Microsoft (NASDAQ:MSFT) has been hammered over the past two weeks because sales of Windows 8 and Microsoft Surface were lower than expected. Yes, the Microsoft Surface RT was a disappointment, and with a $900 million write-,down the device took a big dent out of earnings last quarter, but was the device really a disappointment?
Breaking into the tablet business
One of the biggest goals of the Microsoft Surface was to demonstrate Windows 8's usability on tablets. Up until Windows 8 was released, it was basically a two-man game between Apple (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOGL) Android. In the second quarter of last year, the two companies accounted for 98.6% of tablet market share.
Over the past year, Microsoft has demonstrated the ability to run a mobile operating system, and the Surface helped encourage other manufacturers to use the operating system in their products. According to Strategy Analytics, that has led to a market share increase from 0.5% of the tablet market a year ago to 4.5% in the second quarter of this year. Microsoft isn't a huge player in tablets yet, but it's making inroads that once seemed impossible.
The sacrificial lamb
Microsoft isn't known as a hardware company, and its only real success making physical goods is the Xbox. So, putting high expectations on the Surface, especially the Surface RT, was a bit unfair by investors. The company is learning how to make devices and was really encouraging others to use Windows 8, so the Surface RT can be looked at as a sacrificial device in a lot of ways.
What's more important is that Microsoft continues to gain share against Apple and Google. As Hewlett-Packard, Dell, Asus, and others make more and more compelling devices with Windows 8, the company will take more share and become a bigger player in the tablet space.
Microsoft doesn't need to create a dominant tablet device itself; it just needs to demonstrate that tablets running Windows are possible. Surface did that, even if it wasn't a financial success for Microsoft. Long-term, I think investors should be judging Microsoft's ability to gain mobile operating system market share, not just whether a single device is a success. That's always been Microsoft's bread and butter.
Fool contributor Travis Hoium manages an account that owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google and owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.