Microsoft has been in mobile since Windows CE for PDAs in 1998. Inspite of 15 yrs of presence, the latest reports don’t inspire any much confidence at Microsoft writes down huge losses on its ambitious Surface RT tablets
1. Microsoft’s Surface tablet generated $853million revenues in 8 month period (Launched late October 2012 to End of Q2, 2013). However, Microsoft has written off $900 on the Surface line – thus re-iterating that the whole premium pricing strategy was to no vain.
a. To put the $853 million in perspective, Surface revenue equaled about 5.5% of the Windows Division’s $16 billion in sales in the last three quarters, and just 3.3% of the $25.8 billion that Apple’s iPad generated in the same period.
2. Microsoft cut the price of Surface RT by as much as 30% in July 2013 and given that the number for the $899 Surface Pro have been poorer, there could be another inventory write down of Surface Pro over the next few quarters
3. Surface RT has also seen a huge attrition of OEMs which starts with HP & Toshiba (Committed to Surface RT- but never launched a device), Samsung (Which cited lack of demand for ditching the platform in January 2013), Acer, Lenovo and Asus (Mid July 2013).
a. There may be a few backers in terms of Qualcomm, Nvidia and Dell – But the fact remains – Windows RT is challenged and OEMs are simply not interested in RT.
b. This could be a spanner in the works of Windows RT 8.1 – It already is out of all momentum.
4. Microsoft has the choice of continuing on the Surface RT Tablets – but it is very highly unlikely that they would be able to turn the platform around. Keeping Surface RT alive would be a game of diminishing returns and would bleed Microsoft.
Microsoft may have deep pockets – but that really doesnot justify the undying faith on Windows RT.
ABi research reports that the tablet market will grow this year by 38% to 150 million units. But the Microsofts and Blackberrys will contiunue missing the boat! With 3% of the current Tablet markets globally, Microsoft, Blackberry and other unidentified OS implementations don’t show signs of significant growth.
The ABI Research report says that an estimated 150 million tablets will ship in 2013, worth an estimated $64 billion.The total number of tablets will grow by a projected 38% over 2012, and the total revenue will grow a projected 28%. Last year, according to ABI, 60% of tablet used iOS, 37% used Android, and the remaining 3% was made up of “others”.
App publisher Animoca recently calculated the top 12 Android tablets, based on app usage, and it found that five of the top six are 7-inchers- and with iPad Mini touting the 7″+ form factor – Tablet markets in the foreseeable future could look to stabilize at 7″ form factor.
Theoretically, that could bode well for Microsoft, because the company is said to be at work on a 7-inch Surface tablet. Surface tablets haven’t sold well, but perhaps a less-expensive and smaller form factor would help. A possible winner would be a 7-inch Windows tablet that takes advantage of Microsoft’s partnership with Barnes and Noble and taps into B&N’s vast book repository and growing video offerings, as well as into Microsoft’s successful Xbox-based gaming ecosystem.
Still, if ABI Research numbers are right, Microsoft so far hasn’t been able to tap into people’s growing desire for tablets, and won’t in the foreseeable future.
About 3 months back, I had been musing about the change that was afoot at Microsoft – The 30 year old OS centric company was for the first time shedding its old feathers to look, feel and compete with the new kid on the block – Google and a resurgent old rival – Apple. Ballmer’s letters to Microsoft share holders clearly signals that Microsoft is moving away from its make the OS & the service, let the partner handle the device model, which is what Ballmer terms as “significant shift, both in what we do and how we sees ourselves”. This is clearly necessitated by Internet and cloud centric business models, which puts the Microsoft traditional server, desktop and OS centric model. Given the momentum that Apple has now in mobile workforce and cloud space and the initial cold shrugs that Microsoft’s high price tablets have seen, Micorosft will take more batter before they get better. Also, the head start that Apple and Android have in the mobility space can be hard to overcome. Microsoft has to play the game changer and it needs its OEMs to support it while it does so. However the device route would mean that it will expend itself trying to integrate things into the user experience and the device. May be Google and Apple are doing this bit – but Microsoft will have to really execl to take the game away from Google and Apple.
The Windows centricity still remains as per Ballmer the intent to “firmly establishing one platform, Windows, across the PC, tablet, phone, server and cloud to drive a thriving ecosystem of developers, unify the cross-device user experience, and increase agility when bringing new advancements to market.” With Windows8, Microsoft is pushing to have unified messaging across all platforms. More than just sharing the same name, the various versions of Windows for different devices will now share a common foundation. It’s a move not dissimilar to what Apple does with OS X and iOS and its an essential part of making it easy for developers to target specific platforms.
