The world No.2 and winner of 22 grand slam singles titles lost her second-round match to fellow American Madison Brengle 6-4 6-7 (3-7) 6-4.
She struggled with the windy conditions in Auckland on Wednesday, producing a host of unforced errors - 88 according to one count - against a dogged opponent who kept returning the ball.
Williams saved three match points, but then double-faulted to hand world No.72 Brengle a huge victory after two hours and 13 minutes on court.
"You really have to go back to the drawing board, because it's quite frankly unprofessional," she said.
She added: "Eighty-eight is way too many unforced errors.
"You can't expect to win hitting that many errors."
She said she "abhorred" the conditions, which were "just way too much for me", but also acknowledged that Brengle had had to put up with them as well.
"I can take solace in the fact the conditions won't be like this in Melbourne (for the Australian Open)," said Williams after just her second match in four months.
"This is almost not a great opportunity to assess your game, to be honest."
Williams had conceded just one game in the pair's previous meeting in Madrid in 2015.
It had looked plain sailing again as she raced out to a 4-1 lead, but Brengle broke back twice to go one set up.
Brengle then went a break up in the second set, but Williams broke back and then levelled in the tiebreak.
The third set went to serve, until Williams produced her fourth double fault of the match to go with her nine aces.
Brengle, 26, agreed that being consistent was the key.
"I just played for every point," she said.
"I definitely tried to be (consistent), and I tried to use the slice and hit as many balls as a I could."
In the quarter-finals, she will meet seventh-seeded Latvian Jelena Ostapenko, who beat Crotia's Mirjana Lucic-Baroni 6-2 7-6 (7-3).
Williams' loss meant the tournament lost its two big drawcards in the space of a few hours.
Earlier, British No. 3 Naomi Broady got her 2017 season off to the best possible start as she breezed into the second round of the ASB Classic in Auckland.
The world No. 90 continously showed her battling spirit to see off her higher-ranked opponent Danka Kovinic 7-6, (7/5) 6-3 and ensure she remains in the top 100.
Broady reached the quarter-final of this tournament last year but looked up against it early on against the world No. 70 as she was broken twice to trail the first set 5-2.
But she found her groove and rattled off four successive games to send the set to a tie-break, where she again wiped out a deficit, winning five successive points to claim it 7/5.
The second set followed a similar patter as an early break for Kovinic saw her take a 3-0 lead but Broady's response was even better as she won the next six games to get the job done in straights.