Why Microsoft Should Torpedo the Surface Tablet

NEW YORK (TheStreet) -- Microsoft's (MSFT) Surface tablet entered the marketplace very late from a company with not very much experience or success selling hardware. The product is losing money and doesn't seem to fit in with Microsoft's new vision. It's time to rethink its existence.

There is a growing list of negatives surrounding the Microsoft Surface tablet line that suggest the product is on its deathbed.

  • The product continues to lose money. In Microsoft's latest 10-Q report, it was noted the Surface cost more money to make than it earned by $45 million in the most recent quarter. Over the last three quarters, that number is about $300 million.
  • The Surface tablet was very late to market by the standards that Apple (AAPL) set in 2010. Microsoft's Steven Sinofsky sized up the tablet market and decided that the way to perpetuate Windows and Office would be to develop a tablet featuring these products. The tablet market, driven by Apple, went in another direction.
  • Satya Nadella's more practical vision for Microsoft is to make its mobile and cloud products available on any platform customers may choose. The recent introduction of Office for iPad and its amazing success with 12 million downloads in the first week suggests that Microsoft has the right product (Office) for the right platform (iPad).
  • Rumors are that Microsoft might introduce an 7.5-inch Surface. Because the Surface tablet, with its 10.6-inch screen, is a business platform and it has not yet made money for the company, coming out with a smaller device would appear to be a desperate attempt to leverage other popular tablet sizes without first addressing its fundamental issues.
  • Windows 8.x hasn't been a particularly dazzling mobile OS. Expert Microsoft observer Paul Thurrott took Windows 8 to task for trying to make Windows 8 all things to all users. He wrote:
You may recall that I previously described Windows 8.1 as an apology, a way to fix Windows as much as possible in one year, and make the Metro environment more hospitable to tablet users (fewer trips to the desktop and Control Panel) and make the desktop more hospitable to traditional PC users (fewer reasons to visit the Metro side of the fence). In that sense, Windows 8.1 is "successful," but only within the confines of the madness of its predecessor. It doesn't do a thing to address the fact that Windows isn't a single OS. It's two of them, mobile and desktop, fused together unnaturally like a Frankenstein's monster. (emphasis added)

The fact is, advertising can prop up sales to diehards and rationalized, impressive sales goals can be displayed in PowerPoint slides. Plus corporate hubris is always hard to overcome even in the face of losses. However, the facts suggest that the product, conceived in an earlier time, under an earlier regime, has failed. The Surface doesn't even show up in IDC's list of the top five tablets in shipments for the last quarter.

What Went Wrong?

Back in 2009, Apple astutely recognized that a mobile OS has different requirements than the desktop or laptop. Apple's experience with the iPhone, iOS, its touchscreen frameworks, all led naturally to how a user should interact with a mobile device.

That led to the natural idea that the things we do in mobile on the kinds of tablets that are attractive are different than how we use a PC and requires a separate OS for each. On the other hand, Microsoft's vision was to make the mobile OS look and feel like the desktop, and to achieve that misjudgment involved serious compromises, just as Thurrott described above.

There is no real way out of this dilemma except to build a new mobile OS compatible with Microsoft's other products and ecosystem, which is a formidable task, or else cancel the money losing Surface and move on with Nadella's new focus for the company.

Finally, there's a reason why Office was ported to the iPad before Android. Microsoft, an iPad competitor, has a better sense about the success of the iPad and its installed base than many of the tracking services would have us believe. Daniel Eran Dilger explains and, along the way, he includes this relevant observation:

Only a monumental failure of the Surface and the greater ecosystem of Tablet PCs could force Microsoft to humbly eat up $1 billion worth of its advertising words and return to the market with Office apps designed to make Apple's iPad a key element of its ... ready for business initiative intended to keep Office relevant in the post-PC world.

Deep down, there just isn't any way to save the Surface with Windows in a way that makes money and syncs with Microsoft's future.

At the time of publication the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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