All signs point to the demise of Microsoft's Surface RT tablet

All signs point to the demise of Microsoft's Surface RT tablet

Microsoft can finally put its billion-dollar mistake behind it
By Gregg Keizer  FOLLOW
Computerworld | Jan 26, 2015 8:27 AM PT

Microsoft seems to be within a whisker of calling it quits on its failed experiment with the Surface tablet, the device powered by the ARM architecture and Windows RT, an offshoot of Windows 8.

Last week, the company's own online store showed all configurations of the Surface 2 -- the lone Windows RT tablet still sold -- as out of stock, and that held as of early Monday. Best Buy, Microsoft's U.S. retail partner, also showed no Wi-Fi models available for online ordering, although spot checks had some stores with inventory for in-store pickup. And while giant e-tailer Amazon listed some Surface 2 tablets for sale, many were refurbished units, not new devices.

"It is currently out of stock [and] unfortunately we do not have specific dates on when products are back in stock, [so] you would have to check back on the site regularly," said a Microsoft Store sales representative in an online chat Friday.

Another tip-off that the Surface 2 line will be dead-ended: Microsoft will not offer an upgrade to Windows 10 for either that tablet or its predecessor, originally called Surface RT and then renamed simply Surface.

Instead, Microsoft will provide an unspecified update at some point in the future. But there will not be a path to Windows 10, the operating system slated to release later this year and which will, by Microsoft's telling, be its sole client OS for years to come.

Microsoft declined to answer questions about the Surface 2's future and whether sales had officially stopped. "There is still availability at Best Buy," a Microsoft spokeswoman said.

Analysts agreed that the Surface 2 and Windows RT are goners.

"It's pretty clear that we're not going to see any non-Surface Pro devices," said Stephen Baker of the NPD Group, referring to the Redmond, Wash. company's it's-a-tablet-it's-a-notebook device that runs the full Windows.

"Yes, it's dead," echoed Ezra Gottheil, an analyst with Technology Business Research.

The Surface RT was troubled from its release, and bled money almost from the start. Within nine months, Microsoft had taken a $900 million write-off to account for a glut of tablets it had to heavily discount. And even though Microsoft aggressively promoted Windows RT, it was adopted by few OEMs (original equipment manufacturers) and then quickly dropped by those who did.

But if Windows RT and the Surface 2 are dead, or nearly so, what happened? How did Microsoft make such a big blunder?

"They made enormous mistakes with both Windows 8 and what they tried to do with Surface," said Bob O'Donnell, chief analyst at Technalysis Research. "The fundamental mistake with the Surface RT was that they missed that the most important thing about a PC is that it's compatible. The Surface was incompatible with the PC, and couldn't run all the customer's legacy applications."

That was a problem: Microsoft never made clear to consumers that Windows 8 and Windows RT were entirely different beasts, and that the latter was, in fact, incapable of running -- with the exception of Microsoft's own scaled-back Office -- anything but the new "Metro" apps.

Gottheil agreed. "The single biggest mistake was that Microsoft did not clearly tell the world what the Surface was and what it wasn't," he said. "It was essentially a communication problem. But the dearth of software for the modern interface didn't help."

Microsoft's bad timing

Baker had a different explanation for the Surface RT's and Surface 2's failure: Timing.

"I don't think it was the hardware or the operating system," Baker said. "They did all of that well. But it was launched in the teeth of the iPad explosion. Nothing in the 10-in. form factor would have been successful. All everyone wanted then was an iPad."

Baker also disagreed with the others who said that Microsoft's failure was its own making. "You can ding them on all that stuff, but they clearly differentiated the Surface RT from the Surface Pro on price and marketing and positioning," Baker said. "It didn't make a difference. If someone wanted a slab of glass then, the iPad was the only thing they were going to want."

Microsoft cast the Surface RT, but the Surface Pro even more, as necessary, saying that it had to jump into the device business because, said then-CEO Steve Ballmer, "What our software could do would require us to push hardware, sometimes where our partners hadn't envisioned."

Some analysts weren't so sure. While they unanimously applauded the Surface Pro 3, the current incarnation of Microsoft's 2-in-1, they weren't convinced that Microsoft had to get involved.

"A lot of OEMs would have done interesting designs, even without Surface," argued O'Donnell.

But Baker, whose job at the NPD Group is to track U.S. device sales and trends, countered. "They had to do the Surface. With all the growth then going on in tablets, they had to have a solution," he said. "They acknowledged that they needed something in the market. But the [OEM] partners have caught up. In any case, you can't really point to a huge, overwhelming support for 2-in-1s. They're getting better and will get much better with Windows 10, but 2-in-1s are still a niche."

Although the already-sold Surface RT and Surface 2 won't have an upgrade path to Windows 10, there's no reason why Microsoft couldn't revive the pure tablet form factor with or after the launch of the new OS. "If they could find a way to differentiate a pure tablet from the Surface Pro, [the Surface] could come back with Windows 10," speculated Gottheil.

Last year, Microsoft was on the verge of releasing a smaller-sized Surface, dubbed the Surface Mini, but at the last minute decided not to launch the 7-in. or 8-in. device, afraid that the tablet would not sell.

Neither O'Donnell or Baker were going to hold their breath for a return of the Mini. "I see very little opportunity for a smaller tablet, I don't care who it is," said O'Donnell.

Tablet sales, especially in the U.S., where Microsoft has done its best business with the Surface line, have stalled; most who wanted one already have one, and those with one see little need for regularly replacing the device. And if nothing else, the demise of the Surface has shown that tablets are harder to sell than two years ago.

"I think they've simply burned through their inventory of the Surface," said O'Donnell, when asked about the out-of-stock messages on Microsoft's e-store. "When you build a device you have to buy a whole bunch of parts, you pick some number and you build them. Because there was only one model, they just built a bunch. And now they've finally gone through all of them. So they've called it a day."

Later today, Microsoft will release its 2014 fourth quarter financial figures and reveal sales of the Surface line for the three months ending Dec. 31. The previous period was the first that Microsoft claimed a profit for the tablet and 2-in-1.


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