Earlier this week, Microsoft’s decision to exit the music streaming market at the end of this year disappointed many, to say the least. By giving up on its Groove Music pass subscription and inviting users to switch to Spotify, Microsoft makes it risky for consumers to invest in its own ecosystem, as it’s clear that the company is not 100% committed to its consumer digital services. The company will also stop selling music on the Windows Store at the end of the year, and we wouldn’t be surprised if Microsoft also gives up on Movies & TV and ebooks at some point.
Digital media may not be a core business for Microsoft these days (except for Xbox games), but what about the company’s hardware efforts? We all know what happened to the Lumia line of Windows phones, but Microsoft showed with its Surface line that it was capable of creating great hardware that appeal to consumers. Moreover, with the company recently launching a Surface as a Service Program as well as an expansion of the Surface Enterprise Initiative, there are many reasons to believe that it’s here to stay.
However, some people in the tech industry actually think that Surface is just a short-term experiment for Microsoft. Steve Brazier, CEO of market research firm Canalys, recently explained at the opening keynote of the EMEA Canalys Channels Forum in Venice that he expects Satya Nadeall to kill Microsoft’s Surface business by 2019 (via Channelnomics).
"Microsoft will exit the Surface business by 2019," said Brazier. “Two reasons: Satya Nadella is a software guy, he's a cloud guy. He already allowed [Microsoft's] mobile phone business to decline. Secondly, the Surface's performance is choppy, it has had good quarters and bad quarters but overall it is not making money. It doesn't make sense for them to be in this business. And when the capital expenditure challenge that Satya Nadella is taking Microsoft down becomes visible to Wall Street… he will have a lot of cost cutting to do, and Surface will be the first target."
During a Q&A session at the same event, Lenovo's COO Gianfranco Lanci added that he expects Microsoft to abandon its Surface business a little sooner than 2019. "It might be earlier," he said. "I share [Brazier's] view, Microsoft is making a lot of money on the cloud and enterprise and on Windows, and it is definitely losing a lot of money on devices and I see no reason why they would want to continue with the Surface."
We’ll have to wait for Microsoft FY2018 Q1 results on October 26 to get more insights about how the Surface division is performing, but we’re pretty sure that it’s doing fine for now. Last year, Corporate Vice President of the Windows and Devices Group Yusuf Mehdi claimed that “the Surface business has grown from generating $1B in revenue in a year to $1B in revenue per quarter,” which was quite impressive in itself.
When you look at the latest Surface products released this year (the new Surface Pro and the Surface Laptop), it’s true that they’re far less exciting than previous releases such as the Surface Studio, the Surface Hub and even the Surface Book: The Laptop especially isn’t exactly what we would call a category-defining product aiming to push the industry forward. Still, we don’t think that Surface is a hobby for Microsoft, and over the years the company has successfully built a range of products that appeal to both consumers and business users. We’re very far from the Windows Phone catastrophe, that’s for sure.
Surface seems to be a valuable asset for Microsoft as of today, and it’s hard to see Microsoft giving up on it to increase its focus on services and the cloud. And there is of course the elephant in the room, which is the rumoured “Surface Phone.” Many Microsoft execs including CEO Satya Nadella previously shared that the company was working on the “ultimate mobile device,” which would be truly differentiated from the Android and iOS competition. We do hope to learn more about this device in the near future, but in the meantime Corporate VP of devices Panos Panay will give a keynote at Microsoft’s Future Decoded event in London later this month, and we'll be there to bring you all the news. We're not sure if we should expect new products except the Surface Pro LTE, but this event should be a good opportunity to see if Microsoft is really committed to its Surface business.