Ten years later, Microsoft’s Surface business is worth nearly $7 billion

Microsoft In 2012, it made a splash when it introduced Surface, the first computer it had made in its 37-year history. Ten years later, computers are still running and Microsoft is releasing updates every year, but the huge growth of the Surface is long gone.

When Microsoft entered the PC market, it tried to reimagine the tablet made popular by the iPad. In 2012, Surface with Windows RT (later named Surface RT) was more than just a touchscreen tablet apple iPad. The Surface can function as a full PC, with an optional case that includes a keyboard and trackpad.

Over the next few years, Apple will make the iPad more like a Surface, adding similar accessories, while Microsoft will do what it usually does: roll out a series of small updates. It has since added new Surface computers to the line, including an all-in-one PC, a standard laptop, and a tiny version of Surface.

These steps lead to growth. In Microsoft’s most recent fiscal year, Surface contributed $6.7 billion of the company’s $198 billion in total revenue. That’s more than the combined revenue of the more than 100 companies in the S&P 500.

But after the first three years, the high growth rate disappeared. In fiscal 2022, Surface revenue grew 3%, though less than several other companies’ PC plans. Apple’s Mac business is nearly $38 billion, up about 8% over the same period.

Surface just isn’t as popular as other computers. They’ve never managed to capture more than 2.1 percent of PC shipments, according to estimates from technology industry research firm Gartner.Lenovo has a 25% market share, while life value 19% and Dell 18% respectively.

Microsoft declined to comment on whether it considered Surface a success.

“We designed Surface to be a place where the best of Microsoft came together, delighting customers and energizing the Windows ecosystem,” a spokesperson told CNBC in an email. , Ink, Windows Hello, and more. Since then, the 2-in-1 category has taken off, and Surface has grown into an innovative portfolio that delivers quality designs and features that consistently earn high customer satisfaction.”

It’s probably not a bad thing anyway that the Surface hasn’t outpaced more experienced PC makers. PC makers are among Microsoft’s most important customers because they pay Microsoft to have a copy of Windows installed on each computer. It might not be wise to upstage them.

Gartner analyst Mikako Kitagawa said in an interview with CNBC that Surface has always played an important role in bringing innovatively designed Windows PCs to market.

“I think those are the things they should really be focusing on, rather than looking for share gains and revenue growth,” she said.

If Microsoft rushed forward in pursuit of dominant share, they could kill their customers, she said. When the first Surface came out, Windows PC makers weren’t very happy with Microsoft, Kitagawa recalls. “Taking 3 percent is taking away from someone, right? It’s not incremental share,” she said.

The very first line of the press release about the 2012 Surface indicates Microsoft’s intentions. These computers were supposed to be “the ultimate stage for Windows.” The section near the bottom recognizes customers who have suddenly become competitors. “Microsoft is uniquely contributing to an already strong and growing ecosystem of functional and stylish devices from original equipment manufacturers (OEMs) to bring the Windows experience to consumers and businesses around the world,” the company said.

The first Surface, the Surface RT to run Windows RT, had clever physics. A thin but sturdy stand sweeps out and supports the monitor on a table or desk. The casing is made of magnesium, using a process called VaporMg, which gives it a premium feel, similar to the aluminum wrapping of an Apple MacBook. The optional magnetic touch cover contains a narrow keyboard and trackpad that doubles as a protective cover for the display. A power-hungry Arm chip gives it respectable battery life.

But Surface RT prevents people from opening programs that aren’t listed in the Microsoft Store, preventing them from using most existing Windows software. Basically, there’s a lot you can do with it, and many third-party developers haven’t done the work of adapting their software to it. The device has received less than positive reviews, with The Verge calling it “honestly confusing.” “Little inconsistencies and confusion abound,” wrote David Pogue of The New York Times.

In 2013, Microsoft introduced the Surface Pro, a more expensive and more powerful sibling to the Surface RT.It contains a stylus, and a Intel A chip that can run real Windows programs is more powerful than Surface RT.

It would be bold for Microsoft to introduce more traditional Intel-based Windows PCs. It will directly challenge some of the company’s top clients. “It doesn’t seem prudent,” Steven Sinofsky, president of Microsoft’s Windows division who left the company in 2012, wrote in “Hardcore Software,” partly posting a detailed recollection of his experience on Substack. Windows is Microsoft’s main source of profit. If even one of the major Windows device makers stopped making Windows PCs, it would be “a big deal,” in Sinofsky’s words.

Regardless, Microsoft is working on it.

Like the Arm-based Surface RT, the Intel-powered Surface Pro isn’t perfect. It only runs for a few hours on a charge and is heavy and impractical to use as a tablet. The average laptop offers a better keyboard than what Microsoft sells separately for the Surface Pro.

