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Surface channel distribution tempo shows Microsoft lacks Plan B after sales debacle

Gregg Keizer | Aug. 20, 2013
Gross miscalculation' of sales for Surface, but still stuck with 'measured' roll-out to businesses.

But Microsoft did not sell Surface RT and Surface Pro in anything like the volumes it had anticipated.

When faced with that, Microsoft stuck with its pre-planned timetable for distributing the Surface to enterprises rather than pick up the pace, even though businesses and resellers have clamored for ways to buy and sell the tablets since their introduction.

Granted, Microsoft was starting from scratch in creating a business-first hardware distribution channel, something it had never done before. "It is hard for any company, much less one that's never been in the systems business, to expand distribution," said Moorhead, who years before he became an analyst worked for Compaq, the PC maker that was acquired by HP in 2002 for $25 billion.

"Microsoft is a mammoth company, but they're novices in the systems business," Moorhead observed.

Microsoft's miscalculation of Surface sales has been well documented, even acknowledged by the company in July when it took a $900 million charge against earnings to discount excess inventory of the Surface RT. "It tells the story like nothing else does," Moorhead said.

Moorhead blamed Microsoft for vastly underestimating the role a robust app ecosystem plays in the success of mobile devices, tablets included.

When the Surface RT launched last October, the Windows Store had just 9,000 apps, and even 10 months later it lacks critical "must-have" apps like Facebook, Google Maps, Instagram, LinkedIn and YouTube.

"It's as if it was a music service that played only one genre, or a television that only showed news," said Moorhead of the Surface's crippling app gap.

Microsoft seemed to think that that wouldn't matter, and that customers would beat a path to its door simply because it had shipped a tablet sporting Windows. "I think this has been a rude awakening for them," said Moorhead.

And while he credited Microsoft with sticking with the Surface — most analysts and pundits expect the company to unveil new models this fall, including smaller 8-in. tablets — he wasn't sure that the company would be able to pick out lessons from the first-year failure.

"The debacle with the Surface was so big that it may be difficult for them to learn from it," Moorhead said. "When something goes that deep, with multiple elements that contribute to a failure, it's often hard to isolate what actually happened. I don't know if I learned as much from very large mistakes as I did over a series of small mistakes."

And he wondered if the move into commercial distribution, though clearly necessary, wouldn't prove to be another mistake.

"For the first time, this places Microsoft in a commercial hardware war with Dell, HP and Lenovo on corporate notebooks and tablets," Moorhead said of the distribution channel initiatives. "This will further distance Microsoft from their PC OEMs and push them even further into the hands of Google. Over time, if Microsoft is too successful in poaching business from Dell, HP and Lenovo, it could become financially unviable [for them] to keep investing in Microsoft."


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