Ballmer Admits What We All Knew: Microsoft Built Far Too Many Surfaces


At an internal meeting, Microsoft CEO Steve Ballmer admitted that the company overproduced the Surface RT tablet, leading to its recent $150 per unit price cut. As quoted by The Verge’s Tom Warren, Ballmer plainly explained that the company “built a few more devices than [it] could sell.”

But we already knew that.

In its most recent quarterly earnings release, Microsoft took a $900 million charge relating to the Surface RT tablet line, essentially admitting that the inventory that it has on hand was not worth its previous internal valuation; you can’t cut the market price of a product that you have in a warehouse and not lower its value on your books. The write down cost Microsoft $0.07 per share. It missed expectations for the quarter.

Microsoft has been on a mission to clear Surface RT inventory for some time. As I wrote earlier this year, through a combination of giveaways and discounts, Microsoft was moving to liquidate what appeared to be mountainous superfluous unit volume of its ARM-based Windows tablet hybrid.

At that time, Microsoft released a bland statement, saying that the offers and handouts were in “response” to the “positive reaction” Surface had enjoyed since launch. That felt a bit backwards: If response had been so strong, why give away a single device or discount? Wouldn’t organic demand be sufficient? Well, as it turns out, reaction hasn’t been overly positive, so the entire argument was logically moot.

Ballmer said something else during the meeting that is a non-surprise: Microsoft is not selling as many Windows devices as it would like. We knew that, too. The figures released quarterly that describe the PC market are brutal – and dropping. Even Apple is suffering from declining Mac sales in the face of nearly insurmountable headwinds that it helped to create with its leadership of post-PC product categories.

Next-generation Surface devices are being designed and tested. I suspect that Microsoft learned its lesson regarding production volume: Prove product-market fit first, and then kick the afterburners.

Top Image Credit: BUILDWindows

2010 Microsoft Wrote Some Checks That 2013 Microsoft Can’t Cash

The RapGenius breakdowns of recent Andrew Mason and Warren Buffet statements by Marc Andreessen and Ben Horowitz are, well, genius. And they got me thinking back to some of my favorite blog posts along the same lines: breaking down corporate speak, vagueness, or pure bullshit line-by-line. Strolling down memory lane, I landed upon this post from June of 2010, in which I broke down some high and mighty numbers put forth by Microsoft’s communications chief Frank Shaw.

Then I had to read his post again. I almost couldn’t believe it. Nearly every number boasted about two and a half years ago has now turned against Microsoft. I mean, it looks really bad. And it’s probably why we get bland press releases instead of mouthy or frank updates. Such updates have a tendency to come back and bite you in the ass.

So let’s let the ass-biting begin, shall we?

Shaw kicks his post off by touting some impressive Windows 7 sales numbers. But then he pulls back to say that he’s going to let Microsoft’s numbers speak for themselves. Except he’s not really doing that. Instead, he carefully aligns each number against numbers from rival companies in an effort to make Microsoft look good. Unfortunately for Shaw, the numbers that made Microsoft look good in 2010 make them look bad in 2013.

Number of Windows 7 licenses sold, making Windows 7 by far the fastest growing operating system in history

Having just launched Windows 8, Microsoft has been a bit vague in terms of actual sales numbers. They’ve stated that 60 million licenses have been sold (in other words, most to OEMs, not directly to consumers) and that the trajectory is “similar” to that of Windows 7. Nothing necessarily wrong with any of that – unless you believe that each new Windows version should be bigger than the last.

Technically, if Microsoft is to be believed, they sold 60 million licenses for Windows 7 in 74 days and 60 million licenses for Windows 8 in 75 days. Very close, but not enough to overtake the “fastest growing operating system in history” bestowed by Shaw.

And just to compare Apples to oranges for a second, at the 60 million in 75 days, Microsoft is selling exactly 800,000 Windows 8 licenses a day. Impressive. But perhaps not impressive as the fact that Apple averaged selling 833,000 iOS devices a day last quarter. Which leads us to Shaw’s next 2010 stat…

7.1 million
Projected iPad sales for 2010.

