Surface channel distribution tempo shows Microsoft lacks Plan B after sales debacle

'Gross miscalculation' of sales for Surface, but still stuck with 'measured' roll-out to businesses

Microsoft's slow expansion of commercial sales of its struggling Surface line is proof that the company had no backup plan after completely misreading the market, an analyst said today.

"This goes back to their gross miscalculation," said Patrick Moorhead of Moor Insights & Strategy. "This goes back to their belief that customers want what they think they delivered. They thought they would sell a ton of Surface RTs in the holiday season [of 2012] and that Surface Pro would just fly off the shelves."

And when that didn't happen, Microsoft was at a loss. "They didn't have a Plan B," Moorhead said.

Moorhead was referring to the deliberate pace Microsoft has taken in getting Surface into the hands of corporate customers. Last week the Redmond, Wash. company announced it would start selling Surface in Canada and 16 countries in Europe through a two-tier scheme, where a limited number of distributors will sell to selected resellers. Those resellers, in turn, were authorized to sell Surface to commercial accounts, such as businesses, government agencies and schools.

That move was a follow-up to one in the U.S. last month, when several partners were given the go-ahead to sell Surface devices.

But in an Aug. 15 blog announcing the expansion into Europe and Canada, Cyril Belikoff, the company's marketing director for Surface, used the words "thoughtful" and "measured" to describe the distribution tempo.

"Our plan has been to expand commercial distribution for Surface in a thoughtful way," said Belikoff (emphasis added). "This measured approach helps us to quickly gather feedback and improve while we grow our geographical reach in the business channel."

Words like "thoughtful" and "measured" don't impart any sense of urgency, which seems odd, well, on the surface, since Microsoft's tablets are, by all accounts, barely breathing.

According to estimates by researcher IDC, Microsoft shipped just 300,000 Surface RT and Surface Pro tablets in the second quarter, which ended June 30. In the same period, Apple shipped 14.6 million iPads, while Android tablet makers shipped 28.2 million devices.

Windows' portion of the second quarter's tablet market was 4.5% -- up from the previous quarter's 3.7% -- but most of those were devices from Microsoft's OEM partners. Microsoft's Surface accounted for just 15% of all Windows-powered tablets, or only 0.7% of the total of all tablets.

In other words, for every 1,000 tablets of all kinds shipped last quarter, 7 were Surface devices.

Moorhead traced Microsoft's lack of urgency to its inability to quickly shift strategy.

"'Measured' and 'thoughtful' are code for 'limited distribution.' It's not smart to blast it out to everyone in every channel, especially when 80% of the business is going through the resellers and distributors they announced," said Moorhead. "If Microsoft had sold Surface as it expected, we would be saying, 'This is just more volume.'"

But Microsoft did not sell Surface RT and Surface Pro in anything like the volumes it had anticipated.

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