It’s All About Price: Microsoft’s Surface RT $150 Price Drop Tripled Monthly Sales Volume Throughout 2013

Surface 1A lot has happened since we released our last report on the traction of Microsoft’s Surface RT and Surface Pro Tablets in the marketplace!

After Black Friday 2012 we took a look at the adoption of the Microsoft Surface 1 worldwide in order to gauge the relative performance of Microsoft’s entrance into the hardware market.

So we decided to revisit this report, and were frankly amazed by what we found.

Microsoft’s July Price Cut of the Surface RT 1 Tripled Sales Volume

Microsoft worked hard during the first half of 2013 to improve the sales of their first generation Surface products:

Despite these efforts, reports surfaced beginning in March which indicated that Microsoft would only meet half of its original 3 million Surface RT units sales target. These were later confirmed by Microsoft’s FY13 earnings statements, which confirmed a $900m loss on Surface RT hardware.

Given this excess inventory of Surface RT 1 tablets and the upcoming release of the Surface 2 line of products, Microsoft slashed the prices of all Surface RT tablets by $150 beginning on July 15th, 2013.

So given that, how well did the Surface RT 1 perform last year?

total number of surface rt 1 devices

The chart above plots the total number of known Surface RT 1 units that connected to MarkedUp’s services over the course of the past year.

As you can see, the Surface RT 1 had sluggish adoption in early 2013 but rapidly accelerated beginning in March / April – the likely cause of that growth is due to Microsoft’s introduction of the Surface RT tablet into new markets and additional promotions /exposure described earlier.

However, the Surface RT’s growth really exploded around the June / July 2013 timeframe – right when the Surface’s prices slashed. Bear in mind that late Summer and Winter are Microsoft’s two strongest sales quarters for consumer products – “Back to School” and “Holiday” sales respectively.

Average number of monthly Surface RT 1 units sold prior to price drop 105,452 monthly units
Average number of monthly Surface RT 1 units sold after to price drop 358,044 monthly units

 

As you can see from the data table above, the monthly sales volume of Microsoft’s Surface RT 1 units tripled following the price cut – moving from roughly 100,000 units per month to 350,000 per month.

We plotted the net number of new devices per month to help confirm this:

surface devices activated per month

You can see a big ramp up of sales in July and August, followed by a drop in September. That’s natural – back to school sales typically end by Labor Day in early September, so there’s going to be a big drop following August.

But what’s really telling about this graph is that the number of units sold in September is still greater than what was sold in July (another strong B2S sales month), which is unusual. Here’s the raw data table to supplement the chart.

 Surface RT 1 Worldwide Adoption January 2013-2014

Month

New Devices

Total Devices

2013-01 75,535 75,535
2013-02 72,701 148,236
2013-03 83,678 231,914
2013-04 96,134 328,048
2013-05 120,522 448,570
2013-06 184,140 632,710
2013-07 246,299 879,009
2013-08 339,794 1,218,803
2013-09 249,798 1,468,601
2013-10 318,291 1,786,892
2013-11 321,131 2,108,023
2013-12 556,965 2,664,988
2014-01 474,030 3,139,018

 

It was generally believed that issues with the Windows 8 and Surface RT user experience were the tablet’s primary barriers to adoption. It is our conclusion that the real issues might have been awareness and price sensitivity.

Let’s try to validate this hypothesis with some more data….

Surface RT 1 vs. Surface RT 2

As mentioned earlier, the tech press generally believed that the Surface RT 1 units did not sell well because they, for lack of a better word, “sucked.” This assertion has gone largely unchallenged, even though Microsoft has doubled its revenue from Surface and the product line is considered to be doing very well.

So why is the Surface product line starting to look healthier for Microsoft now? Is the Surface 2 or Surface Pro such a drastic improvement over the Surface RT tablets that it’s been able to single-handedly double Microsoft’s Surface revenue? Not exactly.

surface rt1 vs surface rt2 new devices per month[4]

The Surface 2 was originally released in October 2013 – we saw a tiny number of them appear in August and September 2013, likely pre-release QA devices. We observed the same phenomena prior to the release of the original Surface products in 2012.

By the end of December 2013, we started seeing roughly 60,000 new Surface RT 2 devices activated per month – a pretty good start for a new device that’s still trying to build up brand recognition with consumers.

However, its older cousin, the Surface RT 1, sold well over 500,000 copies in December.

Surface RT 1 vs. Surface RT 2 Devices Activated per Month
Month Surface RT 1 Surface RT 2
2013-01 75,535 0
2013-02 72,701 0
2013-03 83,678 0
2013-04 96,134 0
2013-05 120,522 0
2013-06 184,140 0
2013-07 246,299 0
2013-08 339,794 131
2013-09 249,798 130
2013-10 318,291 10,315
2013-11 321,131 34,476
2013-12 556,965 62,905
2014-01 474,030 61,340
Total 3,139,018 169,299

 

Conclusion

It’s difficult to reconcile this data with the theory that the Surface RT 1’s inability to meet Microsoft’s original sales estimate was due to the product design itself, if you assume that the Surface RT 2 is an improved product (which it is.)

Aside from the innate improvements made to the Surface 2 and its novelty, the only other major difference between the two generations of Surface is price. Microsoft moves many times more tablets when the starting price point is at $349 versus $499.

In a subsequent update, we will perform a similar analysis for the higher-end Surface Pro and Surface Pro 2 tablets.

MarkedUp’s Collection Methods

Our data is collected from apps that are installed directly onto end-user machines, so our data set is limited to “devices that have installed an app that uses MarkedUp.”

That being said, this data set is covers roughly 10% of all Windows 8 machines ever sold. Our numbers for Windows Phone are similarly impressive, but excluded from this data-set (naturally.)

There is some latency between when a device is sold to an end-user and when we “discover” it by way of an app installation; however, having been in market since before Windows 8 was launched, our data set has historically mirrored the market as it moves in real-time. We see giant surges on Christmas morning, after Black Friday, and so forth.

Devices can be counted multiple times, depending on the number of installed apps from distinct MarkedUp-enabled publishers and the version of our SDK that was used. Our facts and figures accurately reflect trends and changes in direction in the market, but not precise figures.

These reports are anonymized aggregations of our entire data-set.

The data in this report tracks the number of net new devices activated on our platform per month, starting from January 2013 to January 2014.