Surface RT sales are probably quite good, you just don't know it

The "Microsoft tablet is a failure meme" was old from the start. Every day there's some new blog based on rumor or innuendo assuring everyone who pays attention that Surface is doomed and sales are this side of worse than terrible. There is so much nonsense punditry, I don't know where to start. DigiTimes has unnamed channel sources saying Microsoft cut orders for the tablet by half. The report got widespread attention, despite the publication's record for getting this kind of story wrong. Along come the analysts. DFG slashed shipment estimates to between 500,000 and 600,000 from between 1 million to 2 million. Number was way too high to start. Now Tim Worstall, a Fellow at Adam Smith Institute, whines that Surface RT is way overpriced. It's not.

If Microsoft's tablet has a sales problem -- and let's strut that I-F again -- distribution is the reason. The product isn't overpriced or flawed. Microsoft only sells Surface through the company store; that's online and (by my count) 66 retail shops. Sixty stores are in the continental United States, five in Canada and another in Puerto Rico. There are only a limited number of places anyone can buy the tablet, which limits how many the company can sell. What matters more is how many Microsoft sells per store. Pundits crying "fail" are nincompoops of the nth degree. If any of them bothered to look at Apple Store, they would understand.

By the Numbers

Let's start with easy math. One million units. That works out to 15,152 tablets per Microsoft Store for the holidays. You do know that's a helluva lot of product to move through tech boutiques, right? Compare to Apple, which sold 4.8 million Macs globally during third quarter, but only 1.1 million through its retail stores. Three hundred ninety of them. Think long on the implications for a few seconds. Apple's brand has longer consumer reach. The shops are open across the planet, not just two North American countries. Most stores are established, unlike the majority of Microsoft's pop-up shops for the holidays.

With all that advantage, Apple moved 1.1 million Macs through 390 shops, for an average 2,821 units rounded up, during third quarter. But analysts expect newcomer Microsoft selling its first branded computing device to move five times the units, or more, per store?

Apple doesn't publicly disclose how many iPads sell through the branded stores. For Q3: 23 percent of Macs. For iPad, I'll guesstimate one-quarter to make the math easy. Apple sold 14.04 million iPads during third quarter, or 3.51 million through stores, using my method. That works out to 9,000 per store, which is a helluva lot of tablets and conveniently 100 for each of 90 days. Surface launched on October 26, which leads to 58 selling days through Christmas day. So to be as successful as Apple Store selling iPads, each of Microsoft's 66 shops would need to sell 6,600 Surface RTs, for 382,800 combined.

Crazy Math

Of course, this figure doesn't include sales through Microsoft's online store. The tablet is available in six countries online: Australia, Canada, China, France, Germany, Hong Kong, United Kingdom and United States. Now compare that distribution to iPad's maker. At the end of third quarter, Apple operated 140 brick-and-mortar shops outside the United States and currently sells online in more than 120 countries. Comparisons aren't easy, because of the sheer differences and that Apple doesn't reveal iPad units sold online.

So, as a purely mathematical exercise, let's assume another 25 percent of the total number. When including duplicate language stores (like English and French in Canada), there are 125 online shops. Hocus pocus and starting with 3.51 million units that's 28,080 per Apple Store for the quarter and 312 each per day (clarification: Apple's quarter is typically a day or two short of 90, but this method being estimate anyway keeps the math simple). By that lowly measure, each Microsoft Store would need to sell 18,096 tablets from October 26 to December 24 to match iPad sold by Apple online -- or 108,576 total.

Here's something interesting: Combined, sales through Microsoft retail and online stores would be 491,376 to match Apple direct sell-through, by my calculating method, which is close to DFG's revised number. Again, the total represents performance per number of stores rather than overall unit shipments.

Halo Effect

There are other ways to measure success, beyond actual unit sales. "Microsoft made the decision to keep Surface out of distribution as a way to create a Halo product for the stores and help build traffic there", Stephen Baker, NPD's vice president of industry analysis, told me earlier today.

Microsoft aggressively and heavily advertises Surface, which release coincides with massive retail store expansion for the holidays. People coming into the store might also buy, or instead, Windows 8 PC, Windows Phone or Xbox, among other products. I see his reasoning.

"Eventually Surface will go into distribution", Baker says. "But what is the rush? Why would they want a new, difficult to explain product on the shelf next to a $299 Toshiba. Why does everybody think iteration one of anything has to be perfect. It never is".

Photo Credit: Joe Wilcox

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