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Can Microsoft Corporation (MSFT) Save the Surface?

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Microsoft Corporation (NASDAQ:MSFT)‘s Surface tablet was released last October . It is the first attempt to bring Windows to a mobile device designed and engineered by the company itself. After being on the market for about a year, however, the tablet’s sales numbers have not been good. Yet, it seems that Microsoft Corporation (NASDAQ:MSFT) should try to at least salvage the Surface. It’s not yet a lost cause, and could still prove that Microsoft Corporation (NASDAQ:MSFT) can compete in consumer products.

Microsoft Corporation (NASDAQ:MSFT)

How can it do this? Microsoft Corporation (NASDAQ:MSFT) needs to think outside the box. No device is worthwhile without great software. In today’s mobile device marketplace, it takes products that capture the attention of third-party developers who create apps that users want.

Dismal numbers
Microsoft Corporation (NASDAQ:MSFT) has reported bad financial numbers for the Surface. The company says it took a $900 million operating income loss on the tablet . It also reported a net income loss of $596 million on the Surface . Horrible numbers, but when you also add in the fact that Microsoft Corporation (NASDAQ:MSFT) has had to increase its cost of revenues in the Windows division, the situation looks even worse.

The company reported in its past fiscal year that is cost of revenue in the division increased $1.8 billion . A sales and marketing increase of $1 billion to market the Surface and Windows 8 contributed to a 34% increase of the unit’s spending in that category . It’s no wonder, then, that the Windows division saw a drop in operating income by 18%, from $11.5 billion to $9.5 billion last year.

Lack of developer interest
When Apple Inc. (NASDAQ:AAPL) first released the iPhone, it did not have a developer ecosystem for third-party applications. Yet it didn’t take long for the company to realize that it was software from independent developers that would make its mobile devices big. Within one week of the App Store’s launch in July 2008, users had already downloaded 10 million apps . This is where Microsoft is dealing with a big problem: Developers just don’t want to create applications for the Windows Store.

Despite Apple Inc. (NASDAQ:AAPL) taking a pricey 30% cut of all app purchases in the App Store , developers are all-in on iOS. Apple Inc. (NASDAQ:AAPL) does not individually break out the App Store’s revenue, but the category which encompasses it, “other music related products and services,” grew 35% in 2012, to $8 billion . It also helps that the iPad and related products/services increased 59% for 2012, to $32 billion in revenue.

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