Surface 2: Everything that's wrong with Microsoft's model

Surface 2: Everything that's wrong with Microsoft's model

Summary: Microsoft will unveil its latest Surface devices, which illustrate why the hardware fascination in Redmond may be the wrong path to take. Software anywhere trumps devices and services as a model.


Microsoft on Sept. 23 will launch its Surface 2 and Surface 2 Pro devices---known around here as YAFS (yet another financial sinkhole)---and we're likely to see a refresh and some modest improvements. Let's give Microsoft props for its persistence, but the company's latest devices and services business model are a case of skating to the puck where it used to be and not where it's going.

Surface, the laptop meets tablet device, has cute anti-iPad advertisements but nothing close to its rival's sales. Before Microsoft's acquisition of Nokia---an exclamation point to the company's plan to be about hardware too---Surface was the biggest sign that the software giant had Apple envy.

Today, Nokia and Surface illustrate how Microsoft wants to be vertically integrated. Microsoft wants to own the hardware and software so it can provide great integration.

In other words, Microsoft wants to be more like Apple. Here's the problem: Microsoft's horizontal business model---software and an ecosystem of hardware partners---is converging with the vertical integrated scheme where one company controls everything. In other words, Microsoft is running toward the place where the optimal business model used to be.


Let's get real: Apple may be a unique situation when it comes to business model. If you believe Apple's success can't be replicated---even by Apple going forward---then Microsoft is doing the exact wrong thing at the exact wrong time. Perhaps it's time for Microsoft to leave hardware to the professionals also known as the ecosystem it's annoying with the Surface. Surface isn't going to woo the masses. Nokia currently isn't wooing the masses either. Microsoft has the money to continue to fight, but needs a hit desperately.

Wells Fargo analyst Jason Maynard outlined the conundrum in a research note:

In our opinion, Microsoft "Devices & Services" mission needs to change to a new mantra we are calling "Software Anywhere." We see a burgeoning competition between horizontal and vertically integrated models. Computing is shifting from being device centric to user centric. We think the locus of value is transferring from hardware and software to data. App services should ultimately have the most value because they capture user data. We think Microsoft should move horizontal and deliver value to users in both consumer and work scenarios across all devices. Our view is that a "Software Anywhere" strategy is the best shot at recharging relevancy and revenue. From a financial standpoint, we think Microsoft can generate enough apps revenue to offset the decaying Windows business.

Bingo! Instead, Microsoft execs at the company's financial analyst meeting Sept. 19 talked devices and services that go with them. Let's hear it for commoditized markets. To be fair, Microsoft did have a little bit of news for everyone at its analyst powwow. Talk of touch-optimized Office on non-Windows operating systems was welcome.

Microsoft needs to be more like Google, which has branded devices via partners and clearly focused on the data. Motorola Mobility was more about the patents, but Google has juggled it with partners like Samsung pretty well. Maynard said that Microsoft should revisit its 2001 Web services game plan, called Hailstorm. The analyst also said Bill Gates is the only one to reboot the company and make the Web services thing work. We at ZDNet disagree, but you get the gist. Microsoft needs to be a lot more about services and unleashing Office from being a Windows franchise body guard and less about devices.

Nevertheless, Microsoft will keep pushing hardware up the hill. Surface this week. An armada of Nokia phones in the near future. Good luck with that Redmond.


ZDNet's Monday Morning Opener is our opening salvo for the week in tech. Since we run a global site, this editorial publishes on Monday at 8:00AM in Sydney, Australia, which is 6:00PM Eastern Time on Sunday in the U.S. It is written by a member of ZDNet's Global Editorial Board, which is comprised of our lead editors across Asia, Australia, Europe, and the United States.

Related research on Microsoft

The following related research pieces are from Tech Pro Research, a joint venture between ZDNet and TechRepublic that includes exclusive in-depth features from Mary Jo Foley, Ed Bott, Larry Dignan, Jason Hiner, Bill Detwiler, and more.

Topics: Mobility, Microsoft, Tablets, Microsoft Surface

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  • MS hardware is OK but no monopoly

    I've always liked Microsoft hardware and I'd not worry too much about buying it. It's the metro interface and potential monopoly that makes me wary of where it's going. The metro interface is probably OK as well, but on my Win8 laptop with Chrome and my Android phone it has no purpose. No single company is going to get all my business. Google make it untidy with Chrome and Android why does my PC not sync easily with my mobile. A bit of a mess overall.
    • Can Ballmer go, right now?

      It doesn't matter how good or bad Microsoft's tablets are.

