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.

 

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  • http://www.ddmcd.com Dennis D. McDonald (@ddmcd)

    The trick will be to get the devices into Federal agency hands — their buying cycles are long but we’re talking thousands of tablets, and MS will deal on the price.

    • Tim

      Chris is totally right.

      Zune: priced to make a profit but competed head-to-head with iPod. Result: failure.

      XBox: priced initially to lose money but undercut the competition. Result: success.

      MS needs to be willing to lose money on this thing for a while and make it back later when they own the market. Will they never learn from their own failures and successes?

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  • http://www.shoutmeloud.com Harsh Agrawal

    I agree with you completely here Chris…
    With this price tag, Mircosoft will not only be competing with Apple but also with Samsung as they also captured the fair amount of Tablet market.
    More over, Microsoft Windows 8 is still something which needs to woo the consumer and taking a bet here with Windows 8 tablet launch, I hope MS have a plan in hand….

  • Danny

    What do I think? I think you’re a fanboi that’s lost himself in the pasture with plenty of other sheep.

  • Eli Medina

    I stopped reading at Logic because you obviously used none when deciding to go for Apple’s marketing and ghost features. Not everyone has all Apple products. I work in IT and the only Apple product I had was an Ipod which one day turned off and never turned back on.

    What you are saying is “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.”

    Can you name a number of them anyway? Schools will all plan to go into the digital interactive books route. Consumers will want cloud and compatible standardized systems which you can jump from one to another.

    Everyday I hear how the IPad is so amazing and magical, yet IT departments have to go through hoops just to transfer files into the darn things.

    Apple is garden and will always be a garden for a certain number of people which luckily is a large number of them, but Microsoft will always be progressive and offer features that are standard.

    Sure Microsoft was a bit lat eon the tablet market, but hell finally we will have a full PC on a thin usable slab. If you don’t buy IT and more tech savvy people will.

  • Kelly Murphy

    Why $150? Why not actually pay you to take it. Why not buy you a TV after they pay you to take it. Wait, oh yeah, MS is a business. They’re in It for the money. They have a device that’s superior to the iPad in every measurable way other than current adoption, and they are selling it for a comparable price. Wait for it, rumors have them as making over 5 million of the units ready, and they’ll sell them. For a fair price too.

  • John Galt

    Slightly more memory? Try double the memory.

  • soulshy

    I don’t think Microsoft was pricing themselves against Apple. I think they were competing against themselves and the PC. And if its the ecosystem that IT managers consider, much of the world is still a Microsoft embedded place through its enterprise services like Exchange, AD, and whatnot.

  • Junior

    You mentioned you have apple everything.Just wanted to ask why don’t apple lovers look beyond the iphone,apple tvs,imac,ect.Mainly any device out now at days can do everything those do for cheaper.Plus when you go apple you basically have to stay apple.They restrict you of many things if its not apple ,its not compatible.To top it all off people get fooled into buying technology for twice as much as its worth, just because its apple.Sorry if i sound rude but thats pretty damn stupid to me.Go figure

  • http://only-buy-american.com Chrissy C

    MS is a great software company, but man they sure lose it on everything else. I just don’t understand them.

  • anon-e mouse

    I think you and others may be looking at the price as if it were apple to apples with an ipad, which the surface tablet is not. i’m an ipad user and longtime apple supporter / shareholder, and have complained about how terrible msft is for years with my i.t. department.. i’ll gladly buy a surface for $500. it does everything the ipad does not. For starters, it’s a real alternative to a laptop. You can work on it, not just websurf (which kinda sucks on the iPad also).

    you may be surprised how well it does at this price.

  • Bill

    I think this article misses a VERY important point in favor of the Surface: you can actually do work on it. I could never type anything of importance on glass. Built-in USB 2.0 + HDMI to boot. Businesses are going to outfit their workforce with these en masse, assuming Windows 8 isn’t a problem on the tablet.

  • james

    I think selling a crap device at 1/3 the price would just reinforce the association between msft and cheaply made products. Matching the price of Apple was the way to go. They are going to have to win the market with innovation, because they don’t have the economy of scale advantage in this market.

  • Pingback: Microsoft Sets Surface Tablet Pricing at $499 – eWeek | Blogburger

  • Wordy Sanchez

    You’re aren’t terribly far off the mark with your idea, and its one I shared as well, but there are a few considerations that need to be made as well.

    First, I agree in principle (although I’d put it @ 199 without accessories) as MSFT is flush with cash to absorb this strategy and it worked well with Xbox.