Ballmer closes his shareholder letter by noting that “it truly is a new era at Microsoft ” and that the company has “an unprecedented amount of opportunity for both this year and the long term.” However given the number of competitors that it has to contend with, and the umbrage of the OEM makers who see Microsoft’s device designs as a challenge to their own competencies – it will be a complex equation, making the revenue and profits strategy work in a dynamic environment. Already the new game that Microsoft is playing itself is hurting itself as it suffered its worst loss ever in its 26 year old history in April-June quarter 2012.
However, it does make sense for a possible take over a beleaguered Nokia by Microsoft. Doesn’t it?
Microsoft Surface means more than just a tablet – its Microsoft’s departure from the OS led business model
XBox and now Surface – Microsoft’s device philosophy is changing. ironically, it is possibly Microsoft’s ode to Steve Jobs
Microsoft Surface is remarked departure from Microsoft’s decades-old business model to sell OS licenses to companies like HP and Dell, and rely on them to make and sell the hardware. Yes,times have changed.The quintessential OS maker has now ventured into devices. More than anything this move is possibly Microsoft’s tribute to Steve Jobs.
Apple has proven that the best computers — which rely on tight software integration more than ever before — are made when one company is in charge of designing both the hardware and the software, so they’re built in harmony and just work. Microsoft seems to have figured this out, too, via the Xbox and now this Surface tablet. That’s why the Surface is able to ship with a cool cover with a built-in keyboard. Such integration couldnot have been left to any other ODM. Microsoft has also learned that the best business model in today’s mobile industry — tablets and smartphones — is to the sell the actual hardware to consumers, not just license an operating system. Given today’s economics, the only way to potentially earn a profit of more than $100 per tablet is to sell the actual tablet. There’s no way Microsoft could earn that just selling Windows licenses to HP. Especially as it’s primarily competing with Android, which is sort-of free.
Will this thing be a hit and make Microsoft a lot of money? Enough to compensate for any potential decline in the Windows-for-PC business? Who knows. Would people opt for a Windows Surface in the face of a higely popular iPad. Perhaps some will, especially if they think Office means something to them. But I expect the iPad to continue its dominance of the tablet industry. But it sure looks like a better strategy for Microsoft than only trusting the Samsungs of the world to design great Windows tablets, and only trying to generate mobile revenue from Windows sales.
Sure, Microsoft may now alienate some of its Windows partners by competing with them. But as those partners have gone into the mobile industry, they’ve already strayed from Windows to Android, anyway. Windows8 is already a great option for Android ODMs given the Google-Moto acquisition. Plus, competition or not, as long as Dell wants to make PCs, it’s not like it has any real OS alternatives to Windows.
Microsoft is unquestionably late to this market, though it didn’t intend to be. But the interesting thing is that Microsoft is evolving with the times, both in terms of product design and business model. It may fail, but it’s at least learning to play the right game.
Microsoft was a company of the past with its vice grip on PC shipments and from the new spate of devices that Microsoft is getting around it is the company of the future. Steve Ballmer missed a few steps on the “present” but Microsoft now seems to be making a successful transition from its legacy laden desktop centric past to its “converged” future in time. Its inaction in the present meant that it lost the title of the No.1 selling OS on computing devices to Android.
Between the technology Triumverate, Microsoft was third in smartphones and until yesterday lagging Android and iOS by a few generations both in smartphones and tablets. However, the Surface announcement yesterday finally heralds the arrival of Microsoft in the tablet territory. Analysts are already betting on the future prospect of Microsoft beating Apple to take No.2 spot in smartphones by 2015 and Microsoft beating Android to take No.2 spot in tablets segment.
Interestingly here, the device evolution that Microsoft has followed is contrary to the Apple evolution. Both Microsoft and Apple followed their strengths in respective fields – Microsoft in computing and Apple in Mobility. So while Apple’s design was seeded in the iPod Touch which evolved into iPhone which then evolved into iPad (Touch being the cornerstone customer experience), Microsoft’s journey was from the Desktop computer which evolved into laptops and netbooks which then went the ultrabook way and finally manifests itself in the Surface with a keyboard. This is an interesting study of how different form factor and devices have evolved into the converged device category of the future- Tablets.