Microsoft $900M Write Down – Why is Everyone Surprised?

I mean… I’m not. This is what happens when you don’t sell the stuff you make.

wpI’ve been watching and reporting on the Microsoft space since 1997. I knew that there was a change coming to their business long before it was publically announced a few days ago. News of the nearly $1.0B write-off come on the heels of a huge Microsoft reorg. Given the wide press that Windows 8 adoption numbers have had, and the abysmal Surface RT sales and licensing figures that everyone suspects are accurate, All that’s happened to Microsoft in June and July of 2013 canNOT be a surprise to anyone.

However, one of the things that everyone IS asking is, how did this happen? My good friend, MaryJo Foley put it the best, and you can read about it in her article, linked above. It’s a good question, too; one that should have been asked in a different form long before the decision to take the write-off was made. Microsoft should have been asking itself and its pundits, “what should we do to keep this from happening?” (or some similarly formulated question…)

The write-off, or “inventory adjustment,” as Microsoft is calling it is a $900M charge for Surface RT, its parts and accessories, as announced on 18-Jul-2013. Unfortunately, the entire world is focusing on this specific development, with many people providing I told you so, arm-chair quarter back/Monday morning analysis of Microsoft’s reported financials.

While I’m not going to get into much of that, I can’t say I’m surprised. What specifics had been circulated – Microsoft hasn’t provided specific sales numbers to my knowledge – shouldn’t make this a big surprise to anyone. Microsoft has been trying to misdirect everyone to other issues, accomplishments and subjects for months.

MJF wants to know how it happened. I want to know why no one took the current actions – reducing prices of licenses, hardware and accessories – until now. I also want to know why there isn’t a (more) aggressive marketing push, and why Microsoft isn’t doing more to attract more 3rd party developers.

The problems here are 3 fold. All of these need to be addressed in order to turn the ship around.

  • Hardware pricing
  • Windows Store Issues
  • Windows 8/RT UI Duality

Microsoft-Surface-ad-multiple-devices-hands-001

Hardware Pricing

Simply put, Microsoft needs to sell these at a serious loss if it wants to get Windows RT and Surface RT tablets into the hands of the public. Pricing these at or near iPad/iPad mini pricing isn’t going to cut it. The right price is $199 to $249 regardless of features, manufacturer, or storage size.

Microsoft needs to price Surface RT at a level where it’s stupid NOT to buy one, if only just to have it, in case there’s a major breakthrough and we bump into a, “Hey, Mikey..! He likes it!” moment.

Windows Store Issues

A friend of mine is returning a Lumia 928 Windows Phone due to lack of app selection and maturity within the Windows [App] Store. Simply put, what little apps there are, suck; or don’t compare to the level of app quality in the iOS or Google Play App Stores.

The same can be said for Windows RT; but its problems are a bit more profound. There aren’t a lot of apps in the store, and what apps are there, aren’t great. Moreover, Windows RT devices can’t run Win32 apps. Despite the fact that it’s a “Windows machine,” Surface RT can’t run any of the ba-jillions of Windows apps out there.

The only way Microsoft is going to be able to address this, is to do its best to attract quality developers to its RT dev programs, and get them to start pumping out apps. However, tablet or mobile device apps tend to be less robust than, and priced well below, their desktop counterparts. Unfortunately for Microsoft, this is a long row to hoe, and is going to be a complex problem to solve. Unfortunately, the hardware is only as good as the software it runs.

Windows 8/RT UI Duality

Microsoft tried to build a hybrid OS to help the masses bridge themselves between the growing tablet trend and the public’s love for traditional computing.

Unfortunately, the results generally suck.

Windows 8.1 goes a ways to address this issue, but doesn’t resolve it. Bridging the gap between the computing trends in a single device isn’t working. Most people are used to the fact that their iPad or Android tablet doesn’t run the same kind of software as their Mac or Windows PC; and they’ve accepted it and they’re willing to live with it.

Microsoft needs to separate the UI’s and allow everyone to get back to work. Windows RT wouldn’t suck as an OS if MS would simply combine Windows Phone and Windows RT into a single effort, since they’re so close already. Leave MetroUI based apps to those devices and let the desktop folks get back to work with something that they’re more accustomed to…for now.

If we need to update the UI, let’s do it in an evolutionary, not revolutionary manner. The problem is that XP and its Start Menu have been around too long, and that paradigm of UI is available in Windows 7 as well. Windows XP is still used in the enterprise, and is slowly being phased out, not for Windows 8, but Windows 7. It could be 5 years or more before that UI paradigm is gone. One of the biggest reasons why it was so successful is because consumers were able to use the same UI at home and at work.

Adopting RT in the enterprise currently isn’t possible, as the device integration isn’t there. Home, as well as corporate users, are rejecting Microsoft’s new Start Screen, so, so much for MetroUI.

This is just me; but Microsoft MUST address all three of these issues as part of its reorg or its going to find itself taking additional write-off’s in the immediate future. It can’t afford to do it, and I really don’t’ want to think about a world without a Microsoft… that’s scary, and something that I really don’t want to deal with.

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