58 million
Projected netbook sales in 2010.

355 million
Projected PC sales in 2010.

This is where the wheels start to come off. Shaw is clearly trying to suggest that the much-hyped sales of the then-brand-new iPad are nothing compared to those of netbooks. And that the iPad looks particularly bad compared to overall PC sales (of which netbooks are a part). Remember, this was 2010, when we were at peak-netbook. Mosts analysts thought the sky was the limit for these devices. And they thought that iPad sales would be relatively timid. Those analysts were wrong. So. Very. Wrong.

The source Shaw cited guessed that 20 million iPads would be sold in 2012. The actual number was around 66 million. Original projections for netbook sales by 2012 were closer to 100 million. Instead, the segment is all but dead, with many of the major OEMs no longer making those devices. Overall sales are hard to peg for 2012, but the number was certainly below the 29 million sold in 2011 (which was well below the 39 million actually sold in 2010 – you’ll notice that the estimate Shaw stated in June of that year also missed by a lot).

I think it’s safe to say that netbook sales were well below 20 million for all of 2012. That’s interesting because just in the holiday quarter of 2012 alone, Apple sold around 23 million iPads.

Think about that and then read what Paul Thurrott wrote in 2010 about the iPad being no threat to the netbook market:

And IDC is now forecasting that ‘mininotebook’ (i.e. netbooks and sub-12-inch machines) will sell 45.6 million units in 2011 and 60.3 million in 2013. If I remember the numbers from 2009, they were 10 percent of all PCs, or about 30 million units. Explain again how the iPad will beat that. Please. Even the craziest iPad sales predictions are a small percentage of that.

It’s pretty simple, Paul. In math, a higher number usually beats a lower number. Not only did the iPad destroy the netbook, it even beat the fictional netbook sales forecasts by some silly analysts.

As for global PC shipments, Gartner reported that the number came in at 352.7 million last year. You’ll notice that this is below the number Shaw stated for 2010. In other words, the iPad is going the right way (and fast), the netbook is going the wrong way (and fast), and the PC is like Matthew McConaughey’s high school girls in Dazed and Confused – “they stay the same…”

Percentage of US netbooks running Windows in 2008.

Percentage of US netbooks running Windows in 2009.

Something perhaps impressive to tout in 2010 is something to probably be embarrassed about in 2013. It showed that Microsoft was clearly thinking and betting big on this segment of the market. Unfortunately, 100 percent of 0 is 0.

Number of paying customers running on Windows Azure in November 2009.

Number of paying customers running on Windows Azure in June 2010.

Shaw was quick to note that in just a few short months, Azure went from 0 to 10,000 paying customers. Since then, there hasn’t been a whole lot of horn-tooting. Microsoft said in 2011 that they had 31,000 customers. And last year would only say they had “high tens of thousands of customers” and that they were adding “hundreds” of new customers every day. This is Microsoft. “High tens of thousands” and “hundreds” mean precisely jackshit.

16 million
Total subscribers to largest 25 US daily newspapers.

14 Million
Total number of Netflix subscribers.

23 million
Total number of Xbox Live subscribers.

Netflix now has over 33 million subscribers. Xbox Live now has north of 40 million subscribers (though probably not yet 50 million of you’d think they would have touted it). Both have seen good growth, but Netflix is clearly growing faster (despite a period of losing users).

But hey, at least the newspapers are still dying. In related news, Microsoft sold more Surfaces than the dinosaurs did.

21.4 million
Number of new Bing search users in one year.

Bing did hit an all-time high in search market share (in the U.S.) this past January with 16.5 percent. Unfortunately, the gains came at the expense of their search partner Yahoo. Google continues to dominate the space, as they also rose this past month to 67 percent market share (and the percentage is higher in many places overseas).

All of this slow cannibalization has only cost Microsoft something like $15 billion over the years. Shaw did not tout that number.

Linux Server market share in 2005.

Predicted Linux Server market share for 2007 (made in 2005).