      The problem is that you need confidence to attract consumers and developers, and Microsoft has blown it by releasing so many duds.

      The only way out: Ballmer should go immediately (not next month or next year), and he should not make any more major decisions (like the ill-fated Nokia purchase), and he should not have any say on who his replacement is.

      Microsoft needs to scrap Windows Phone and Surface / RT (they will be axed anyway when the new person comes). It needs to partner with others to make a new open mobile OS, using open-source software, in order to develop a community of developers around it. It also needs to achieve a successful phone ecosystem before it can even consider tablets.

      At the moment Microsoft does everything as wrong as would be possible. It's Nokia purchase will turn out to be a disaster, and all the hardware Microsoft makes from it will be failures and duds.
      • Patience.

        They have to move Elop into position first.
        • Mr Flop dropped their best chance

          Mr Elop dropped the operating system that had the best chance. It was called MeeGo. It was in the Nokia N9 phone just before it was axed, and sold well.

          The next CEO of Microsoft should ressurect MeeGo. Developers would flock to it. They could put Bing on it.
          • ..should, would, could...

   more to say... :-)
          • MeeGo was a NoGo

            Nobody in the US cared about Nokia. The US market matters for app sales. MeeGo would have made Windows Phone seem like a runaway hit.
          • And yet Nokia had the #2 appstore in 2010

            Ahead of Android by quite a margin, and not far behind Apple in app downloads, revenue, etc.

            MeeGo could have staked a claim to a good part of what eventually became Android's (dominant) turf. The US carriers were looking for alternatives to let them tame Apple ... Nokia would have been attractive as an alternative, especially with a phone (the N9) that when released won design awards over the iPhone. Nokia would have been attractive - till they burned their platform for WP.
          • Developers will flock to it?

            Please explain why you feel developers will flock to meego. Developers go where the money is... Meego would be a start over. No thanks.
          • That

            is exactly right. Starting over from zero would be far worse an idea than continuing down the road WP8 is going with modern UI.

            The LAST thing the industry needs is to continue dragging out its 30 year love affair with Xerox Parc clone UI's. It's bad enough MS and Apple stole the design and spent three decades slavishly following it and iterating on it.
          • dead roads WP8

            You should back things up with facts. 60m+ phone sold, 1st of 2nd best selling in 15 countries can't be that bad, is it?
          • No

            Meego is essentially dead. Let it STAY dead.
          • Windows Phone is what developers abandoned

            The reason Meego would do better is because it is open source. It had an active developer community. It still does have an active developer community, in it's later forms, such as the Sailfish OS (derived from MeeGo).

            The Nokia N9 phone, which ran MeeGo, did surprisingly well considering Elop was actively trying to kill it at the time. Why do you think Microsoft wanted to kill MeeGo so badly?

            In the end, Windows Phone will get cancelled. So you can't do any worse than that.
          • N9 sales

            N9 sold 2m in a year. Lumia sold almost 10m in 6months. Good figures
          • And Apple sold

            "Lumia sold almost 10m in 6months. Good figures"
            9 million iPhone 5s/5c in one weekend. Your point?
            In it's first week Apple sold more phones, that Nokia sold in 6 months. Wouldn't that say enough about people not wanting Windows Phone?
            I hate trolls also
          • Your living in a dream land.

            "In the end, Windows Phone will get cancelled"

            So wrong is absolutely laughable.

            Its NEVER going to happen. EVER.

            Microsoft itself will have to be dead and gone before Windows phone gets cancelled. I don't know how long you think your positively silly prediction will take to happen, but I think in two or three years you should "pop" back in and concede your probably dead wrong.

            You ridiculous MS and Windows haters are a joke. You understand so little about the market and business in general your predictions are nothing short of a fortunetelling disaster.
          • MeeGo was dead

            MeeGo and Symbian were making loss dooh!
      • Ballmer wasn't operating in a vacuum.

        I think a lot of what we attribute to Ballmer is actually coming from the Board. Clearly the Board is married to the Devices and Services idea. I'm thinking that in his book (to be released in Fall 2017), Ballmer will reveal that he wanted to do the IBM thing, but the Board forced him into the strategy which will, if not kill, certainly further marginalize Microsoft.
      • So what phone do you use?

        Never mind... keep predicting the future. Good luck.
        • anonymous coward thinks he is hiding

          but we all know he is a Microsoft paid shill. So sad these folks just can't do a good job looking like grass roots folks anymore!
          The Danger is Microsoft
          • Funny

            It's funny you blast him for being anonymous and a paid shill...all the while you post anonymous. So I guess you're an Apple or Google paid shill then. Great logic.