Microsoft Continues To Lose Money With Each Surface Tablet It Sells

DroidJason1 writes: "Revealed from a 10-Q filed by Microsoft with the U.S. Securities and Exchange Commission, Microsoft has been losing $300 million and counting for the Surface in the last nine months. Data from Strategy Analytics has also revealed that Microsoft's Windows-powered tablets now own a 6% global tablet share, in Q1 of 2014. Android, on the other hand, remains at the top with a 66% global share. Apple's iOS fell to 28%."

Typical MSFT mistake

[hessian]

Introduce a product near the top of what people pay for tablets, have some imperfections, incompatible with other market leaders, and plan to improve it over time.

You've got nowhere to go but up.

Then again, 6% market share is pretty good considering the above. MSFT's policy is to get an entry in the market and slowly improve it until it has everything the competitors do and innovations of their own. v1.0 is always bad, v2.0 chaotic, and v3.0 starts the war machine on its path to dominance.

The gap seems reasonable

[mechtech256]

"In the last nine months, Microsoft spent $2.1 billion on the Surface, and gained $1.8 billion in revenue"

That gap really isn't too bad, certainly better than the Xbox/360/XB1 numbers which follows the same strategy of selling at a loss (after marketing) and making it up later with services. The mere fact that Microsoft is actually doing 500 million dollars a quarter in Surface is actually quite impressive.

Right now Microsoft needs market share, so I'd say the strategy isn't altogether a bad one. Especially considering that 2 Billion USD in hardware sales is definitely going to result in at least a couple hundred million in service revenue from Office and such.

So What?

[rudy_wayne]

Microsoft lost a few hundred million on the Surface tablet. Twitter has never made money lost $500 Million in the most recent quarter.

So what?

Late to the tablet game...

[Lendrick]

...and desperately attempting to avoid irrelevance.

That being said, there's some sense to the strategy. If it's true that they lost money on the original Xbox, then it's worked for them in the past. Selling products below cost is a good way to get customers, provided your product is good enough that they'll buy your next one at a price where you'll actually profit.

I don't personally see Microsoft tablets being taken seriously (the number of people I see on the internet who apparently like Windows 8 doesn't fit with the number of people I've met who like it in real life, which leads me to believe that they learned a lesson from Vista -- albeit not the right one -- and have seen the value in paying astroturfers to pad their failures a bit). But then again, I didn't expect the XBox to be a runaway success either, and it did just fine, so time will tell.

Fortunately there's enough competition in the tablet market among Apple and all the different Android manufacturers that Microsoft isn't likely to be able to achieve the level of lock-in that they have on the desktop market, which means that another viable tablet maker could actually be a good thing. So even though it's Microsoft, I don't wish them ill here.

Gates said it

[Anonymous Coward]

Microsot can skew the market with billions of dollars and attack any market segment it wants, losing billions on the way. It can't compete directly against competitors initially, but can market the hell out of any product and leverage its monopoly in one area to destroy markets, competitors and fair competition in other areas. The US government Sherman Act is a joke. Microsot gained a predatory monopoly on desktop PC's, laptops, notebooks, and has tried to destroy consoles, the internet, online search, cell phones and tablets. The further it goes from its base, the riskier its proposition. It has destroyed the technology market in the US, and has damaged competition in that area for at least a generation.

$300M difference is not $300M loss

[dutchwhizzman]

That's what they spent in nine months and what they got back out of it. They may get more money back on apps later on, but they have to spend money on those as well. For all we know their app market and own development may not be efficient enough to turn a profit but mostly, all the money they spent manufacturing and stocking up warehouses full of tablets and developing is suddenly not important any more? They have already written that off 100%? I'm betting they are in the red a lot more than this calculation suggests.

Re:StatCounter number is ALL devices, not tablets

[Maxo-Texas]

Not sure. Good android tablets have gotten really cheap. Like $135 for more capability than a $300 android tablet only two years ago.

Meanwhile apple and surface have remained expensive.

I own two android tables and have given two as gifts. Because they are inexpensive.

My daughter owns an apple-- because her company bought it for her.

