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Surface RT: A plan worthy of the South Park Underpants Gnomes

(1) Acquire a heap of pants tablets (2) ...? (3) Profit

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Opinion Business strategy at Sun Microsystems became a joke long before even the prospect of a mercy acquisition by Oracle was in the air.

If I’d heard one Sun executive try to convince me that hardware-dominated Sun was going to become a successful software and services player, I’d heard them all say it.

Tired of hearing the same old same old, other less generous hacks began to summarize Sun’s business plan as like the South Park Underpants Gnomes.

That plan went thusly: Phase one – collect underpants. Phase three - profit.

Phase two was a question mark.

Sun never could work out phase two so it continued to welter in red ink, Oracle stepped in, and the rest is history.

Covering Sun and Microsoft, it was refreshing just how sane things seemed at Redmond. While Sun’s business plans sprang from wishful thinking, Microsoft would run the slide rule over a new venture to spot the returns. So Microsoft developed and bought its way into databases, email, servers, security and web software.

The payoff was the kind of cash pile that meant, when Microsoft and Sun settled their Java law spat in 2004, Redmond could throw $1.6bn at a grateful Sun.

Nearly a decade after that, here we are at Surface RT.

On Thursday we learned Microsoft has written off nearly a billion dollars following a business decision based on little more than wishful thinking.

Microsoft’s people not only conceived the idea of building a tablet using a chipset – ARM - that the huge majority of existing Windows software could not work on, but they then grossly over-estimated how many of the Surface RT tablets running ARM the public would want to buy.

Somewhere inside Microsoft management or product planning, people went out of control over-ordering on parts for sales numbers that didn’t add up.

It must have been like the last days of Rome or the darkest days of Baghdad when the US flew in $12bn by plane and handed it out with few questions asked. It all made sense at the time. It was certainly obvious from the way Microsoft talked about Surface and favored gadget-friendly tech news sites on access and review copies it had determined Surface RT would be a success because ... Surface RT would be a success.

IT Writing’s Tim Anderson, writing convincingly, describes the atmosphere of disconnect from the real world on Surface RT inside Microsoft.

I was in New York for the launch of Surface RT. There were “Click In” ads everywhere and it was obvious that Microsoft had convinced itself that it could sell the device in large numbers immediately. That was a fantasy. I suppose that if consumers had taken Windows 8 to heart quickly (as opposed to resisting the changes it imposes) and if the app ecosystem had flourished quickly then it could have taken off but neither was likely.

How could it be, that a company could become so detached not just from reality but - worse - from its usual shrewd, calculating reserve?

The plan for Surface RT was written by the Underpants Gnomes.

Phase one: Apple is successful because it has a tablet, we build Windows tablets.

Phase Two: ?

Phase three: Profit.

But this was the strategy that had been tried by Hewlett-Packard and RIM, who also believed simply having a tablet was enough to cash in. They too ended up with piles of unsold slabs.

Having been burned by the seeming unstoppable success of Apple and Google in smart phones and tablets, Microsoft is now rebuilding its corporate structure.

The idea is to channel engineering teams and release spontaneous creative genius.

But moving the reporting lines isn’t really going to solve Microsoft’s problem. Microsoft’s problem is its culture and its leadership, and these are harder to change.

If there are two questions Microsoft now needs to ask itself, it’s these: where did the fantasy of Surface RT originate and how was the fantasy allowed to flourish, without anybody either a) noticing or b) applying the brakes?

It needs to ask these for all our sakes.

Why? Because when the Underpants Gnomes ran Sun, the company underperformed so badly it eventually became vulnerable to takeover by Oracle; Larry Ellison's company then purged the ranks and imposed a new and more calculating cultural model, geared towards ruthless success.

Unfortunately, Microsoft is no Sun weakling. It's far too strong financially to be bought by an outsider. This means there’ll be no purge and nobody, it seems, is going to get fired over Surface RT.

The Underpants Gnomes remain in charge.

And that’s a bad thing. It's bad for investors whose money is tied up in Redmond and an industry looking for a way out of the duopoly of Google and Apple on phones and smart phones, and Google's monopoly on search. The more time and money Microsoft wastes following blind fantasies and getting things like Surface RT wrong at the inception stage, then more power will remain in the hands of a technology few for even longer. ®

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