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.

Microsoft Surface Adoption Worldwide

We made MarkedUp Analytics privately available to some Windows 8 developers in September, and thus we’ve had a chance to watch the Windows 8 ecosystem grow since well prior to its official 10/26 launch.

markedup-microsoft-surfaceAs many of you may have read this past week, Windows 8 sold over 40,000,000 licenses in its first month since release. That’s huge!

However, what about the Surface RT tablet Microsoft released on the same day? How well has it sold since?

MarkedUp Analytics was installed into some of the biggest apps in the Windows Store a month prior to the launch of Microsoft Surface; that puts us in a good position to use our data to make some educated inferences as to how well the Surface has really fared in the device marketplace.

Surface and the Windows 8 OEM Landscape

Before we jump into the specifics of Microsoft Surface, let’s consider the Windows 8 OEM ecosystem.

Since 9/28, MarkedUp has observed 307 distinct PC device manufacturers in our global data set for Windows 8 apps.

OEMs like HP, Dell, and Samsung still have a significant presence in the Windows 8 market, and the majority of it from devices that have been upgraded from Windows 7 and XP.

These traditional PC manufacturers also had a small, but statistically significant head-start over Microsoft in terms of total market share, because developers and big enterprises have had early access to the full verison Windows 8 since 8/15.

Windows 8 Market Share by OEM

This chart represents total market share by OEM across all devices that have used an app with MarkedUp installed in it since 10/26 until 11/24/2012, spanning roughly one month since Windows 8 and Microsoft Surface officially launched.

According to our data set, Microsoft has only one device in market – the Surface RT tablet. Our data set showed that Microsoft had statistically 0.0% market share prior to 10/26*, the day Surface and Windows 8 officially went on sale.

Microsoft’s 7.77% market share on this chart is represented solely by the adoption of the Surface RT tablet, and making Microsoft the 4th most popular OEM among Windows 8 users currently.

This number is also reflected in our analysis across all Windows 8 device models, rather than manufacturers:

Microsoft Surface Total Adoption v11-24-2012

MarkedUp has observed 11,385 distinct Windows 8 device models as of 11/24, and most of them are upgraded Windows 7 / Windows XP devices.

Microsoft Surface is by far the single most-used Windows 8 device from this cornucopia of hardware, occupying roughly 7.76% of the market.

The next most-used device model is the Samsung Sens Series laptop, like the Series 9 ultrathin notebook, with 3.31% market share, less than half of what the Surface RT has.

So with all of this market share data in mind, what’s the adoption rate for Microsoft Surface thus far?

Microsoft Surface Adoption Rate

So how quickly has the Surface RT tablet been adopted worldwide?

Well, we don’t have the absolute numbers since MarkedUp doesn’t have 100% market penetration across every unique Windows 8 device (working on it!) but we do have more than enough data to draw some inferences about the rate as which Surface RT tablets are being adopted.

The following chart shows the cumulative growth of the Surface RT’s installation base:

Microsoft Surface Daily Adoption v11-24-2012

As we mention in the callout on this chart, we decided that the best way to plot the growth of the Surface was to create an index and plot all of the cumulative growth relative to the index.

We set the index value 1 to be equal to the number of Surface RT tablets we saw activated on 10/26, the day it first went on sale. The final value on this chart has an index value of 120 for 11/24/2012, 29 days after the Surface went on sale initially – meaning that there were 120 times as many Surfaces activated by 11/24 than there were on 10/26.

So if Microsoft sold 10,000 Surfaces on day 1, then by the rate of growth on this chart they will have sold at least 1,200,000 units by 11/24.

Remember, this chart shows active devices that are being used and have consumed apps from the Windows Store, not devices that have been sold. The numbers on MarkedUp’s charts are effectively a floor for sales given that devices are sold before they’re used.

Microsoft Surface Adoption by Country

So we’ve shown you how quickly Surface RT tablets are being activated, but what about where they’re being activated?

Microsoft Surface Usage by Country v11-30-2012

MarkedUp has observed active Surface RT activity from users in 70 countries on 6 continents thus far, so the Surface is appears to be making inroads on Microsoft’s promise of broad international distribution for Windows 8 and Windows Store app developers.

In the chart above we broke out the percentage of Surface RT distribution by country including the 10 largest markets; the subsequent 60 markets all trail off quickly.