I do have a couple friends who own an apple they bought with their own money. It's cool. They have Apple TV too. But as a couple, they earn close to $250k per year and live in a $400k house and have new cars. They are not rich- but they are very far from the average americans standard of living.

Re:Android tablets not good compared to phones

[marsu_k]

Try a 2013 Nexus 7? WRT software, I find it very odd that even today iOS doesn't support multiple/restricted profiles. They're not that useful in a phone but make perfect sense on a tablet - I can "sandbox" the tablet for my daughter to be kid-friendly (and deny access to a browser, for now).

Re:StatCounter number is ALL devices, not tablets

[tlhIngan]

Did you realize StatCounter is reporting figures for ALL iOS and Android devices?

Do you not think that might be just a LITTLE misleading as to what is going on with tablets???

I totally agree there is a huge wave of Android phones. I even have one. But the percentage of Android tablets compared to phones is incredibly small.

Actually, what's interesting is that iOS, despite being under 20% of smartphones and tablets, still accounts for way more than 20% (closer to 50%) of traffic. Even worse in tech-oriented circles where iOS traffic can be easily be double that of Android.

That's highly unusual - unless it means that a good chunk of Android phones and tablets are merely bought and junked, or bought and used as a featurephone.

By all accounts and measures, OS X traffic is extremely minimal compared to say, Windows, certainly no more than its marketshare.

Probably Unpopular Opinion

[Thumper_SVX]

Honestly, I know it's probably an unpopular opinion around here because it's fun to hate on Microsoft... but having now owned a first-gen Surface Pro for about 2 months I have to say that it's the best tablet I've ever owned. I picked it up on the clearance when the Gen 2 was released because despite some misgivings I really did appreciate the concept.

It's not a great laptop, and it's a rather bulky and heavy tablet but the ability to have a REAL computer that I can carry around easily is incredibly valuable to me. That and being able to use WiFi on planes any more means that I can be in touch and even work in a coach seat while flying across the country. Given I've just completed business trip #4 for the year so far this has become very useful to me.

Despite its limitations, it has surprisingly managed to supplant any number of laptops or tablets I have had at home for just about everything except for very niche uses. It's really fast for just basic web surfing when kicked back on the couch, the stylus is awesome for writing a few hand-written notes in OneNote and having my Type keyboard close at hand means I can plop down on my dining room table and do everything from write a quick email to fire up MobaXterm and get some real work done on the Linux systems I have at home and at my virtual hosting service. As a general-purpose computer it has become a better form factor and a better system than anything else I have at home. My iPad is gathering dust in a drawer due to lack of really good productivity apps or SSH apps, my Macbook Pro sits around mostly waiting for me to feel like firing up a game on Steam or to work in my image library (the big hard drive helps, here!) and my Linux laptop is... well... mostly gathering dust next to the iPad. I have a smattering of Android tablets including a Nexus 7 that I haven't charged in months.

I know this is anecdotal and the Surface Pro isn't really for everyone. For my needs though it's absolutely perfect. Since I moved to a smaller home a year ago (by choice, a condo) I no longer have a study or even a desk so a desktop PC is out and a laptop has to be used on my dining room table or (uncomfortably) on the couch. My Surface Pro I can hold like a tablet if I see fit or plonk down on the table at a moment's notice. This works for me, and as well as the aforementioned coach seat it's also awesome when I travel so I can bring it to breakfast at hotels with me and check email/Slashdot/etc. while I eat and drink coffee.

And a quick snippet of advice for anyone with a 1G Surface Pro... if you want to significantly increase your battery life you can set the maximum CPU on battery to ~60% in the power management settings, then you get at least 30-40% more battery life with no noticeable decrease in performance unless you're doing something really heavy duty. Since I mostly just do web surfing and email on battery and more intensive stuff (like work) on the power adapter this works really well.

Oh and we have looked at other tablet/convertible type laptops at work recently and are probably going to standardize on the Lenovo Yoga as our corporate standard. However, in terms of sheer build quality I still feel my Surface Pro has the Yoga beat hands down.