Microsoft’s Sobering Realization: It Can Never Win, Place or Show in the Hardware War

| Particle Debris

Microsoft has struggled over the years to develop its own hardware. The Xbox has been the only notable success, and even that product has had its share of struggles. One has to wonder, how long can Microsoft endure without getting its mobile hardware right? A strategic retreat seems in order.

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First, the bad news about the Microsoft Surface tablet just keeps rolling in. First, in this report by Gregg Keizer at Computerworld, Microsoft reported US$409 million in Surface revenue. That's probably about 500,000 units. (Compare that to Apple's 13.3 million very profitable iPads in the same quarter.)

Worse, however, is that Microsoft may well have lost money overall thanks to the cost of bringing in that revenue. Mr. Keizer continues....

But unlike the past two quarters, Microsoft has not revealed the cost of revenue associated with the Surface for the June period, at least in the 8-K document filed with the U.S. Securities and Exchange Commission yesterday.

Even so, Microsoft did admit to losses in the prepared remarks read by chief financial officer Amy Hood during the call with Wall Street analysts yesterday, as well as in the 8-K.

In essence when your manufacturing and operations for a product can't generate profitability and when customers aren't buying the product in any serious numbers, it's usually time to kill the product and build a new hardware vision. How long it will take CEO Nadella to force that decision will be interesting to watch. Maybe he's just buying time (and losing money) while Microsoft rethinks its tablet strategy.

Microsoft is in a similar pickle with Windows Phone. For a different but similar set of reasons, Robert "Google Glass" Scoble, a former Microsoft employee, has urged his former company to ditch Windows Phone. Later, Matt Rosoff, the editor-in-chief of CITEworld chimed in with some elaboration that's worth a look. "But really -- what IS the point of Windows Phone?" They both make good points.

What's becoming clear is that Microsoft's historical tendency to load agenda into its products instead of building hardware products people just love continues to haunt its mobile hardware business.

On the other hand, over the years, Microsoft has developed significant strength in its software: the knack for helping customers build their business and their wealth. That's where I think the future of Microsoft is, and so I explained at The Street: "Microsoft's Similarities to Apple Will Be Its Salvation."

Next: the tech news debris for the week of July 28.: dubious PC sales reports, the most popular programming languages, iOS developer woes, and teaching kids to understand what they see on the Internet.

Comments

palenoue

“That’s probably about 500,000 units.”

And most are those are used as product placement in TV shows.  I’ve seen a total of _one_ Surface out in the wild, and I’ve been looking for them.  Yet dozens of them used in TV shows with painfully gratuitous lingering shots of the home screen.

wab95

John:

Great picks this week. Glad to see you’re back in the saddle. Time for only a quick thought before I settle into work.

The whole issue around hardware, whether the Windows phone or the Surface, is, for better or worse, a test case for Satya Nadella and his handling of this issue a real indicator of just how successful he will be as CEO in transitioning MS away from their current near-rudderless drift to powered true North.

His statements would indicate that he appreciates that MS’s real strength is in software solutions and IT services. This has always been their core strength. That a company such as this should have bested Apple during the PC is due to a unique alignment of forces at a moment in time, but the conjunction has passed. MS have had a series of ‘reality checks’ in unambiguous terms, but directed at an unheeding and unimaginative leadership that was driven by a blind sense of entitlement to rule supreme and be the better of Apple. This has cost MS years of productivity and, today, continues to cost it in terms of post-PC relevance.

Without doubt, he has to contend with institutional momentum fed by internal politics, themselves arising from an effete corporate culture that is in desperate need of evolution - nay abrupt and radical change. In short, MS greatest threats are now internal, and need to be attacked with the same level of visceral intent and ruthlessness that MS have heretofore reserved for their external competition. This will not be easy, it will be bloody, painful, and unpopular by those with a vested interest in the status quo. Those are now MS’s enemies, and Mr Nadella has to excise them as a surgeon would a cancer. Let’s hope he’s up to the task.

As for IDC and Gartner, they should be held accountable for their shenanigans, particularly if they have led investors and those overseeing IT infrastructure in major institutions astray. This is corruption pure and simple.

Anyway, off to deal with global health crises.

Cheers.

aardman

UHD, like lossless audio files, probably exceeds the quality demands of the buying public.  Or more accurately, the price of the improved quality that UHD delivers is not something that the buying public is willing to pay.

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