With $1.7 billion in Surface losses, is it time for Microsoft to pull the plug?

In the nearly two years since the launch of the Surface tablet line, Microsoft has racked up $1.7 billion in losses on it, with no end to the red ink in sight. Is it time for Microsoft to finally pull the plug?

Computerworld's Gregg Keizer reports that since the Surface 2012 launch, Microsoft has lost $1.7 billion on it. Keizer calculates that the loss for fiscal year 2013 was $1.049 billion, and the loss for fiscal year 2014 $680 million.

That may sound as if things are getting better for the Surface, but that's far from the case. Much of 2013's losses were attributable to a single event, Microsoft's $900 million writeoff for Surface RT tablets it couldn't sell. In the most recent quarter, Keizer reports, the Surface line lost $363 million, the most it has lost in any single quarter. In fact, the losses were so big that they convinced Microsoft not to release the long-awaited Surface Mini.

Despite all of Microsoft's spending on the Surface, it's certainly not setting the world on fire. Strategy Analytics' latest figures say that Windows tablets had only a 5% tablet market share in the second quarter of 2014. And if you look at the top Windows tablet vendors, Microsoft isn't to be found. So what exactly is the Surface doing for Microsoft?

Microsoft has sometimes said that the Surface is intended to show off the capabilities of Windows tablets, as a way to show a reference design to other vendors. But what Microsoft is showing off isn't what people are interested in.

There's no doubt that Surface tablets are beautiful, well-made devices. When combined with a combination cover/keyboard, they truly can do double-duty as tablets and ultrabooks, as Microsoft says. They're better than any other Windows tablet on the market.

But they're also far more expensive. A Surface Pro 3 with a Surface Pro 3 Type Cover costs $930. That's simply far too much money. You can buy a more powerful and better Windows ultrabook at that price.

Jan Dawson, chief analyst at Jackdaw Research, told Computerworld:

"If the Surface is one, not growing sales; two, losing money; and three, not creating a market, what's the point ultimately?"

He's right. There is no point. Unless the Surface starts selling in real numbers, Microsoft should pull the plug, no matter how beautiful the device is.

Copyright © 2014 IDG Communications, Inc.

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