concept – would people like it, would they pay for it, how would they gauge value, who would be the target market; no matter how many focus groups you do, you really don’t know until you put something to market.
Microsoft’s main mistake may have been overestimating the initial demand for the RT platform when setting order levels on the Surface RT. It would have been better to create a situation of “selling out” existing stock and creating demand for the product than stockpiling and having to do firesales at conferences to clear out inventory.
$900 million sounds like a lot of money, but the lessons learned from the Surface RT launch will only help Microsoft get better as a products and services company; something, remember, that they’ve never been before.