Actual Linux Server market share, Q4 2009.

Not much to report here in boring land, but Linux has been slowly rising while Microsoft has been slowly falling. (Also humorous that Shaw called out false/missed projections, just like I’m doing here!)

8.8 million
Global iPhone sales in Q1 2010.

21.5 million
Nokia smartphone sales in Q1 2010.

55 million
Total smartphone sales globally in Q1 2010.

439 million
Projected global smartphone sales in 2014.

Another good one. Clearly, the idea here was to show that the iPhone was puny compared to the overall market and the market leader, Nokia.

Things change.

Apple sold 47.8 million iPhones in Q1 2013 – nearly matching the size of the entire smartphone market in 2010. Nokia, meanwhile, has fallen from first to seventh in the smartphone race. Last quarter, they sold 15.9 million smartphones, of which 9.3 million were Asha “full touch” smartphones, which you could certainly argue aren’t smartphones at all.

You may recall that in early 2011, Microsoft and Nokia formed a partnership on smartphones. That makes Shaw’s 2010 reference all the more juicy. Microsoft may have not been the reason for Nokia’s collapse, but they certainly haven’t helped.

Shaw’s overall point was clearly that it was the early days of smartphone and that the market was going to expand hugely. Both of those things ended up being true. But Shaw undoubtedly thought that the soon-to-be-released Windows Phone OS would be able to compete for those 400 million or so new smartphone customers. Unfortunately, aside from just Nokia, Windows Phone itself is also going the wrong way in terms of marketshare. In the U.S., Microsoft controls just 2.9 percent of the market. iOS and Android combine to control about 90 percent of the market.

173 million
Global Gmail users.

284 million
Global Yahoo! Mail users.

360 million
Global Windows Live Hotmail users.

299 million
Active Windows Live Messenger Accounts worldwide.

Rank of Windows Live Messenger globally compared to all other instant messaging services.

Gmail now has 425 million users. It is the No. 1 email service, taking the lead last year. Hotmail? It still has 360 million users, as of the last reports. “They stay the same…”

And what about the No. 1 instant messaging service in the world? Microsoft is shutting it down this year.

$8.2 Billion
Apple Net income for fiscal year ending Sep 2009.

$6.5 Billion
Google Net income for fiscal year ending Dec 2009.

$14.5 Billion
Microsoft Net Income for fiscal year ending June 2009.

$23.0 billion
Total Microsoft revenue, FY2000.

$58.4 billion
Total Microsoft revenue, FY2009.

This one really hurts (especially in light of my “decoding” from 2010). First of all, Shaw erroneously stated that Apple made $5.7 billion in fiscal 2009 and had to correct it in the intro of the post (pretty big error). But even at $8.2 billion, Microsoft probably thought they had a lot of breathing room…

Yeah. Not so much.

Apple made $41 billion in net income in fiscal 2012. Yes, that’s income, not revenue. Profit. Straight cash, homey.

Microsoft made $21.76 billion in net income in 2012 – roughly half of the company once so far in their rearview. Meanwhile, Google, with a net income of $10.7 billion, is growing faster than Microsoft.

As for revenue, Apple made $156.5 billion in fiscal 2012. Microsoft made $73.72 billion. Again, I refer you to the art of math.

My point here isn’t to rag on Microsoft – well, at least that’s not the only point. The point is to show that numbers worth touting one year may come back to haunt you in the future – especially if you’re focusing on comparing yourself to your rivals. And if you’re going to get cute in calling out your rivals, it’s probably best to make sure that your body can cash the checks your ego is writing.

Is Microsoft Working on a Surface Mini?

Just because Microsoft’s first Surface devices shipped with 10.6-inch displays doesn’t mean the company is wedded exclusively to the large tablet form factor. In fact, it almost certainly isn’t. During his appearance at the Goldman Sachs Technology and Internet Conference on Wednesday, Microsoft CFO Peter Klein said the company is ready, willing and able to bring a range of new form factors to the mobile device market. It’s ready to go smaller, with a device akin to the iPad mini. And it’s ready to go larger, as well. And whether it chooses one route or the other – or both – will likely be determined by the consumer. “We’re set up for that,” Klein said of extending Windows to devices of varying size. “The notion of flexibility and scalability of the operating system is intrinsic to our strategy.” Specifically, Windows 8 and Windows Phone 8 share the same kernel.

