MICROSOFT DROPS PRICE OF SURFACE RT TABLET, HOPES TO INCREASE SALES, THEN WRITES-OFF $900 MIL IN SURFACE RT CHARGES

07/20/2013

MICROSOFT DROPS PRICE OF SURFACE RT TABLET, HOPES TO INCREASE SALES, THEN WRITES-OFF $900 MIL IN SURFACE RT CHARGES

Microsoft CEO and co-founder Steven Ballmer at the unveiling of the Microsoft Surface RT tablet on June 19, 2012 (Click Image To Enlarge)

When Microsoft announced its Q4 2013 earnings Thursday, it included a jaw-dropping $900 million charge related to its Surface RT.

The charge comes just days after Microsoft cut the price of the Surface RT tablet by $150. Since its release in the fall of 2012, Microsoft has struggled to get users to understand the value of the Windows RT-based tablet. Meanwhile, the company has had much more success with the Surface Pro.

During its earnings call, Microsoft CFO Amy Hood said that the price decrease will "accelerate Surface RT adoption and position us for better success."

A year ago, when Microsoft unveiled Surface (see below), it looked like it might be a great product — something that would allow Microsoft to compete directly with the iPad and Android tablets.

One year later, Surface RT is responsible for nearly $1 billion in charges and Windows 8 has failed to take off with consumers.

How did we get here? Why did the Surface RT fail?

A Confusing Name and a Confusing OS

The Surface RT — and Windows RT in general — continue to be tremendously confusing products to consumers. Back in April 2012, Mashable Tech Editor Pete Pachal lamented the terribleness of the Windows RT name. He was right.

Not only is the name problematic — the fact that Windows RT still contains the non-Artist-Formerly-Known-as-Metro interface is jarring too. With Surface RT, Microsoft could have gone with the "Microsoft design language"-only interface, eschewing the regular desktop. This would have been a nice differentiator between the Surface RT and Surface Pro. Instead, you had two systems (and operating systems) that look the same and run some of the same apps, but aren't the same.

I had an interesting conversation on Twitter with some of my fellow tech writers about the branding behind Windows RT. We all agree that it has remained a significant barrier for consumers because some Windows apps will work, but older so-called "legacy" apps won't.

It's possible that with Windows 8.1, Microsoft could fix some of these problems and make the difference between Windows RT and Windows 8 more clear. By the time that happens, however, will anyone care?

Microsoft is already having to do a lot of backtracking with Windows 8.1. I'm not sure if even a price cut can be enough to convince buyers to try out a Surface RT.

Click Image To Enlarge

Where Are the Apps?

It's ironic that apps — one of the areas that x86-versions of Windows have dominated the competition — is one of the biggest problems facing the Surface RT.

In short: There aren't enough apps built for Surface RT available within the Windows Store. The 60,000 apps available in the Windows 8 store pale in comparison to the ~400,000 iPad specific apps in the App Store.

In all of its advertisements around the Surface RT or other Windows RT tablets, Microsoft likes to play up the idea that a Windows RT tablet is better than the iPad because of its ability to work with Office documents and show more than one app at once.

Click Image To Enlarge

Putting aside the fact that Office 365 is almost definitely coming to the iPad — the problem with those ads is that they highlight the app gap. Where is a music creation tool a la Garage Band or the new Logic Remote? Making fun of the ability to play Chopsticks on a piano would be a lot funnier if the only "competing" app for Windows RT wasn't a basic virtual piano.

I frequently check out the app selection on the Windows RT tablet we use for testing purposes and I'm always saddened by the lack of apps, especially when compared to the iPad.

With a regular Windows 8 tablet — such as the Surface Pro — you can get around some of these app limitations because it will also run any other Windows app. That's not the case with the Surface RT.

To top it all off, the Surface RT doesn't even have access to Outlook (unless you use the web browser). Yes, Microsoft is remedying that problem with Windows 8.1, but did no one learn from the disaster that was the BlackBerry PlayBook? Building a tablet even remotely aimed at "business" users without a native email client is just sad.

A Better Alternative Exists

Of course, the biggest problem with the Surface RT is that it exists alongside the Surface Pro. While the Surface RT is a product that seems to be looking for a market — not quite a tablet but not quite a full laptop either — the Surface Pro can run all the same apps as the Surface RT and legacy Windows apps. It also has better add-ons (including a stylus), a faster processor and more memory.

Meanwhile, Microsoft isn't the only player in the Windows 8 tablet space. Asus, Samsung and Lenovo all have their own Windows 8 tablet or convertible notebooks at various price points.

Samsung and Asus are also introducing tablets that can use either Windows 8or Android. You know, so the adult in you can enjoy the Windows apps and the kid in you can access the vast world of Android apps.

Whither Surface?

In hindsight, it seems telling that Microsoft's hardware partners have largely stayed away from Windows RT. Early on, one might be able to ascribe hesitance to adopt Windows RT as payback for Microsoft becoming a direct competitor.

The complete disinterest by the market, however, shows that maybe there was more to it than that. A year ago, I predicted that the de facto Windows 8 tablet experience would be a Surface experience. I'll concede I was wrong with that prediction — in large part because no "de facto" Windows 8 tablet market really exists.

The Post PC world is certainly upon us. The problem is, it doesn't seem to include room for the Microsoft Surface.

Let us know why you think Surface has failed — or why you think it can still succeed — in the comments.

COMMENTARY: In a blog post dated June 19, 2013, I called the Surface Tablet with Windows 8 "awesome" and had what it took to become an "iPad-killer." It now appears beyond a shadow of a doubt that this was a very bozo and premature prediction on my part.

With only about 40 million computer users of all type adopting Windows 8, I now think that the failure of the Surface tablet (both RT and Windows 8 versions) to dominate both the iPad and Android-based tablets, has more to do with the lack of interest in the new operating system, and less with the design of the tablet itself. I have often marveled at the beauty of the new Surface tablet. The Microsoft designers did a great job. The design effort was almost Apple-like. This goes to show you just how difficult it can be to disrupt industry standards (Android and iOS).

Some where in graduate school I learned that the cards are stacked against you when it comes to disrupting an industry standard, especially one that is so widely adopted as are iOS and Android. Microsoft has tried to disrupt the browser market with BING, but Google still dominates browsers. HP, Samsung, BlackBerry and other small vendors have tried to disrupt the tablet market and failed miserably. Only Amazon with the Kindle Fire and new Kindle Fire HD tablet line has been able to make a dent, albeit a small one, in the tablet market.

In short, any new tablet with a different operating system standard has to be so darn good in every possible way, that it leaves no doubt in the consumers mind that it would be a mistake not to upgrade. You must also have mobile apps. Lot of them. The new tablet also has to run older apps. However, in Microsoft's case, the new Windows RT and Windows 8 are so completely different from Windows 7 and XP that users are simpy not going to make the jump because this means leaving all their favorite legacy apps in the dust. It takes a lot of panche to convince developers to develop new apps for the new operating system, and Microsoft is finding this out the hard way.

So who's winning the mobile apps war?

On March 3, 2013, ABI Research estimated mobile users will download 70 billion apps in 2013 – 58 billion to smartphones and 14 billion to tablets. As one put it, that’s over 10 apps downloaded per human being on Earth!

Given the sheer pace of change in the mobile market today, you may be wondering – just how many apps are there now in each of the major app stores? And how do these counts compare with one another? Well, wonder no more.

Here’s ABI Research's updated inventory of apps available on Android, iOS, Windows, and Blackberry (some are official, some are estimates as reported):