The Microsoft Surface Pro went on sale yesterday and immediately sold out, leading many pundits and other observers to declare the launch a failure. Meanwhile the Surface RT has sold an unknown number of units (because Microsoft won’t reveal actual numbers) but let’s use the estimate of 1 million that was popular for a while. Oh, it isn’t popular right now because any time an analyst, any analyst, speculates on a lower number people love to glom onto that. Even at 1 million the Surface RT is considered a dismal failure by pundits. At the same time Google’s Nexus 4 smartphone, far cheaper (e.g. $50 with a two-year mobile plan commitment) and available at far more retail outlets than the Microsoft Surface, took a few weeks longer than the Surface to hit 1 million units. And it is considered a runaway success! You see the Nexus 4 is supply limited. But wait, so is the Surface Pro and that is a “failure”. And how about that iPhone 5 introduction? My wife waited weeks to get her hands on an iPhone 5, because they were sold out from the moment of claimed availability.
Doesn’t it seem like Microsoft is being judged by a higher standard than the rest of the industry? They are. And to a surprising extent, as frustrating as it is, it is fair. Apple has nothing to prove. Google has nothing to prove. Amazon has nothing to prove. Microsoft has a lot to prove. In the court of public opinion, or at least pundit opinion, Microsoft is expected to have big runaway success stories before it can leave its 20th century legacy behind and deserve to be uttered in the same breath with Apple, Google, and Amazon.
For pundits to have declared the Surface a success it would have needed a blowout introduction on the order of the Kinect. Recall the Kinect sold 8 million units in 60 days and was the blowout consumer electronics product of the 2010 holiday season. That is the standard by which all Microsoft product introductions are now measured. And it is a tough standard to meet.
While Microsoft would love to see products like the Surface, Surface Pro, Windows 8, and Windows RT getting love from pundits and sales that blow away all expectations that isn’t their central focus. They know they are running a marathon, not a sprint, and that what really matters is where they are in two, three, four, or more years. They know they could have goosed the short-term results for the Surface RT by using a lower price and making it more broadly available. The headlines would have been great as many millions of units (assuming they overcame supply constraints) were purchased. With feverish demand, and a clear “winner”, being constantly sold out would have then been a plus.
Unfortunately any blow-out short-term success would have come at a high-price. It would have irreparably damaged the OEM channel. It would have set a precedent that Microsoft was a vendor of low-price rather than of high-value devices. With low-price comes the risk of a “race to the bottom” against commodity device manufacturers and the inability for Microsoft to ever make money selling devices. Microsoft needs to make money, Apple-like money, if it hopes to be in the devices business in the long-term. Moreover, a key purpose of having its own devices is to bring its latest innovations and viewpoint to market. Low-price means low-cost, low-cost is the antithesis of new technology introduction.
I know some are thinking it is silly for Microsoft to have worried about setting a precedent by using a low-price to ensure quick adoption of the Surface and Surface Pro, but Microsoft worries about precedent a lot (in many different areas). It is far easier to lower prices than to raise them. The time will come when Microsoft decides it is appropriate to lower prices, either directly or by repackaging (e.g., always include a Touch Cover with the Surface RT at the current tablet-only price; or eliminate the 32GB version and sell the 64GB version for the 32GB version’s price). Meanwhile it will have established its position as a vendor of premium devices and retained its ability to target the market segments that most interest it.
Precedent also plays a huge role in why Microsoft has avoided giving out numbers for Surface, Surface Pro, and Windows Phone 8 unit sales. It doesn’t matter if they are happy or unhappy with the numbers, nor how good or bad the numbers are, they are trying to avoid being drawn into the numbers game. Once they start disclosing weekend, monthly, quarterly, or any other absolute numbers the expectation is that they’ll continue to do so on a regular basis. And that these numbers would then dominate every discussion they tried to have about products.
Let’s face it, if they confirmed numbers that were low then it would just add to the damage caused by speculating they were low. If they announced numbers that were at or slightly above expectations it wouldn’t help them (and the headlines would still shout out “mediocre” or “modest”). The only really helpful number would be something crazy high, and that would show up in so many other metrics that Microsoft wouldn’t need to confirm them. The frenzied speculation would do the positive PR job for them. So they have chosen not to play the game.
In the short-run Microsoft’s approach means taking a lot of body-blows in the press and blogosphere and risking slower adoption rates as a result. In the long-term Microsoft’s success or failure in its approach to the “post-PC era” will become evident and, in the case of success, it will have changed the nature of the conversation. Perhaps not only meeting the higher standards to which it is held, but setting a new standard by which Apple, Google, Amazon and others are judged.
So for now all we can do is be frustrated by Microsoft being held to different standards than others. And wait for the day when we can look back and, hopefully, correct the perceived injustice.
