Last fall, Microsoft launched its Surface RT tablet with high hopes. The sleek touch-screen ran Windows RT, a version of Windows 8 designed for hardware powered by the ARM architecture, which dominates the mobile-device market; it also included a flexible keyboard that doubled as a screen cover. Microsoft executives told any journalist who would listen that Surface RT would position their company as a major player in the tablet arena, ready to battle toe-to-toe with Apple and various Android device manufacturers.
Fast-forward to this week, and Microsoft announcing its financial results for the quarter ended June 30. Amidst metrics such as operating income and diluted earnings per share, one number stood out: a $900 million charge (the equivalent of $0.07 per share) related to what Microsoft called “Surface RT inventory adjustments.”
Microsoft had already announced that it would slash Surface RT prices by $150, so that multimillion-dollar charge didn’t come as a total surprise. Microsoft has played coy about its tablets’ sales performance, but research firm IDC issued a note earlier this year that pegged Surface sales at just under one million units—a number that includes the Surface Pro, a slightly heavier tablet with an Intel processor that runs “regular” Windows 8. Compared to the iPad, a million units a quarter is a middling number, especially when one considers all the cash Microsoft threw behind its promotional efforts.
In other words, Surface RT is a bomb. But its chances of success were (realistically) never very good in the first place.
From the outset, Surface RT had an issue with the potential to mightily trip up Microsoft: While Windows RT looks exactly like Windows 8, it can’t run legacy Windows programs built for x86 processors, limiting users to what they can download from the built-in Windows Store app hub.
Before Surface RT rolled out, Microsoft executives promised that their promotional campaign for the device would highlight this fact, and thus spare consumers any confusion. But whether or not store employees selling the devices were properly educated in Surface RT’s nuances—some reports from last fall indicated they were, while others suggested such efforts were failing—Microsoft never made the case loud and clear for why a customer would opt for Surface RT over competing tablets on the market, or even the then-upcoming Surface Pro with Windows 8.
The inability to run legacy apps may have also killed Surface RT’s chances with businesses. Why would any Windows-centric firm spend thousands on tablets loaded with Windows RT when they could wait for the Surface Pro—or simply have their employees use ultra-light Windows laptops? Again, Microsoft never pumped up the advantages of Surface RT over any other platform on the market: it simply put the device out there, highlighted by a bunch of billboards and television ads, and expected that the Windows brand name would be enough to spike sales in the short term.
Microsoft could have countered the backward compatibility issue by releasing Surface RT with a whole lot of apps that people would actually want to download. The built-in Windows Store launched with 10,000 third-party apps in place, which is pretty solid—but it also seemed paltry in comparison to the well-developed Android and iOS ecosystems. There’s likely nothing that Microsoft could have done about this—every platform has to start somewhere, after all—but the relative lack of apps put Surface RT between the proverbial rock and the hard place: it couldn’t rely on Windows’ extensive legacy, and it didn’t have enough content to make it a true contender from the outset against the iPad and Android tablets.
Then there was the matter of price. Microsoft could have taken the Amazon route and sold Surface RT at a relative pittance in order to drive adoption—something that made the Kindle Fire a sizable hit. However, that sort of pricing scheme isn’t in Microsoft’s corporate DNA: it only cut Surface RT’s price several months after release, as a defensive maneuver, when it’s likely to do much less good.
Microsoft CEO Steve Ballmer has made no secret about his intentions to remake Microsoft into a “devices and services” company, and Surface was meant to be the first salvo in that effort. It’s looking more and more like that salvo is a dud.