Doomed! Surface Tablets Have No Hope

The people have voted with their wallets and the result is an ignominious disaster for Microsoft’s Surface tablet.

Microsoft Surface Fared Badly in Q1 2013 Shipments

A new survey of tablet shipments in the first quarter of 2013 has come out and the numbers are nothing less than a catastrophe for Microsoft.

Mon dieu, Surface tablet shipments did not amount to even a million units in the quarter.

Total shipments of Microsoft’s Surface RT and Surface Pro tablets combined was a tad shy of 900,000 units in the first quarter of 2013.

Since the majority of the tablets that Microsoft sold in the quarter were Surface Pro (which the company started shipping in February), it means that the Surface RT tablets (available since October) are proving to be a dud.

Surface Pro runs on Windows 8 Pro operating system while Surface RT is powered by the Windows RT operating system meant for mobile devices.

Since IDC counts shipments to both distribution channels (stores) and end users in its calculations, I wouldn’t be surprised if the number of tablets that ended up in consumers’ hands is actually far lower than the 900,000 figure.

Two major challenge that Microsoft faces in moving Surface tablets into the hands of customers are low-priced Android tablets and countering the strong buzz around Apple iPad, which created the tablet market and continues to dominate the category.

It’s going to be extremely hard, if not impossible, for Microsoft to put up a winning fight to meet either of the challenges.

Surface Pro TabletSurface Pro Tablet from Microsoft

Low End – Android Rules

At the low end, Android tablets from a slew of vendors like Samsung, Asus, Amazon (Kindle) and Barnes & Nobel are the preferred choice of customers who are unwilling or can’t afford to spend over $300 for a tablet.

For instance, a Kindle Fire can be had from $159 (7-inch model) to $269 (8.9-inch), prices that are significantly less than Surface tablets.

Au contraire, Surface RT costs $499 and the Pro version is a whopping $899 (without the Touch Cover or the Type Cover).

So Microsoft’s high prices effectively removes the Surface from being a contender in the low-end segment.

High End – Apple iPad is King

For customers who prefer the tablet with the most apps, the slickest finish and the maximum buzz, the obvious choice is the iPad, which starts at $499 for the 9.7-inch version and goes down to $329 for the 7.9-inch model.

Although its share is declining, Apple still rules the tablet market.

Apple has a strong loyal base of consumers that are unlikely to defect to other tablet platforms, even if they’re priced lower than iPads.

In the first quarter, Apple owned nearly 40% of the total tablet market with 19.5 million units.

Samsung was a distant second with 17.9% of the market.

Smaller Surface?

Meanwhile, rumors continue to swirl that Microsoft will put out a smaller-sized Surface tablet in late June at its Build Developer Conference.

In our view, the smaller Surface tablet too will meet the same fate unless Microsoft prices the rumored 7-inch tablet below $300. Current generation of Surface tablets have a 10.6-inch screen.

But price-slashing is not a viable option for Microsoft given the inevitable high losses it will engender.

Microsoft is also said to be gearing up to widen regional distribution of both Surface RT and Surface Pro products but we doubt it’ll do the company any good given the high prices.

Even if you include other vendors (like Samsung, Lenovo and Asus) that ship tablets running Windows 8 or Windows RT, Microsoft still comes off looking poorly. IDC figures total combined Windows 8 and Windows RT tablet shipments across all vendors were 1.8 million units, a piffling 3.7% of the total tablet market.

Unless Microsoft can find a fix to its Himalayan-disaster-in-the-making Surface tablets, we reckon the tablet fiasco could end up costing the company over $1 billion in losses eventually.

Bottom Line – Some fights in life cannot be won. You can at best minimize your losses!

5 Responses to "Doomed! Surface Tablets Have No Hope"

  1. Naveen   May 2, 2013 at 11:14 pm

    That is disappointing but totally deserving and expected.