Hal's (Im)Perfect Vision 
try getting the smallest iPad Mini any time in the two months after it launched (looking for a friend, as they say!); it felt like Apple reeeallllyyyy wanted people to buy the pricier models…
It’s pretty much true for all Apple products (except Apple TV) to be supply constrained in the first few months. And yeah, some of it could be intentional management of the product mix.
But I think all these issues (Apple’s, Google’s, Microsoft’s, etc.) is largely the result of today’s just-in-time supply chain model. You do not want to be sitting on a lot of inventory for a long period of time, so you don’t even try to build much up before a launch. You get the engine running and spitting out product and then you start delivering it to customers. Of course with short-term interest rates near zero the cost of carrying the inventory for a few extra weeks so you have enough on hand to meet demand doesn’t seem like a big financial burden. But the mind-set was established back in the 90s when Dell (and others of course) showed you could make lack of inventory carrying costs the key to a business model.
I agree with the post’s assertion but fault the Surface team, as well as Best Buy and Staples, for seriously underestimating the demand for 128-GB Surface Pros. MSFT didn’t prime the supply chain for which they deserve some pundit backlash. Best Buy and Staples appear to have only had one or two Surface Pros per store. They had none, as far as I cound determine, in the San Francisco Bay Area on Saturday.
–rj
Do you fault Google and Apple for their similar problems with the Nexus 4 and iPhone 5?
Would it have been better for Microsoft to delay availability for a couple of weeks in order to build up inventory? That is probably what they would have had to do, since my guess is that the manufacturing plant is pumping them out as fast as possible.
Of course, I would attribute the same failing for insufficient initial inventories of the Nexus 4 and iPhone5. On the other hand, Google’s Nexus 7 introduction went smoothly and has been selling at a reported million units per month for some time.
My Nexus 7 was the first non-Windows computing device since a Commodore CBM and I like it very much. I do like my wife’s Surface RT better, however.
I’m curious about your opinion of the market for MiniPC sticks, such as Dell’s forthcoming “Project Ophelia” at < $50 and CozySwan's UG-007 available now for < $70. Such devices, both of which run Android 4.1+, require Bluetooth or USB keyboards/mice and an HDMI display. I find the UG-007 to be an ideal device for the living room because of its form factor, low power consumption, and app availability. It has the potential to be a geeky PVR.
For a detailed comparison of Ophelia and the UG-007 see my "First Look at the CozySwan UG007 Android 4.1 MiniPC Device" article at http://oakleafblog.blogspot.com/2013/01/first-look-at-cozyswan-ug007-android-41.html#Ophelia.
Cheers,
–rj
I haven’t looked at them, but similar devices in the past have not gone anywhere and I didn’t think it was the price point. I’ll take a look sometime and get back to you.
This is the most awe-inspiring catalog of excuses for failure I have ever seen. Bravo!
Good points, but it still seems likely to me that sales of Surface RT were way below expectations. The saturation advertising in NYC and elsewhere was not the action of a company trying to sell only a few in order to keep OEMs happy. It is worth mentioning factors like the performance issues with Surface RT, the dreadful mail client, the confusing name, and other imperfections.
And I write as someone who LIKES the Surface RT.
Tim
I don’t disagree with you. But I still think that distribution was at the heart of the problem. It was too much of an unknown for people to order site unseen, and there was no place for them to see it.
Please read “My Nexus 7 was the first …” as “My Nexus 7 was my first …”
Sorry about that.
This is the most rational reasonable review for Microsoft’s efforts in the last 3 years, since they have first launched their Windows Phone 7, the new Windows and Windows Phone 8, Office 2013, and Surface devices.
This blog reached the exact thoughts I have, specially about the standardized view and rating for Microsoft being a follower of Apple or Google in the hardware business, but in fact you did the right speculation about the supply management strategies, and the Surface pricing points Microsoft is making.
Great article!!! I don’t plan on buying a Surface Pro right away as I have a Surface RT. Will buy one when next gen comes out. But I hate these double standards from tech press, analysts who always judge Microsoft with different set of criteria.
Btw, I would be sad as well if I had to stand in line for multiple hours and then be turned away due to no stock. The retail stores should at least proactively communicate to the folks in the line to ask them what they were waiting for.
I think Apple and Google both caught grief for their supply issues too. Maybe not as much as Microsoft I don’t know. I don’t sense as much of a double standard as you seem to be suggesting. In the big picture I don’t think launch day means anything other than for PR. How many units you sell over time is what matters.
That being said, my expectations are that if I show up at a Microsoft store (or Apple store) just as the store is opening on launch day, I should be able to purchase the product being launched. Are my expectations unreasonable? Apparently so. I wasn’t able to purchase a Surface Pro at a Microsoft store yesterday minutes after the door opened. The sales clerk told me that only received a few. This was a Microsoft store, not a Best Buy or Staples.
So apparently the industry standard, for many reasons probably, is low inventory launches and then boast about selling out. I’ll have to adjust my expectations.
