Microsoft disappoints with Surface price and misses bigger opportunity

A few weeks ago, I urged Microsoft to shake up the tablet market by selling Surface at a radically low price: $150 or less. Crazy? Perhaps. But I wasn’t alone. Vivek Wadhwa made a similar argument here.

So it was disappointing today to see the company announce the starting price of $499. Sure, it puts it in range with Apple’s iPad. But it feels timid. It feels like a price that says: What’s the lowest we can go to match Apple? Microsoft seems to be betting that it will win on features when consumers compare the iPad to the Surface side by side.

Which they won’t. Beyond that, a growing number of folks are locked into the Apple ecosystem. People like me who have an iPhone, iPad, MacBook, and Apple TV.

Why would I insert a non-Apple device into that system? Saying it has slightly more memory, or the ability to run Flash is not going to be persuasive for most consumers. They’re going to look at similar price points, see all their friends have iPad, and go in that direction, too. Logic is often pitted against emotion when it comes to consumer behavior.

And that has allowed Apple to maintain a 68 percent share of the tablet market.  A number Apple claims has gone up from 62 percent even as more tablets have entered the market.

The reason I called for the radically low price hearkened back to Hewlett-Packard’s TouchPad. When HP decided to have a fire sale, it priced them at $99. And as I noted before, they suddenly flew off the shelves.

Amazon has also taken this to heart, pricing the Kindle Fire at $199. Reportedly the company has been willing to lose money on the device but make that up through sales of books and other digital media.

Microsoft needed a similar line of attack. Get Surface into as many hands as possible. Get developers excited about the Windows 8 platform.

Because don’t forget, this month Microsoft isn’t just introducing Surface. It’s launching Windows 8 for desktop and laptops. And soon we’ll have Windows 8 phones. That’s a lot of new stuff for consumers to absorb. Microsoft ought to think about what it’s going to cost for a consumer to overhaul their whole ecosystem of gadgets.

At the announced price, I’m guessing that Microsoft is hoping that IT managers will be persuaded to give it a look, which then might be the road into consumers’ hearts. There are enough IT managers out there who still don’t like the iPad as a workplace tool, but are getting heat from employees who want to bring in the iPad and iPhone. They might see Surface as a better productivity tool, and a way to get employees off their backs by giving them some kind of tablet.

But that’s a stretch. Those big corporate buying cycles are long. And Microsoft would still need to make the case that the Surface is a necessary productivity tool when that IT manager could buy their employee a laptop for a price in the same range.

Now, when Apple released the first iPhone, they also famously made a quick course correction by dropping the price $200 just a couple of months later. So, Microsoft could still try this option as the holiday season kicks in if the Surface doesn’t fly off the shelves.

But if Surface gets off to a slow start, Microsoft is going to have a tough time escaping a quick judgment that it’s failed in this critical market.