Microsoft and Hardware: A Match Made In Revenue Hell

Good as it promises to be, the Surface Pro 3
should be the end of the line
Microsoft had quietly been building itself an income stream from hardware for years - from Windows 3.0 and the first Microsoft Mouse, through keyboards, webcams and then the Xbox, little by little Microsoft turned hardware into a pretty good revenue and profit stream.

Then things started to go wrong. Badly wrong.

First we had the Zune - which failed spectacularly enough for its name to become the new byword for tech failure. It at least passed some of its interface design through to Windows Phone.

Then there was Kin, the result of the purchase of Danger and a two year devlopment cycle that cost around $1bn. The Kin lasted forty-eight days on the market before being canned.

A couple of years ago Microsoft introduced the Surface range and despite favourable reviews and a positive reception to the most recently announced Surface Pro 3, it's looking like Microsoft have launched a product which is hemorrhaging money to an extent not seen in the business before.

Estimates put the current cumulative loss of the Surface group at somewhere between $1.7bn and $1.9bn. That on a product returning revenue of around $400m a quarter at a cost of $700m or more. That's an awful lot of money to be pouring down the drain rather than admit defeat and kill the product.

The Surface was designed and released to showcase Windows 8 and drive more users into the upgrade cycle. Recent figures show that Windows 8 adoption has stalled, so it's not succeeding from that viewpoint either.

For Microsoft the route ahead is clear. Kill the Surface and create a Nexus-like partnership with the OEMs that are still prepared to work with you. Work with them to build great products, not in competition with them.

Times have changed, and Microsoft's software and services divisions aren't generating the sorts of profits that can subsidise whimsical adventures into market spaces where the only prospect is one of growing long-term losses.


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