Microsoft spent billions of dollars over the past year to design, build, launch, and sell its well-regarded Surface line. But like the Xbox before it, the cost of bringing Surface to market has far outstripped actual sales of the devices. And it’s unclear what, if anything, can turn this financial disaster around.
Here are the numbers.
According to its annual 10-K filing with the US Securities and Exchange Commission, Microsoft spent about $1.4 billion on sales and marketing for Windows 8 and Surface in fiscal 2013, which ran from July 2012 through June 2013. You may recall that Microsoft also recently wrote-down a nearly identical $900 million related to Surface RT units, accessories and parts as part of a promotion in which consumers can purchase the poorly-selling device for $150 off.
So, what did over $2 billion in launch year-related costs net Microsoft? According to that same 10-K filing, the Surface line—which includes both Surface RT and Surface Pro—delivered just $853 million in revenue. So its Surface RT write-down alone was more expensive than revenues from all Surface RT and Pro units combined.
But it’s worse than that, of course. We don’t know the total cost of research and development related to the design and manufacture of the Surface line, which was obviously considerable. And Microsoft notes that its decision to sell its own PCs has perhaps irreparably damaged its relationship with its PC maker partners.
“Surface Pro and RT devices and our PC accessories face competition from computer, tablet, and other hardware manufacturers, many of which are also current or potential partners and customers,” Microsoft’s filing notes. “Surface may affect the commitment [of our PC maker partners] to our platform.”
Despite the financial disaster—sorry, “investment”—Microsoft says in the filing that it still plans to continue designing and releasing new hardware, including a second generation of Surface devices that are expected to ship this fall. Of course, this firm has been propping up a financially unsuccessful Xbox line for over a decade. And Surface hasn’t even scratched the, um, surface of what’s possible when it comes to throwing money at hardware.