Pop quiz: Imagine you spend millions of dollars—and an untold number of engineering and design hours—on a new product that you hope will prove a bestseller on the open market. Instead, that product crashes and burns so badly that you’re forced to take a $900 million write-off on unsold units. Do you…
A.) Discontinue a product that nobody seems to want.
B.) Continue to sell the product, but resolve to never throw good money after bad by building a follow-up.
C.) Pump a whole lot of money into creating a next-generation version of the product, but don’t radically alter its fundamental properties.
Microsoft has gone for option C.) with its Surface tablets. Never mind that sales of the original Surface totaled a pitiful $853 million in its first few months of release, or that the tablet failed to make Microsoft an up-and-coming player (or any kind of player, really) in the mobile-device wars. But in updating its Surface portfolio, Microsoft still opted for iterative upgrades rather than a total revamp: the Surface 2 and Surface Pro 2 (the former contains an ARM-based chip and runs Windows RT, a version of Windows 8 built for that type of processor; the latter packs an Intel chip and “regular” Windows 8) feature some improved hardware specs and new accessories, but otherwise look pretty much the same as their predecessors.
The Surface 2, in keeping with tablet trends, is physically lighter than the first version; it also packs a Tegra 4 processor and Windows 8.1. The Pro 2 boasts better battery life (a major complaint about its predecessor) and an Intel Core i5 Haswell processor; Microsoft also reengineered the built-in kickstand to better remain upright while in people’s laps. The accessories—a key selling point with the Surface—include improved keyboard covers and a new “power cover” that extends battery life, along with a docking station for the Surface Pro.
Microsoft is still positioning the Surface as the best bet for people who want a tablet capable of “real work,” as if keyboard attachments and productivity software somehow aren’t available for alternate tablets on the market. It will surely pour more money into the manufacture and marketing of these new devices. But to what end? The device’s first generation forced the company to take a gargantuan write-off on unsold units—it’s not as if people were fighting each other in the aisles over the last available Surface RT.
So why is Microsoft continuing the endeavor? Back in October 2012, outgoing Microsoft CEO Steve Ballmer released a widely circulated memo that suggested Microsoft was evolving into a “devices and services” company. “There will be times when we build specific devices for specific purposes, as we have chosen to do with Xbox and the recently announced Microsoft Surface,” he wrote. “In all our work with partners and on our own devices, we will focus relentlessly on delivering delightful, seamless experiences across hardware, software and services.”
That meant Surface (then on the cusp of release) was clearly a harbinger of the company’s future direction—and canceling the project after the first generation would have been a stinging refutation of Ballmer’s strategy. By spending the money and resources on a second device generation, Microsoft manages to save a little bit of face, albeit at considerable cost. But if this second generation fails like the first, it’s questionable how long Microsoft will continue with this bruising foray into the device-manufacturing space.