Read the full story at All Things D.

Microsoft CFO Peter Klein: Bing Is An Important Strategic Asset, “Makes All Of Our Services Better”

At the Morgan Stanley Technology, Media & Telecom Conference this morning, Microsoft’s CFO Peter Klein was asked about the importance of Bing for the company. According to Klein, Microsoft decided to launch its own search engine because it saw it as a “massive business opportunity,” not only as a stand-alone search engine, but also to help it improve other parts of its business.

Bing, he argues, is a “machine-learning engine that makes all of our services better.” As a search engine, it obviously also collects a huge corpus of data that Microsoft can then use elsewhere, though Klein didn’t go into the details about how exactly the company is currently doing this.

Peter Klein

Klein also noted that running Bing has allowed Microsoft to scale in the cloud and to build out its commercial cloud services. Klein didn’t specifically talk about Azure and Microsoft’s other cloud-based tools, but it’s a fair guess that running Bing taught the company quite a bit about running a modern cloud-based operation.

He also believes that handling the large amounts of data Bing deals with has helped the company position itself well with regard to bringing big-data services to market through Bing Data.

In Klein’s view, Bing still represents a “really good business opportunity,” too. Microsoft, he told the investor audience at Morgan Stanley’s conference, has gotten significantly better at managing the cost of running Bing, and its financial performance has increased over the last year.

Over time, Klein thinks Bing will “be more and more of an intrinsic part of all of [Microsoft’s] devices and platforms.” There have been occasional rumors about Microsoft wanting to sell Bing or spin it out (and Microsoft may actually have thought about this in the past), but based on Klein’s comments today, that’s not likely to happen anytime soon.

Another service Klein also thinks will get integrated more closely across the Microsoft ecosystem is Skype, which the company acquired in 2011. He seemed especially excited about Skype integration into Xbox.

Microsoft Launches Modern.IE To Help Developers Test Their Web Apps For Legacy And Modern Versions Of IE

Even though Microsoft itself would prefer to change this, many users still rely on older versions of Internet Explorer. For developers, this means spending hours on testing their web apps to ensure they work on IE8 and IE7, for example. Microsoft, which has worked hard on making IE9 and IE10 compatible with standards like HTML5 and CSS3, is fully aware of this problem and today launched modern.IE to “make it easier for developers to ensure their sites work beautifully across Internet Explorer as well as other modern browsers.”

Microsoft Launches Modern.IE To Help Developers Test Their Web Apps For Legacy And Modern Versions Of IE

As Microsoft general manager for Internet Explorer Ryan Gavin told me yesterday, modern.IE consists of a number of free tools and resources, including a scanner that checks for common problems that may make a site incompatible with modern and legacy versions of IE. The scanner, Gavin noted, checks a given page to find common compatibility problems with the libraries and frameworks the developer used. It then recommends fixes and provides developers with information about which version of a given framework like jQuery offers the best compatibility.

This, Microsoft found, is a surprisingly big problem. More than 40% of the top 5000 sites by traffic and volume currently use an outdated framework or library that may cause compatibility problems with the latest version of IE and other modern browsers. Microsoft also found that 20% of these top 5000 sites currently use vendor-specific prefixes (-moz, -ms, -webkit, etc.) that can cause compatibility problems. The majority of these sites also use browser detection and often serve up incompatible sites to IE9 and 10 because they don’t recognize that these new versions of IE aren’t exactly legacy browsers anymore.

In addition to the scanner, Microsoft will also work with developers directly when it detects site-specific issues that it doesn’t can’t disclose publicly through the scanner.

