Some grim numbers from Microsoft's Surface recently surfaced, sparking the kind of hand-wringing tech journalists engage in during the slow summer months.
A report in Computerworld that tallied Microsoft's losses on the tablet device at US$1.7 billion (NZ$2.01 billion) so far started the discussion about when exactly Microsoft will pull the plug on the product.
For its part, Microsoft expresses sanguinity. A rep from the company offered the following statement:
"It’s been exciting to see the response to the Surface Pro 3 from individuals and businesses alike. In fact, Surface Pro 3 sales are already outpacing prior versions of Surface Pro. The Surface business generated more than $2B in revenue for the fiscal year 2014 and $409 million in revenue during Q4 FY14 alone, the latter of which included just ten days of Intel Core i5 Surface Pro 3 sales in Canada and the US"
Another reason Surface might stick around: Microsoft is famously patient with its new products. The company introduced its search engine, Bing, in 2009 and doesn't plan to turn a profit on the unit until fiscal 2016. It stuck with Zune from 2006 until 2011.
Ah, Zune. The counter case for Surface is that Microsoft learned its lesson with Zune: that it couldn't spend its way to success. Here are four reasons Microsoft might apply those learnings to the Surface.
1. IT'S LOSING A LOT OF MONEY
Microsoft continues to sell the Surface tablets at a loss. As the Microsoft rep notes, Surface posted US$409 million in revenues in its most-recent quarter, but Computerworld estimates that the cost of revenue for Surface was US$772 million for the quarter, meaning it lost US$363 million for the quarter. As Alex Wilhelm at TechCrunch points out, the real figure may be even higher, since advertising and marketing expenses may not be be included.
2. STEVE BALLMER IS GONE
Surface was part of former CEO Steve Ballmer's mission, but Ballmer's gone. The tenure of his successor, Satya Nadella, has so far been marked by an 18,000-person reduction in headcount, proof that he's willing to make tough choices for the continuing viability of the company.
3. THE TABLET SEGMENT HAS PLATEAUED
Apple is selling fewer iPads these days, and growth in the segment has slowed down. IDC projects the category will grow 12.8 per cent this year versus 51.8 per cent last year. The hottest part of the tablet market is also among smaller tablets — those with 7- to 8-inch screens. In contrast, the Surface Pro 3, Microsoft's latest model, has an even bigger screen than its forerunner at 12 inches.
That may be because Surface Pro 3 isn't really a tablet, but is designed to compete with the Macbook Air.
4. MICROSOFT IS NO LONGER A DEVICES AND SERVICES COMPANY
Last month, Nadella fired off a memo stating that Microsoft would now be built around "platforms and productivity" and it won't be a "devices and services" company. That doesn't necessarily mean Nadella is planning to get rid of Surface, though. In fact, he went out of his way to praise the Surface Pro 3 as a "great example" of the new approach.
Yet if the Surface keeps losing hundreds of millions of dollars every quarter, Nadella's enthusiasm for the device might wane.
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