About the 1.7 billion dollars lost

 

The online press is always ready to talk negatively about Microsoft. For example, now all they are mentioning is about the 1.7 billion dollars in lost that the Surface line is causing to Microsoft. They are calling it the “Surface Damage”. The problem that I have with this is that they are taking the number and converting it into something that it’s far from the reality. And here in why:

·       Every new business or new product starts with negative numbers. Putting it simple, you need to invest to make money. It’s not right to compare the Surface with the iPads because the iPad is up to certain point a sub product that delivered from the iPhone and the iPhone was at the same time a sub product of the iPod. So the investment in R&D were very low. In another hand we have Apple, a hardware company, against Microsoft, a Company that for the first time started to make their own PC.

·       The first year of the Surface was full of Research and changes. And part of that Research was about finding the market demand and the price sweet spot and for that MS paid $900 million. Then in the second year we have the cancellation of the Surface Mini when it was almost at the release to the market point. This last change triggered by another change, a new CEO.

·       The above chart shows clearly a tendency to a positive gross margin. The cost of revenue is becoming lower and the revenue almost doubles the one from the previous year. All this is good. It’s not the time of abandoning the project like some pages have mentioned, on the contrary, the numbers show that Microsoft is doing well and that soon they will get profit from this line. All they need to do is keep going in the right direction avoiding costly mistakes.

·       According to some analysts, the Surface PRO 3 is selling better than the two previous versions.

Microsoft entering the PC market has been like a blood transfusion to a very sick patient, the PC Market. And Microsoft depends on this market to sell its Operating System and the Office Suite. So for Microsoft the Surface Line is more than how much money they make directly from this product but part of an ecosystem that feels the benefit of having its own hardware line. This is the point that is missing on those pages “preoccupied” for Microsoft future.