The site also features a set of 20 best practice tips authored by jQuery Foundation president Dave Methvin and Microsoft technical evangelist Rey Bango and Microsoft has partnered with Browserstack to offer all developers three months of free service for the next year, allowing them to easily see what their sites look like across a wide variety of browsers and operating systems. Developers can use their Facebook credentials to sign up for this service. There are also Chrome and Firefox plugins from Browserstack that allow you to quickly test a site with just a click and a set of virtual machine images for Mac, Windows and Linux that allow you to run back level versions of Windows and IE for local testing. It’s worth noting that Browserstack is a useful tool for any developer and developers can use it to test virtually any browser on any operating system.

As Gavin told me, the idea here is to make it easier for developer to test their sites and make sure they are compatible with legacy browsers. He acknowledged that the legacy versions of Internet Explorer – that is all of those published before IE9 – make life hard for web developers. Modern.IE, Gavin writes in a blog post today, ” is just another part of our continued commitment to help developers spend less time testing and more time building amazing sites.”

Microsoft taps BrowserStack to launch Modern.IE, aims to ease the pain of IE testing for devs

Screen Shot 2013 01 31 at 1.50.48 AM 520x245 Microsoft taps BrowserStack to launch Modern.IE, aims to ease the pain of IE testing for devs

Shortly after releasing its surprisingly uplifting “Child of the 90s” campaign, Microsoft is back yet again to preach its progress with Internet Explorer.

This time, the company is speaking directly to developers with the launch of Modern.IE: a collection of free tools aimed at helping Web developers spend “more time innovating, and less time testing.”

At the heart of Modern.IE lie three tools: a ‘wizard‘ that scans sites for problematic coding practices, three months of free virtual testing via browser testing partner BrowserStack, and an editorialized selection of best practices. In addition, the company has also gathered together local virtualization tools and built BrowserStack add-ons for both Chrome and Firefox users.

According to IE senior director Ryan Gavin, this partnership with BrowserStack “is more of an opening note” than a final deal, which hints at the possibility of a longer term free offering of the typically $20/month+ service.

It’s noteworthy that Modern.IE’s scanning tool, on the other hand, is rather vague in the results it displays, in part for security purposes. However, devs can contact Microsoft for more details, as the company explains:

For security and privacy reasons, we don’t disclose these technical details on the site. Instead, developers can easily contact us, receive this info, and get IE engineering team support at no cost.

The service focuses on Internet Explorer, but also touches on other modern Web browsers. But when it comes to aging browsers, Gavin tells us Microsoft’s focus on IE was intentional. Web developers can learn more about Microsoft’s Modern.IE site via the link below.


For more developer-focused stories, head to our dedicated Design & Dev channel.

Microsoft confirms the Windows RT update bug, promises a fix in the first week of February

2013 01 22 15h33 54 520x245 Microsoft confirms the Windows RT update bug, promises a fix in the first week of February

Today a Microsoft spokesperson provided TNW with a statement regarding the reported update bug on the Surface RT device. It was unclear until today if the issue related to Windows RT itself, or the Surface tablet specifically.

As it turns out, the bug appears to be Windows-RT specific. However, given the leading market share of the Surface RT device over other Windows RT machines, the situation was murky.

Here’s Microsoft on what is going down, and what is plans to do about the problem:

Some Windows RT customers who attempted to apply January’s bulletins had issues installing updates. Specifically, impacted Windows RT devices went into connected standby mode during the download of updates from Windows Update, causing the connection to be disrupted. We apologize for any inconvenience this may have caused and are working to correct the issue; we expect to have a fix in place in the first week of February.

TNW confirmed the issue in testing. Certain users reported both an inability to download Windows updates, using Windows Update, and also third-party applications. Reports of the error cropped up earlier this month when the update was first released.

Given the listed time frame, we could see an update in as little as two weeks. Exactly what is causing the root of the issue isn’t clear. Also, Microsoft isn’t being overly forthcoming with how many users have been impacted. Given the relatively small install base of Windows RT, TNW can’t determine this independently.

For now, be patient Surface owners. Help is coming.

Top Image Credit: BUILDWindows