  2. Naveen   May 2, 2013 at 11:29 pm

    Is there any chance Apple will buy Microsoft? (or vice versa) Responds:

    If either of those two things happen, I’ll gift you my wonderful 27-inch iMac with 20GB RAM! And as a bonus, I’ll even stop doing “Telugu Bidda” stories. 😉

  3. vedagiris   May 3, 2013 at 12:04 am

    Apple is going for total renovation of its UI in its forthcoming iOS 7. If its really attractive, we might see some Samsung or HTC users switching to Apple.

    Without Samsung, android can never sustain for long time. If Samsung produces plastic crap like galaxy s 4, and some tablets, android is gonna lose some.

    But Sony is pulling its socks. Sony is rumored to produce an android device which has 20mp camera and exceptional camera lens. Responds:

    We’ve reached a stage in smartphone development where there really is not significant difference between the top 4 players from the perspective of an average user – Samsung Galaxy S 4, HTC One, LG Optimus G Pro and iPhone 5, any of them is good enough.

    For average users, anything above 5-megapixel camera is overkill.

    I think future smartphone innovations will come in areas like battery management, solar wireless charging, payment and accessories (like turn your iPhone/Galaxy S4 into a Taser, car starter etc).

  4. tiramisu   May 5, 2013 at 11:30 am

    The next gen UI is not going to be enough for AAPL to affect the trajectory of their growth in a big way. They are facing tremendous odds on the hardware and software side from Samsung and Google.

    Samsung has enough muscle to keep pulling off hardware innovation and sustain the ecosystem. Google has already outgunned Apple on the software platforms, cloud and apps aspect. Google Now, Google maps, smarter Google drive/gmail they have been hitting a few home runs.

    Apple I think does not have the software engineering chops or content that Google has to innovate and build software apps/services for the web/mobile world. Google with their index of the WWW can build powerful services that Apple simply cannot match without relying on Google or Microsoft Bing.

    However I think a merger of Apple and Yahoo would make for a great match. Yahoo has the software and WWW expertise, Apple has the money and need.

    I wouldn’t be too surprised if this ever happens !! Responds:

    1. You write: I think a merger of Apple and Yahoo would make for a great match. Yahoo has the software and WWW expertise, Apple has the money and need.

    I can’t think of a single Yahoo service that is worth anything to Apple – News, Finance, Flickr, E-Mail….all zilch to a high-margins hardware pioneer (iPod, iPhone, iPad, iMac) like Apple.

    Yahoo is in the content game, a low-margin business with severe competition from all and sundry. Yahoo’s display ad business is under severe pressure from Google’s AdWords (text) and display ads. Apple already has better-paying content (movies/music/subscriptions via iTunes).

    Yahoo’s search engine is now powered by Bing.

    When was the last time Yahoo put out a service that elicited anything other than a yawn.

    Among the countless stupid things Apple could do, the worst would be to acquire Yahoo.

    The arguments against an Apple-Yahoo does not mean it won’t happen because corporations do stupid things all the time (Anyone remember the disastrous AOL-Time Warner merger??, BTW, I haven’t seen much come by way of Google’s purchase of Motorola either).

    2. You write: Apple I think does not have the software engineering chops or content that Google has to innovate and build software apps/services for the web/mobile world.

    Other than the fiasco over the Maps, Apple has not messed up big time. Sure iCloud goes down sometimes but so do other online services like Gmail, AWS, Google Drive etc. Developers continue to flock to the iOS platform at a minimum of 5:1 ratio compared to Android.

    As for your point about building software apps/services for the web/mobile world, the Apple ecosystem is to a large degree taking care of that and then giving Apple 30% of the sale price. Google pays Apple a lot of money to be the default search engine on the iPhone.

    Let’s be clear that not all of the “wonderful” software features in Samsung Galaxy S4 work as they should. Source:

    Regarding your point on Apple lacking the content that Google has – I’d say Content is useful to Google because it’s in the search business and the company is now ramping up its content repository (Zagat deal, Frommers’ acquisition, attempted purchase of Yelp and Groupon etc).

    I don’t see content as a game-changer for a hardware player like Apple (which already has the content it needs via iTunes).

    In my view, one of the best opportunities for Apple would lie in payments via the iPhone. Let’s see if anything happens.