A few months later, Microsoft revealed its black eye. It cut the price of Surface RT by $150 to $349 and made inventory adjustments for related parts and accessories, which reduced its quarterly net income by $596 million.

But Microsoft did what it usually does. It sticks to surface lines, rather than abandoning a challenged brand. It rolled out improvements like making the hinge on the back of the tablet adjustable and changing the aspect ratio to make working in landscape more comfortable.

1. By 2015, Microsoft had ditched Windows RT and instead focused on using Intel chips to build devices that could run standard Windows applications.

Meanwhile, top PC makers such as Dell, HP, and Lenovo followed suit. Apple responded with a laptop-like 12.9-inch iPad Pro in 2015, along with a compatible Apple Pencil stylus and Smart Keyboard Folio.

This is a strong validation of Microsoft. In 2012, before the Surface, when only Microsoft’s plans for Windows were rumored, Apple CEO Tim Cook told analysts, “You can have a toaster and a refrigerator fused together, but those things probably won’t make the difference.” Customer Satisfaction”

Yet in 2017, Apple, perhaps Microsoft’s harshest corporate critic, caved. It launched its own toaster-refrigerator combination, said Michael Gartenberg, a technology industry strategist and former Gartner analyst. “It’s clearly become a mainstream design,” Gartenberg said.

Also that year, Microsoft launched the Surface Laptop. While it’s as bland as other laptops, it excludes software that sometimes burdens Windows PCs from other manufacturers and that end users may want to take the time to remove, Gartenberg said.

In 2019, Microsoft launched the Arm-based Surface again, the Surface Pro X. Reviewers praised its long battery life, but for performance and compatibility, it’s no different from the original Surface RT.

This year, Microsoft made things more complicated by introducing the Intel-based Surface Pro 9 and an Arm-based version, which ended the unique branding of the Arm-style Surface. There have been concerns that the Arm variant of the Pro 9 still won’t be able to run certain programs. The Intel version garnered more favorable reviews. “The removal of the headphone jack is its only new problem,” Ars Technica said in its review.

Those who opt for the Surface Pro 9 with the Arm chip will at least have access to a ton of apps. The 2022 Update for Windows 11 includes a way to run more than 50,000 Android apps through the Amazon Appstore.

If you look closely, the Surface Pro 9 with Intel inside looks a bit like the Surface RT from 10 years ago. Changes inside and out make it harder to see it as a novelty. There’s a button to enable the function row on the keyboard, which has a more responsive trackpad. Windows enhancements make it easier to tap on-screen buttons when using Surface as a tablet. You can open the desired program.

Guttenberg, who lives in New Jersey, doesn’t see many people using the Surface in the real world, although he did recently see a person working on the Surface while walking around outside. Gartenberg said the man was wearing a harness that secured the Surface to his chest so he could tap the screen if necessary.

You’ll definitely see them all in one place, though. At televised games, you can see players, coaches, and referees using branded Surface machines at NFL games, the result of a partnership Microsoft struck with the NFL in 2013.

Over the course of a decade, Microsoft has managed to raise the bar for Windows PC makers, proving that top-of-the-line Windows can exist, Gartenberg said.

“If someone said to me, ‘I need a Windows PC,’ what would I recommend? I’d say, ‘Go and see what Microsoft has to offer. Go and see if it meets your needs,'” he said. “‘It’s not going to bring any crap you’re going to call me, and it’s going to work.'”

Finding Surface diehards isn’t easy, though. Some can be found by browsing Craigslist.

Take, for example, Stephane Prunet, an investment adviser in Berkeley, California. The device’s unconventional design had captivated him for years. He bought a Surface Pro 3 and then a Surface Pro 7. The latter, which came out in 2019, is his primary computer on which he runs Microsoft Excel and other work-related programs.

“I almost never use it as a tablet. Maybe I should, but I don’t,” he said. He listed both on Craigslist earlier this month. If someone bought a Surface Pro 7 at a good price, he would upgrade to a Surface Pro 9 with a larger display.

If not, he said, he’ll stick with the 3-year-old Surface. He wouldn’t give it to one of his kids. His daughter uses a Mac, and his son is happy with his Windows laptop. “He never showed interest in Surface,” Prunet said.

Sure, some people might want a bigger screen, but other than that, he doesn’t see how people would be better off with a regular laptop than with a Surface.

“Except for the fact that some laptops might be cheaper. That might be an explanation,” he said. “Because otherwise, I don’t find any compromises. In fact, only benefits. The keyboard is very comfortable. It’s not as stiff as a laptop, but who cares?”

watch: Microsoft’s Surface Go is a good computer, but a terrible tablet