Microsoft's Surface Revenue Numbers Reveal Extent Of Tablet Debacle


Microsoft, in its annual 10-K filing with the Securities and Exchange Commission Tuesday, revealed that Surface tablet sales generated $853 million in revenue in its fiscal 2013.

This figure, which covers sales of the Surface RT and Surface Pro tablets, is a big problem for Microsoft for a couple of reasons.

First, it's $47 million less than what it cost Microsoft to slash Surface RT prices by 30 percent, a move that resulted in Microsoft taking a $900 million charge in its fourth quarter.

[Related: Microsoft Mobile Office Heads To Android OS, But Still Not Tablets]

Microsoft's fiscal 2013 Surface revenue is also much less than the $898 million in additional costs it's racked up from advertising Surface and Windows 8, which was another number that stood out in the 10-K.

Microsoft's Surface revenue is the latest piece of data that shows its retail-focused distribution strategy for the tablets has been a disaster. And, it could get even worse if Microsoft decides to cut Surface Pro pricing, too.

To Microsoft partners, which aren't permitted to sell Surface tablets, the revelation that Surface isn't selling comes as no surprise.

Spencer Ferguson, president and CEO of Wasatch I.T., a Salt Lake City-based Microsoft partner, estimates Surface sales would have been at least ten times that figure if Microsoft had let its partners sell it.

"Microsoft has never been good at marketing, which is why they need to rely on their army of thousands of channel partners to continually drive their vision," Ferguson told CRN.

Some of Microsoft's problems moving Surface RT tablets are due to the icy reception customers have given the OS. Earlier this week Asus Chairman Jonney Shih suggested his company is pulling away from Windows RT, while Acer and other OEMs never got on board to begin with.

Kent Tibbils, vice president of marketing at ASI Corp, a Fremont, Calif.-based Microsoft partner, says pricing has been an issue hindering sales of Windows RT based tablets.

"I understand why Microsoft came out with Windows RT, as a way to offer a lower cost OS to compete against Apple and Android based tablets in the consumer space," Tibbils said in an email. "But the overall price on Windows RT tablets was still too high particularly compared to Android products."

Microsoft hasn't said how many Surface units it has sold so far and didn't provide a figure in the 10-K. In May, IDC estimated that Microsoft shipped a combined total of 900,000 Surface RT and Surface Pro tablets in the first quarter.

Last week, Microsoft CEO Steve Ballmer, in a town hall meeting with employees, acknowledged that Microsoft's expectations for Surface sales haven’t matched the reality of market demand.

"We built a few more devices than we could sell," Ballmer said in the meeting, as reported by The Verge.

PUBLISHED JULY 31, 2013