The Biggest Flops in Microsoft's History

By Markets Fool.com

Microsoft's Zune is on the list. Image source: Flickr user Robert Nelson.

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Every successful company has a few products it would rather forget. Many remember New Coke, McDonald's Mighty Wings, Crystal Pepsi, Harley-Davidson cologne, Apple's Newton, and Ford'sEdsel were among a few products that flopped while the companies went on to huge successes.

For Microsoft (NASDAQ: MSFT), the company under former CEO Steve Ballmer has been characterized as the "lost decade" when the company missed out on the shift to mobile. It makes sense, then, that many of the failures I'll explore here occurred on his watch. Here are Microsoft's five biggest flops.

Surface RT

Microsoft's Surface tablets have been a recent success. In fact, the Surface has been so effective as a brand that the company has extended the name to laptops, with the Surface Book, and desktops, with the recently unveiled Surface Studio. Excluding Microsoft's Xbox, Microsoft's Surface line may be the company's first true hardware success.

It's hard to imagine now, but the Surface tablet played a role in the departure of longtime CEO Steve Ballmer.

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The company's new Surface line (Surface Studio pictured) has been hardware success. Image source: Microsoft.

During the initial rollout, Ballmer and Windows President Steven Sinofsky enthusiastically sold the Surface Pro. Unfortunately, the company introduced the lower-priced Surface RT as well. The RT version, although cheaper, never caught on with shoppers. The biggest issue was that the unit ran on ARM processors and wasn't backwards capable with Windows apps. The RT app store was very limited and led to a poor consumer experience. In a little over a year, both Sinofsky and Ballmer were gone and the company declared a $900 million writedown, primarily because of Surface RT sales.

Windows Vista

While many of Microsoft's flops came from when the company moved outside its competency of software, there have been more than a few times when Microsoft released substandard versions of its Windows OS. Many remember Windows 8 and the disappearing (then reappearing) Start button, or the crash-prone Windows ME the company replaced within a year. However, none of them were quite as bad as Windows Vista, which ended with a dismissed class action lawsuit.

Released in early 2007, Windows Vista had as its primary goal to upgrade the operating system's security. Well, Microsoft overcorrected on the security front. Vista's prime criticism was that the company's prompt-prone user-access control function was an extreme annoyance.

Additionally, the rollout was extremely problematic, with ominous hardware and licensing requirements affecting a large portion of users. Later, Microsoft received a black eye when leaked emails from company execs surfaced in the class action lawsuit, revealing that the company lowered the requirements for incompatible Intel chips to help its primary chipmaker make quarterly earnings estimates.

Zune

Perhaps the failure of Ballmer could best be encapsulated by the company's Zune. Microsoft launched its first-gen Zune device in 2006, a full half-decade after Apple released its iPod. After poor reception for the device, Microsoft released its last version, the Zune HD, in late 2009. The company discontinued its support for Zune devices in 2015.

The failure of Zune was not simply hardware related. By its release, Apple had become the de facto gatekeeper for digital downloads, a distinction the company owns to this day. However, the iPod provided Cupertino the prototype for mobile dominance, as the company was, unbeknownst to Microsoft, heavily at work on the iPhone.

Microsoft Phone

If Zune represented a falling behind of Microsoft's mobile fortunes, Windows Phone has cemented Microsoft's mobile fortunes. Originally, the company decided to work with hardware partners, much as it does with its Microsoft OS, and merely provide the ecosystem. However, after a poor response from most hardware partners, Ballmer's Microsoft purchased the only strong ally by buying Nokia's phone business for $7.2 billion in 2014.

Image source: Microsoft.

Last year, Microsoft announced its plans to cut 7,800 jobs in the division and write down roughly $7.6 billion owing to its Nokia business. Additionally, the company sold the feature (non-smart) phone business to Chinese assembler Foxconn for $350 million. While the rumored high-end Surface smartphone keeps getting bandied about, but never confirmed, it's safe to say Microsoft's foray into smartphones is a costly bust thus far.

Adding insult to injury, Ballmer initially reacted about the iPhone's release with a laughing shrug.

aQuantive

In an attempt to compete with Google in the digital advertising space, Microsoft paid $6.3 billion to buy display-ad company aQuantive. Microsoft seemed quite assured of the company's value by inking the deal with an 85% acquisition premium and by consummating the offer in cash.

After five years and $10.4 billion in ongoing online services losses, Microsoft took a $6.2 billion write-off on the acquisition. Many reasons were blamed for the failure -- Microsoft's insistence that aQuantive move into search to augment its Bing search engine, a culture-clash between the two companies, and brain drain among aQuantive staff hurting innovation -- but in the end, Microsoft lost out on the search and display business to its nimbler competitor.

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Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Ford. The Motley Fool owns shares of Microsoft and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.