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:
- The first generation Surface Pro was introduced in February, 2013;
- The distribution of the Surface RT improved over the course of the year as Microsoft expanded to include more global markets;
- And Microsoft really started stepping up its sales efforts with promotions, partnerships, and increased advertising + visibility.
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?
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:
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
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.
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|
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.