So Microsoft's earnings call happened Thursday and I've been thinking about it since. The headline number is the one everybody's repeating: a $900 million writedown, basically Microsoft admitting they built way more Surface RT tablets than anyone was ever going to buy and now they're just eating the cost. Stock dropped something like 11% the next day, which for a company Microsoft's size is not a small dip, thats real money evaporating in an afternoon.
I want to be clear I'm not doing a victory lap here, or at least I'm trying not to. But I did say back when Surface RT launched last fall that the whole "its Windows but its not really Windows and also it cant run your old programs" pitch was going to confuse the exact people Microsoft was trying to sell it to. Regular people walk into a Best Buy, see something that says Windows on the box, and expect it to run Windows stuff. When it doesn't, that's not a niche complaint, thats the entire value proposition falling apart at the register.
And I've now actually seen this play out in person, which is the part that stuck with me more than the earnings number did. I was at a Fry's a couple weeks back (yes I still go to Fry's, don't @ me) and there was a little end-cap of Surface RTs marked down, with a sales guy actively steering people toward the iPad table instead when they asked about it. Not because the hardware is bad, the RT hardware is actually pretty nice, the kickstand thing is clever and the Touch Cover is a genuinely good idea even if the keys feel mushy. Its the app situation. You pick one up, you go looking for the apps you actually use every day, and half of them just aren't there. That gap is what a $900 million charge looks like from the sales floor.
The thing that gets me is Microsoft isn't wrong about the idea, tablet-that-can-also-be-a-real-computer is obviously where things are headed eventually, I'd bet real money on it. Theyre wrong about the execution and the timing. Windows RT specifically feels like it exists to protect the Windows brand more than to serve an actual customer need, and you can feel that compromise every time you use one. My buddy Dave bought one in November because he travels a ton for work and wanted something that could theoretically double as a laptop replacement. He still has it. He also still carries a separate laptop, because Office on RT (the Home & Student version they bundle in) doesn't do everything he needs and half his client software just doesn't exist for it. So now he's carrying two devices, which is exactly the opposite of what he bought the thing to avoid.
I keep coming back to the fact that this isn't really a story about bad hardware. Its a story about a company hedging so hard against cannibalizing its own Windows/Office cash cow that it built a product with a built-in identity crisis, and then having to manufacture enough of them to fill store shelves before they'd actually proven anyone wanted one. Nine hundred million dollars is what that hedge cost, in inventory that's now sitting in a warehouse or getting marked down next to the register.
Anyway. Ballmer took some heat on the call for the writedown and for missing earnings estimates generally (Windows 8 licensing revenue came in soft too, not just the tablet), and I don't envy anyone whose job is standing in front of analysts explaining a number like that. But I also don't think this is the last we'll hear about it. When a company writes off inventory at that scale, usually the next move is a price cut, and I'd bet we see one within the month if the shelves at my local Fry's are any indication. We'll see if I'm right.
In semi-unrelated news, the Steam Summer Sale is finally winding down after basically a month of me telling myself I don't need another game I'll never finish. I bought four. I have played zero. Some things never change around here.