    3. We must also remember that certain events in history are one-off and can never be replicated – Alexander’s conquest of the East, a little-educated man from Stratford-upon-Avon who had never traveled outside England writing so wonderfully that to this day he’s without peer, Apple’s wild success from 2000-2012…….

    Still, humans through the ages have unrealistically compared events (big and small) to these one-off extraordinary events.

    Despite his great military success, the brilliant Roman emperor Trajan lamented he could never hope to match Alexander because of his age (Source: Edward Gibbon, Vol 1).

    Comparing Apple’s 2000-2012 record with anything that comes later is an exercise in futility.

    4. Another big advantage for Apple – a loyal customer base that none of the other vendors have. I can’t imagine a great many people taking pride in their HTC One or Samsung Galaxy S4 or, God Forbid, Windows Mobile phone.

    5. Bottom line, all these “imminent doom” and “clear & present danger” stories and analyses about Apple are dictated by wild, unrealistic expectations and the fall in its stock price.

    BTW, despite half the market share of Samsung in smartphones, Apple makes significantly higher profits.

  5. tiramisu   May 5, 2013 at 10:26 pm

    The nerds at Yahoo do know how to do ‘search’, except they sucked at monetizing it. Also they have a big user base in email. They do own maps infrastructure. Apple knows how hard it is to build Maps from the ground up. There’s a whole bunch of detritus that apple doesn’t need from yahoo, but indexing, search, maps, user base and to some extent email would be valuable.

    Looking at the big services offered by apple- maps, Siri, iCloud, iTunes. Except for iTunes none of the others are blockbusters. The iTunes advantage is eroding with so much fragmentation in that space.

    Developers flocking to iOS 5:1 compared to android, not sure about that. Got to google that one for some stats !

    Not everything is perfect with Samsung, sure but the numbers here seem to indicate they seem to doing ok at least for now –

    I am certainly not predicting imminent doom, but more of a gradual decline. Apple will certainly meander along a la microsoft. There will be sporadic flashes in the pan, the upcoming rev on the UI could be one of those.

    Since you drew references to history, my analogy would be to compare it to the history of the British empire.

    The loyal customer base for apple, that is a little complicated. Apple certainly has a loyal user base in the pc/laptop market, but in the smartphone segment loyalty is/can be fickle, plus they do not command the market segment percentages outside North America for the loyal user base to keep them in the lead. After all the average ownership lifespan of a smartphone is a year or two, folks can change their loyalties every so often.

    Most of the growth and big numbers are occurring in Asia and Africa, where Samsung dominates and doesn’t bode well for apple. responds:

    1. Yahoo has bled talent over the last few years. Layoffs, management changes, low morale, and a general malaise at the company have taken their toll. I’d be skeptical if they still have the best and brightest people there. Apple may not find much of a talent-pool still left at Yahoo.

    2. I agree that Apple’s loyal base in iOS seems to be mostly a North American phenomenon. But I suspect the iOS base is as entrenched as the old Mac loyal base and unlikely to defect easily.

    If, and we’re talking of a big ‘if’ here, Apple introduces the so-called budget iPhone that could help it gain territory in South Asia and Africa.

    All is still not lost for Apple in the ‘developing’ world because smartphone penetration is still low in India and presumably in other South Asian countries and Africa as well.

    3. iCloud syncing is a big plus if you work/use all three devices (iPhone, iPad and Mac)…contacts, music etc sync very smoothly. I find it very convenient.

    4. I suspect Apple’s loss of market-share is not unlike that experienced by any pioneer in any industry. Ford likely owned the car-market in early 20th century and then gradually lost share, first to other U.S. companies and then to the Japanese.

    Apple will not lose market-share only if its innovation outpaces the catching up that other players do. History has no example of any company continually innovating like that. Sony was thought invincible in the 1980s…Sony CEO Akio Morita was like a rock-star in the 1980s.

    If history offers any clues, Apple will lose more market share in mobile unless its rumored budget iPhone takes off in Asia and Africa.

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