    That said, there *IS* that pesky detail of OEM relationships to maintain. The Surface is a desperately needed shot across the bow of the “race-to-the-bottom” OEMs that sell the cheapest junk hardware possible, which sullies the name of the OS riding on top of it in the process. The Surface is to say what is possible.. that its not the OS holding back your experience as a Windows customer. That’s the idea anyway.

    But reality is… if its sold @ $99… regardless whether MSFT has the cash to do it, just who is going to buy a Lenovo tab? Or a Sony? All OEMs would suffer, and the *REAL* point of all of this is to cement Windows 8 as a mobile platform in the market place. You can’t do it with just one device made in-house… much to my dismay.

    To give away Surface would in fact undercut the better-made oem devices in the marketplace. There isn’t enough feature differentiation to justify spending an extra 400-600. For… an extra port or two?

    Cheaper pricing much as I want to see it happen, will undercut the OEMs who don’t scrape the bottom of the barrel (*cough* acer *cough*).

    Now what I WOULD like to see is the pricing WITHOUT accessories, and with a $50 material drop.

    So 499 – 50 – 120 = $329 … a mighty enticing price.

    Its a perfectly awesome device without the uber-keyboard. People are going to buy one anyway. But this way you can show a more palatable price in the media. And there’s the bonus of when I *DO* buy that keyboard I get the colour I want. If it comes with a white or black kb and I have to buy a blue one separately… what am I going to do with two kbs?

    Anyway, my thoughts as an interested party.

  • Harold Crumit

    There is an incorrect word in the 3rd from last paragraph. It should read “…IT manager could buy…” rather than “but”.

    • http://www.siliconbeat.com Chris O’Brien

      thanks, will fix.

  • Ole

    I stopped reading after this line: “People like me who have an iPhone, iPad, MacBook, and Apple TV.”
    That is exactly why you should try to get other devices in your house.
    Do you want to be in the Apples pocket for the rest of your life?

  • http://silconbeat CJ Will

    There’s another tablet manufacturer emerging with performance-value Android tablets with some great features – Ainol Electronics — with one model introduced this month, the Novo Hero – a 10 Inch tablet priced at $219 at a site called TabletSprint – with a 1280×800 High Resolution screen, 2nd Gen Dual Core CPU, an HDMI connection to your TV with Full 1080p (HD) Viewing – great for Movie Downloads through Blockbuster as well as your viewing your own videos shot using the tablet’s video recorder – with a 5 megapixel Rear Camera with AF & Flash, and a 2 MP webcam; plus Wifi, Bluetooth, GPS, a MicroSD Memory Card slot and a Micro-USB port — Plus an option for 3G — by far the most complete budget tablet available under $350 and worth looking at and comparing, especially for the price… Ainol Electronics won runner-up in CES / CNET 2012 “Best Tablet of the Year” Award — And this new tablet certainly gives the competition some stride. In December, Ainol tops that with a 10″ Quad Core version with a 1920×1200 Liquid Crystal display (like Apple’s Retina screen) for $265, and they also have a 7″ tablet for $189 that’s better than the new Nexus 7 — also available at the site – TabletSprint

  • http://www.siliconbeat.com Chris O’Brien

    Yes, I knew the Apple thing would get me labled an Apple fanboy. I hear yeah. I’ll just note, for the record, that yesterday I gushed about the Samsung Galaxy S3. If I had not just bought the iPhone 5, I’d probably switch. So, I’m stubborn, but not closed-minded..

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  • Dave

    My son was all set to buy a surface tablet at 299 or 399. 499 is too much for a tablet with a weak app store. I’m sure he’s going to be asking for the IPAD mini now…..too bad Microsoft, ya missed the boat

  • http://www.wadhwa.com Vivek Wadhwa

    Microsoft has a special way of snatching defeat from the jaws of victory! If it had priced Win 8 for tablets at zero, and practically given away the hardware, it could have earned money by selling subscriptions to its enterprise class products.

    But instead, it is obsessed with maximizing up front revenue–the way it did during its monopolistic hey days. They don’t realize the party’s over. There will be billions of low-end devices that run Android and that use its Google apps instead.

  • Suhail

    “Why would I insert a non-Apple device into that system?”
    So even if the price was lower, you wouldn’t buy the Surface?

    While I agree that they should have kept the price low, they simply can’t sell a great tablet for just $150. It’s way too low. Looks like you have no idea of the loss it will cause. I think $299 or $349 would have been a nice price.

  • Pingback: After Surface launch, Microsoft becomes ‘frenemy’ to PC manufacturing partners – NDTV | GAMERSSPIN

 
 
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