The United States has an overwhelming 68.52% share of all Surface RT tablets activated thus far with the UK coming in at a distant second with 9.10% share.

Our numbers across all Windows 8 devices are slightly different, but the US and UK both have dominate leads in those figures too.

One factor that may skew MarkedUp’s numbers towards the English-speaking world is that many app publishers forgo full international distribution in the Windows Store due to the fact that many parts of the world, including China and countries that have tighter content restriction laws, lengthen the Windows Store approval process and can even cause the app to be rejected outright.

So on that note, we strongly suspect that China in particular is under-represented on this chart given that it’s a massive market, but one that is more difficult for many app publishers to reach due to content restrictions.

Conclusions

Based on the data above, here is what we conclude:

  • The Microsoft Surface is the most heavily used ARM device in market for Windows 8 by a wide margin thus far and it is the single most-used device overall for Windows 8;
  • Surface’s growth appears to be strong, but it’s difficult to extrapolate the absolute number of units have been sold without knowing what the total day 1 sales were;
  • Surface RT is being adopted in primarily English-speaking countries, but has broad international reach; and
  • The majority of devices in market for Windows 8 are upgrades from previous versions of Windows, not new devices that came with Windows 8 installed; we’ll see how this changes as we collect more data from the Holiday season. The fact that the Samsung Sens Series made a strong appearance on our device model breakout shows signs of a growing ecosystem of net new Windows 8 machines from non-Microsoft OEMs.

Thanks for reading! If you’re a Windows 8 developer and would like access to the beta of MarkedUp Analytics for Windows 8, click here!

Appendix

Here are some other interesting statistics from our OEM data set:

  • The remaining 24.48% OEM market share not shown on the OEM chart represents 296 long-tail, smaller OEMs including VMWare virtual machines and a number of motherboard manufacturers used in home-made PCs.
  • There are three different device architectures that Windows 8 supports: ARM, x86, and x64. Surface is the only major ARM device in market thus far, although there are more ARM (RT) tablets on the way. In our public Windows 8 launch data set, we’ve observed the following trend consistently since the Windows 8 launch on 10/26:
    1. x64, 64-bit Intel hardware, is used by roughly 70% of the daily active usersfor the entire Windows 8 ecosystem every day;
    2. x86, 32-bit Intel hardware, is used by roughly 20%; and
    3. ARM, the new architecture for lightweight tablets like the Surface, is used by the remaining 10% of daily active users.

*MarkedUp observed some Microsoft Surface RT devices appear as early as 10/18 in our data set, but not enough to be statistically significant. We suspect that they were preview devices given to select app partners, press, and others with early access.

Windows 8 Launch Tracker: Follow the Adoption of Windows 8 as it Happens

windows8logoHave you been reading the news about Windows 8 lately?

It’s October 26th – Windows 8 is finally here, as is the Microsoft Surface WinRT tablet! And as the links above show, consumers and developers alike are really, really excited.

MarkedUp has been diligently helping Windows 8 developers measure how their users consume their apps since September, and so we have a unique opportunity to use our growing data set to help curious onlookers and technology enthusiasts get to track the adoption of Windows 8 as it happens.

So, without further adieu, allow us to introduce you to our Windows 8 Launch Tracker!

Windows 8 Launch Tracker - Powered by MarkedUp AnalyticsWe’re going to update the statistics daily and help developers track how quickly Windows 8 is picked up by the community at large, using our entire data set.

Sampling Methodology

Our methodology for sampling the data displayed in the charts is straightforward: we take a seven day rolling average of all active users and new installations detected from an app and calculate rate of change between them.

There are some other things we do to try to prevent outliers from spiking the graph (i.e. apps that acquire a large number of users rapidly, usually popular titles ported from other platforms) but generally it’s all just rate of changes against a moving average of new devices activated and daily active users.

You’ll notice a big surge on the 19th – that’s due to a trend that started on the 15th of October where the Windows Store approved nearly 20% of the current apps that are in market now (roughly 5000 apps in market,) which subsequently lead to a big surge in our numbers.

If the Windows Store goes through another sustained round of high-volume approvals that will similarly spike our numbers again.

We’re working on refining our methodology for the “Windows 8 by chipset architecture” graph at the bottom since we expect it to change radically with the availability of new ARM devices.

We’re going to email out more detailed trends and analysis on the growth of the Windows 8 ecosystem; if you want more detailed reports on trends with Windows 8, sign up for our newsletter!