Friday, February 20, 2009

Why the Failure of Surface is a Success for Microsoft.

MS Surface never was and is never going to make real money. Any senior manager at Microsoft could have looked at the price point and custom development model and come to this conclusion. This isn't to say it's not the right product for the right customer...but it is a super niche product.

If MS knows they picked a loser, why did they do it?

and I have been discussing this and we have a little conspiracy theory:

Only a company as large and profitable as Microsoft could pull off a public alpha test that is larger than most mid-sized companies in the midst of a recession.

This decision is consistent with Microsoft’s history of doing Ready, Fire, Aim product planning…and it’s a great strategy…if you can afford it. You get to be a first mover, you pick up IP, and you do your heavy development based on real market data.

For ~$50,000,000 they learned how, why and if customers might buy into multitouch. While this seems like a lot of money, 1/10% of earnings is pennies to test a bet the farm idea.

Few companies consistently make .27 cents on the dollar…and the ones that do are decidedly not dumb.

Microsoft Gets a Lot More Out of Surface Than Market Validation

- Greater institutional knowledge of closed-system hardware/software platforms
- Preparation for a consumer version of Surface
- A great reference platform
- A gesture library
- Exposing preferred vendors to Multitouch
- A shitlot of IP
- A great foundation for the Win7 Multitouch SDK

What most people don't realize is that Microsoft Surface is just a prototype. The real Surface will be what hardware manufactures create to run Windows 7. If they pull it off, it will be one of the largest market research programs ever attempted.
If Microsoft pulls this off, it will be one of the largest alpha programs ever attempted. It’s the scale of the experiment that has confused the market.

What company besides Microsoft could afford to build a business unit just to float an idea?

Thanks to Josh for your collaboration in writing this post! Check out his blog at: It's only slightly less interesting than mine :~P


  1. yeah... unfortunately its quite common to hear something like "i meant that" when someone falls off their bike. your article is full of shit because it assumes microsoft has certain freedoms that it just doesn't have. it doesn't have the freedom to waste money to test an idea. shareholders don't like that kind of investment management because its risky. microsoft made surface for one objective and one alone; make profit. if it doesn't meet expected targets, it fails. end of story. so what if they get some ip out of it. shareholders don't give a shit. microsoft is in business to make profit, and lately they are getting worse at it and its value as a long term investment is taking a hit because of repeated market failures.

  2. Microsoft is taking a hit because of threats to it's core OS and Office businesses. This is true.

    It's also true that the Surface tablet hardware has been something of a fail.

    The thing that you are missing is that products like these are balloons that MS is floating. They aren't products that make money in the sense that you are thinking. They would need to be a potential $10 Billion business unit to turn the needle. Noone thought that FTIR Touch tables had that sort of market.

    Both rounds of Surface (Tablet and Table) are designed to make noise and give evangelists an opportunity to engage conversations with customers. They don't directly drive revenue and were never meant to drive revenue.

    Any revenue issues in Q3 2008 when Surface was introduced (which were remarkably strong) were more likely a result of the total shut down in private sector spending.

    Next time, have the balls to publish your name if you are going to swear at me. Thanks.