Microsoft has spent more marketing the Surface and its OS than it's made selling it

Microsoft has spent more marketing the Surface and its OS than it's made selling itMicrosoft has shied away from talking official Surface tablet sales numbers almost religiously so far, and most of us realised the truth long before Steve Ballmer admitted it the other day: the numbers ain't good.

In fact, they're bad enough that Microsoft has actually spent more on advertising Windows 8 and the Surface than it's brought in from selling its ill-fated tablet so far.

And we're not talking profit either – we're talking pure revenue. According to Microsoft's obligatory Form 10-K submission with the SEC over in the US, it has raked in $853m in revenue so far from its Surface lineup.

That would mean a loose sales estimate of around 1.5m to 2m based on a $400 to $500 average selling price (and remember the original price of the entry level Surface RT was as high as $500, though it has dropped since).

To put that low earnings figure in perspective, Microsoft's sales and marketing costs jumped $1bn in the fiscal year being reported, and it says that includes “an $898 million increase in advertising costs associated primarily with Windows 8 and Surface”.

Yes, that's $45m more than it made from selling the Surface.

The Surface's sales revenue is also less ($47m less) than the $900m writedown charge Microsoft took in deciding to lower the price of the Surface across the board a couple of weeks ago.

And finally, it is a mere 4.4% of the $19.2bn the Windows Division earned in total over the year.

As that final point reminds us, Microsoft is one of the few companies big enough to swallow up the kind of losses the Surface is clearly making.

Should the Surface's successor prove to be a success, Microsoft will be able to write off the first generation as a trial run, a luxury not many tech companies can afford these days.

But success is by no means guaranteed, especially with Windows RT having been so badly received it's made the Windows Vista era seem like the good old days. Microsoft's got a lot of work to do.

Via Geekwire

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6 comments

tapi  Jul. 31, 2013 at 12:54

well, ms do tend to have the long term view in mind and readily accept initial losses (which is the other end of the spectrum to those companies that immediately drop promising tech because it's not an instant profit maker)

BUT this articles headline and detail betray the premise you're working on. There was an $898m increase in marketing for Windows 8 AND surface (even your headline says surface and OS) the majority of adverts and other marketing I've seen have been for W8 and MS partners, way more than any for surface.

And therefore that $898m is not written off solely against the $853m surface revenue but that $853 + $19.2bn of the OS division, as the marketing costs were for both and primarily for the OS. This then isn't anywhere near the issue presented (the w7 to w8 special upgrade promotion taking in $1bn itself)
some may argue that the surface itself was a marketing tool - MS needed something to showcase w8 and their partners were a little slow to provide.

now, not saying surface sales haven't been bad or anything like that (woeful!) - but find the marketing budget for Surface and compare THAT to sales to give us an accurate idea.

JanSt / MOD  Jul. 31, 2013 at 20:53

well, ms do tend to have the long term view in mind and readily accept initial losses (which is the other end of the spectrum to those companies that immediately drop promising tech because it's not an instant profit maker)

BUT this articles headline and detail betray the premise you're working on. There was an $898m increase in marketing for Windows 8 AND surface (even your headline says surface and OS) the majority of adverts and other marketing I've seen have been for W8 and MS partners, way more than any for surface.

And therefore that $898m is not written off solely against the $853m surface revenue but that $853 + $19.2bn of the OS division, as the marketing costs were for both and primarily for the OS. This then isn't anywhere near the issue presented (the w7 to w8 special upgrade promotion taking in $1bn itself)
some may argue that the surface itself was a marketing tool - MS needed something to showcase w8 and their partners were a little slow to provide.

now, not saying surface sales haven't been bad or anything like that (woeful!) - but find the marketing budget for Surface and compare THAT to sales to give us an accurate idea.



And that's not all. That $900m writedown was related to Surface RT only, but the $853m revenue figure includes sales of Surface RT and Surface Pro combined.

Such sluggish sales aren't likely to have covered Microsoft's costs for the Surface launch, especially when you consider the massive marketing push it gave the ill-fated devices.

Further down in its 10-K filing, Redmond reports that it upped its sales and marketing budget for the Windows Division in 2013 by a jaw-dropping $1bn, which included an $898m increase in advertising costs "associated primarily with Windows 8 and Surface."

Got that? Microsoft spent more in a single year advertising the Windows 8 and Surface launches than it took in from Surface sales that same year.

And remember, none of this was even spread over an entire calendar year. Microsoft's fiscal 2013 ended on June 30. It launched Windows 8, Windows RT, and Surface RT on October 26, 2012. The Surface Pro launch came later, in February. But whichever way you slice it, Microsoft managed to mow through an $898m marketing budget in just eight calendar months – and consumers still didn't take the bait.

It's cruel to compare the struggling Surface to Apple's iPad line, but the numbers don't lie. Apple sold 57 million iPads in the same period, meaning it could have sold them for just $15 apiece and still matched Microsoft's tablet revenue figure.


http://www.theregister.co.uk/2013/07/30/microsoft_surface_sales_disaster/

tapi  Aug. 1, 2013 at 00:55

Doesn't that say again the point I was making?
"Got that? Microsoft spent more in a single year advertising the Windows 8 and Surface launches than it took in from Surface sales that same year."

Let me tweak that with some other item
"Got that? LOCOG spent more in a single year advertising the London Olympics than it took in from Ticket sales to the beach volleyball that same year."

or
"Here's the combined figure for marketing two things, and LOOK, one part* didn't make the whole cost back"

*in this case, the much smaller part.

If you're going to judge the success of marketing, you report the figures on the entire thing that's being marketed, or tell us how much was spent on marketing just the surface. Problem is they're lumped together so we'll never know; it's incredibly likely that it won't make back whatever that cost is, but this is just playing with figures to jump to a preconceived headline.

JanSt / MOD  Aug. 1, 2013 at 06:59

yes, tapi.
But that is all we ever get. It is the industry that
helps create speculative guesswork.
None of the companies give straightup figures; and, why would they?
At the "end of the day", I don't care how many N9 unit Nokia sold. I was happy with mine.

And this article is just an interpretation. One of many possible.
It's a blog post with a comment section. Not the Gospel. Not the Supreme Court.

Microsoft overestimated the appeal of the Surface tabs. No question about that. Maybe they created losses on purpose? Maybe they are just as bloated as a company as the products they make?

tapi  Aug. 1, 2013 at 11:07

agreed.
i wonder what it about the tech industry that makes us want to speculate? it seems a recent, and localised phenomena. I'm sure in times past that people just bought things and never felt the need to discuss the inner workings of whatever company produced it.

JanSt / MOD  Aug. 1, 2013 at 13:43

agreed.
i wonder what it about the tech industry that makes us want to speculate? it seems a recent, and localised phenomena. I'm sure in times past that people just bought things and never felt the need to discuss the inner workings of whatever company produced it.


I think it has to do with the fact that deep down "we" know that these gadgets, at best, are not really necessary, and at worst: are detrimental to the very thing/s they promise: communication, contact, creativity, expression...
Freedom. Look at the odd silence on most techsites with regards to Snowden, Assange, Wikileaks, NSA PRISM etc.... It's uncomfortable. Our toys have dark secrets. Oh, well...

So instead we talk up rumours and speculation to fill the void.
And because what actually is delivered by the next big things is pretty pfffft...

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