Sadly I think you are right about that being an industry standard. As I replied to Mary, it is somewhat a consequence of the move to just-in-time supply chain. You don’t build a warehouse of devices before you start selling to customers, you just start turning the crank and delivering. But that doesn’t work well for anything that has an initial demand surge.
Admittedly I don’t know much about running a business but if a customer shows up at your door eagerly trying to give you money and you have to turn them away, it seems like that should be viewed as a problem.
It is. But one mitigated by several factors not the least of which is the likeliness they will wait versus buy an alternate product. While there might be some people who want a Surface Pro who gave/give up and get a Samsung, Lenovo, ASUS, or other Windows 8 tablet rather than wait almost no one will substitute an iPad, or Galaxy Tab 10.1. The same is largely true for Apple. Very few people decided they wanted an iPad Mini but switched to the Nexus 7 rather than wait. And if you did buy a Samsung ATIV Smart PC Pro 700T because you couldn’t get your hands on the Surface Pro then it is a success for Microsoft as well.
While a long-term view is usually prudent, Microsoft has given the iPad a 2 1/2 year head start. How long can developers and partners wait on Microsoft’s long-term plans? Redmond is being squeezed between Apple at the high end and Amazon/Google bottom feeder pricing. It’s a shame to see a brilliant, innovative device like the Surface being handicapped by Microsoft’s mediocre marketing and distribution.
They need to show continuing and accelerating progress this year. But how do you measure that progress? If there are 200 million Windows 8 systems in use at the end of 2013 will that be considered success? Or do they have to be specific form factors? Or specific devices that Microsoft makes? Or do PC sales have to grow by a certain percentage? And are the Surface and other Windows tablets counted as PCs or tablets or both? Or….
MS likes to play both sides, when the numbers are good MS will tout them till the cows come home, like Xbox and Kinnect sales. When numbers are not good they will come out with carefully worded statements that say nothing. What does the 60 million Windows 8 licenses sold really mean? Sold to whom, does that mean they have been installed or just sitting at an OEM or business and not being used.
Google, Apple and Amazon have the same carefully worded statements but MS is either playing catch-up or trying to protect a kingdom so a little transparency might hurt (be painful) in the short term but should build up trust in the longer term.
In the consumer market MS does not have the trust of the consumer, with KIN and Zune failures ripe in peoples mind. (Or maybe just some peoples mind) Set expectations before hand, this is a premium device (supposed to show OEMs what can be done with Win 8) and we are only selling it at MS stores (physical and online) and we are not expecting iPad level numbers.
If you just let everyone speculate it is doing more harm than good even in the long run.
It is more complex than wanting to play both sides, though of course they have the right to try to use really good sounding numbers for marketing purposes when they want. And how they approach decisions about numbers is going to be on a business by business basis. Moreover, much of it is driven by what they need to communicate to the investment community rather than by marketing needs. Often, of course, the numbers meet both the need to disclose relevant information to the investment community and marketing purposes.
Take the 60 million Windows 8 number. They are clear that this is a “sell in” number, meaning the number they sold both directly to users and into the channel. Microsoft does not have solid “sell through” numbers, meaning numbers sold to the end customer because, as the name implies, most of what they sell is to the channel. For Windows their primary customers are Lenovo, Dell, HP, ASUS, Acer, Sony, etc. and all they really know is what those guys buy from them. Then there are the licenses sold through Best Buy, Staples, Office Depot, Walmart, Costco, etc. (often if not always (as it used to be) with a distributor in the middle between Microsoft and those retailers). They know what goes in, but they only get a delayed view of what goes out. This is very typical for companies that sell through channels. The financial analysts who track the company understand this number and how to put it into the proper context, most of the rest of us have at best a vague idea. This is why there is so much focus on indirect measures, such as channel checks, PC sales reports, and reports from advertising networks and web usage counters. Those give us some idea of usage in the real world, but each has its own faults and severe measurement bias. Even if Microsoft told you how many copies of Windows 8 had been Activated it would be only an indirect measure, because copies sold through Enterprise Agreements are usually installed from a pre-activated copy (that is a single activation might cover thousands of installs).
From a marketing perspective the 60 million number says that the Windows 8 base is getting relevant fast. Are 30, 40, 50 or 60 million people actually running it now? We don’t know precisely. We have a pretty good idea it will hit the 60 million mark soon, but that’s about it.
We’ll get a much better idea of how Windows 8 is doing in a quarter, because that’s when we’ll be able to derive sell through numbers from the latest sell in numbers (because the channel stops buying unless they are selling). In the meantime we’ll all keep our eyes on the indirect measures that come out each month from sources throughout the computing universe.
Thanks for the detailed response. As you said, I guess we will see how Windows 8 is doing in a quarter.
I still think MS needs to do a much better job of communicating with the consumer so they feel comfortable buying into the whole MS story.