The Economics of Microsoft Surface

This is a post I wrote August 2009 but never got around to publishing. Whilst spring cleaning my drafts, I re-read it and decided it wasn’t that bad, so here it is. I wonder if the issues are still the same in 2011….

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It’s almost a year ago to the month that Amnesia Razorfish smuggled the first Microsoft Surface tables into Australia with the help of parent company Razorfish, much to the excitement of local geeks. There was also a fair bit of uproar from surprised parties who hadn’t expected to be usurped in such spectacular fashion.

I was hired by Amnesia shortly before Surface arrived, partly on speculation that they would soon need a Surface developer. I had experience with the technologies it uses, and a great interest in the product, so was really excited to get such an opportunity. It was also a bit of a gamble on my part, as it was by no means guaranteed at the time they would even be getting a table, let alone any paying clients.

The first few weeks, maybe months, there was a great buzz and curiosity from clients and media about this new device. The phones were ringing off the hook and there were regular coffee table tours.

Despite this, and the amazing stock of talent Amnesia had at its disposal, I think it’s safe to say that during my year there, they never needed more than this one, solitary, Surface developer.

How can that be? “Surely it would be as easy as selling antifreeze to Eskimos!”, I hear you mutter…

Here’s why: In many scenarios, the economics of Surface development simply don’t add up.

For background, let’s put a few ballpark figures on the coffee table:

– Cost of a MS Surface table: $10k
– Cost of  development/design time: $200/hour

Let’s tackle the most obvious thing first: This Is Software Development.

It’s been many years since the Adobe Flash experiences that draw crowds on the web have been built entirely with a visual tool. Most are chock full of ActionScript. In fact, dare I say, they probably contain more programming hours than design hours.

Suffice to say there are very few digital experiences of the richness that people expect these days, that can be built without significant software development capabilities, and that goes for Microsoft Surface too.

Microsoft Surface carries the extra burden of not only having slightly less mature tools than industry mainstay Adobe Flash, but more importantly having a much smaller experience pool, particularly in the crucial “devigner” niche. And as with any new technology, the early days often mean higher costs and higher risks.

So, creating a quality Surface experience means building software. But what do you get for your money? Well it could easily cost you $6000 per man week, and even after many weeks development the chances are you won’t get that award winning experience you were hoping for. My guess is that most commercial Surface applications you see being touted cost in the region of $300,000. Definitely in the hundreds of thousands. Let your imagination go wild and you could easily spend half a million.

The next most obvious thing is: Penetration.

Unlike building a user experience for the web, prospective clients will be footing the bill for each and every device that will end up in front of users. If you are going to pay a hefty sum for bespoke software development you sure as hell want to leverage that investment by deploying it to the maximum number of locations.

You can keep the costs low by only having a tiny number of tables (and maybe even spin that to your boss by claiming the experience would then be truly unique/exclusive!), but ultimately you are talking about investing in a piece of custom-written software that will only ever be seen by a tiny audience. Yes, that might be tenable for a small number of luxury brands, but for the majority who actually need to justify there expenditure? I think not.

So, to get “good value” from your investment in a Surface experience you need to also purchase a reasonably large number of tables. I would say at least in the tens if not hundreds (e.g. retail locations). There’s $500,000 right there.

Lastly: Cost/benefit.

At the end of the day, clients have to estimate how much a Surface experience is going to be worth to them. It’s obvious that many applications of Surface can be categorized as marketing in some sense; whether its experiential branding, attractive gimmick, or 9 o’clock news hype.

I can only imagine it’s very hard to estimate the financial benefits such a Surface experience will bring, because in the majority of cases it’s going to be an indirect effect at best. And such financial benefits are almost certainly going to be impossible to determine a-priori.

Which is also the case if Surface is used as Point-of-Sale platform – it’s all pretty much undiscovered country. With such little data on natural user interfaces, not to mention Surface specifically, it’s very hard at this stage to make confident guesses about how conversion rates or stickiness can be improved. The only way to find out for sure is by putting down the cash. And that’s a risk many firms can’t or wont take.

4 thoughts on “The Economics of Microsoft Surface

  1. Jack

    Yes, the issue still remains with Surface. Microsoft is terrible when it comes to market a product, comparing with Apple.

    What they should do is to come out different form factors for Surface. Get rid of the PCs inside surface and just sell the screen with different sizes to connect to XBox, Window PCs, tablets and even Window phones. Such a screen can be used as regular TV but once it’s connected with Window devices, it becomes Surface. Sell the screen cheap and encourage developers to create apps for it by having an Surface app store.

  2. Jack Post author

    I agree, MS is pretty useless at hardware platforms (Xbox excepted).

    The Surface API is already available for normal Windows PCs, so over time I expect it to unify/merge with the standard Windows API (Windows 8?). At which point they are in the position to just sell the tech (touch screens or licenses). Leave it to other companies to productize them into suitable form factors. In fact the Samsung deal already hints this is the way they are moving.

  3. Dalton Sharp

    Microsoft Surface carries the extra burden of not only having slightly less mature tools than industry mainstay Adobe Flash, but more importantly having a much smaller experience pool, particularly in the crucial “devigner” niche. And as with any new technology, the early days often mean higher costs and higher risks.

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