Microsoft Surface tablets: High-end hardware but better be cheap

Microsoft Surface tablets: High-end hardware but better be cheap

Summary: Microsoft is shaking up the PC world with the revolutionary new Windows 8 and the high-end Surface tablets. While having a good OS and good hardware is important, the devil is in the pricing.

SHARE:
57

JK eb-surface-three-in-line
The Microsoft secret event that unveiled the new company-branded tablets sent a wake-up call to the PC industry. The folks in Redmond were no longer happy to let OEMs release me-too PCs to showcase the revolutionary new Windows 8. Microsoft is making a statement that it is in it to win it, but it may run into the same hardware pricing quandary its partners have faced for years.

Microsoft knows that Windows 8 is going to fly off the shelf in good numbers. Every desktop, all-in-one system, laptop, and now tablet sold by its partners will have Windows 8 or Windows RT preinstalled once the OS is released. Millions of systems sold = millions of Windows 8 licenses sold, the formula Microsoft has found successful for years.

Entering the low-margin PC business is a whole new venture, and the economics are the devil in the details. Microsoft's partners don't load up systems with crapware that customers hate because they like to do it, it can be the difference in no margin and low margin with the revenue it adds to the PC sale price.

Profit margins in PCs, desktops and laptops, are horribly low for products that require so much engineering. They are not cheap to design and bring to market, and once at market they walk a fine line between losing and making money. It's a cut-throat business, and one Microsoft has just jumped into with both feet.

Early indications are that Microsoft intends to side-step the thin-margin PC business with its two high-end Surface tablets. They are beautifully designed and engineered, and Microsoft believes they bring a lot to both the consumer space and the enterprise with the two versions (Windows 8 Pro and Windows RT).

How the Surface tablets are priced at launch will play a major role in how well they are received by consumers and the enterprise. Microsoft is keeping mum on what that pricing may be, other than the statements that they would be competitive with the iPad and Ultrabooks.

The speculation naturally rests on a pricing for the Windows RT Surface tablet, or consumer version, of around $500 since that's the entry point pricing for the iPad. The pricing of the Windows 8 Pro Surface tablet would be around $1,000 which is the ballpark pricing for Ultrabooks.

If that is the price range for the two Surface tablets when launched later this year, Microsoft may find itself in a whole world of hurt. The iPad is dominating the consumer tablet space so thoroughly that pricing the Surface the same or even higher would probably not make a dent in the tablet market. The Windows brand is not a premium many consumers are willing to pay extra for, and that will be especially true in the tablet space.

The iPad is also making inroads into the corporation, so a $1,000 Microsoft Surface tablet is sheer lunacy. Innovative keyboard case or not, neither the enterprise nor cost-conscious consumer is going to be willing to shell out that much money for a tablet.

Microsoft will surely market the Pro tablet as a laptop or Ultrabook replacement, but that's not going to fly if the tablet is in the same price range. Laptops are familiar to buyers and will be viewed as offering more hardware than the tablet/keyboard combo. That means the latter better be priced much less than popular Ultrabooks or Microsoft may be eating a lot of crow.

Related:

Topics: Mobile OS, Microsoft, Tablets

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

57 comments
Log in or register to join the discussion
  • Microsoft Surface tablets: High-end hardware but better be cheap

    It will be priced competitively. If people are willing to pay $829 for an iPad they will be willing to pay the same for a Microsoft Surface which has more capabilities. When you look at it that way its a bargain to pick up a Surface. Any price points cheaper than that you can think of as being a bonus to owning a Surface. We will have to wait and see for the real numbers, not speculation.
    Loverock Davidson-
    • Microsoft should use a strategy that works...

      While the Surface tablets will have more capabilities than the iPad, the reality is that iPad has all of the momentum, all of the buzz, and all of the "status." And that's why Microsoft should use the Xbox strategy--offer consumers an offer they can't refuse.

      They've tried making the "competitive pricing" strategy with Zune & Windows Phone 7, and both failed. Once they were considered "flops" by consumers, it didn't really matter how much Microsoft lowered the price, very few consumers wanted them.

      The first impression is the most important, and Microsoft needs to really undercut the iPad with the Surface RTs. That will cause them to fly off the shelves... just like the Kindle Fire & WebOS tablets after they were discounted. Price will make them a "must-have" gadget... which will make them more successful out of the gate... which will generate buzz, build momentum, and launch the product into the future. This is the strategy that worked for Xbox, and it is the same strategy that should be used for the Surface RTs.

      Microsoft can always raise the price later... AFTER Windows 8 & the Surface tablets have established themselves. They can also charge more for the Surface Pros, since those are targeted at the enterprise.

      If Microsoft tries to sell the Surface RTs for a similar price as the iPad, they will flop. The launch will be botched. And that will be the end of Surface RT.

      They need to get this right... the first time.
      metromalenyc
      • Microsoft must deliver a mortal wound...

        Microsoft needs to prove that the iPad isn't invincible... that it can be challenged.

        They need to come out of the gate like no one else can--with the full force of a giant. Advertising won't be enough.

        It must be about price. If the Surface RT is half the price of an iPad, than a parent might decide, "You know, instead of buying Timmy an iPad, I can but two Surfaces--one for Timmy & one for his sister." Right there, that's two sales that Apple lost.

        Once people start seeing other people with Surfaces, that will create buzz and good word-of-mouth... and momentum. I can't stress this enough, Microsoft needs to get this right. We're still in a very weak economy. Consumers want value. They want low prices.
        metromalenyc
        • The Giant Runt

          What is this, "out of the gate like no one else can... full force of a giant" nonsense? That is so last century. Microsoft is less than half the size of Apple, and less than half the size of Samsung. Some giant.

          The last thing any company needs to do is start a price war with two competitors twice their size.
          Robert Hahn
          • Where are you getting your information?

            Microsoft is about 45% the size of Apple, and is about 75% larger than Samsung. Microsoft can beat out Samsung so easily considering Samsung is using Microsoft software on their hardware.
            buhhy
          • News you can use

            Samsung just announced results for 2Q12: revenues of $41 billion for the three months ending in June. On April 19 Microsoft announced quarterly revenue of $17 billion.
            Robert Hahn
          • LOOL

            I dont expect you to know this but the technology on samsung phones and devices is all microsoft so a bit of a fail there on youre part :p.

            http://online.wsj.com/article/SB10001424052970204226204576598661866214854.html
            THIS SAYS :Samsung, the world's No. 2 maker of cellphones after Nokia Corp., NOK -4.95% already makes WINDOWS-BASED smartphones

            U REALLY DONT THINK ABOUT URE STATEMENTS LOOL
            oliver o
          • revenue isn't size

            size of company is revenue? weird. In context they are talking about roll out. Isn't more of a supply chain conversation vs. revenue? Also, MSFT owns 90 percent of the PC market. Only they can roll out new PC software like they do. These tablets despite apples excuses that theirs are NOT pcs are in fact PCs. :) MSFT has one of the most best supply chain setups on earth. :) Just a thought.
            mydasx
          • You're comment

            You must be mad to think that Microsoft is half the size of apple when Bill Gates the microsoft owner earns over £150 per second and Apple owner £170 per second and Microsoft have been around and popular for a lot longer than apple. Actually in fact Microsoft is worth $219 Billion and Apple is worth $220 billion (doesn't seem half to me). So don't say something like "microsoft isn't half the size of apple " when there very very close behind and actually coming back as apple share prices fell recently.

            :o
            oliver o
    • How about this.

      If Apple can blind customers, why not Microsoft.
      abiddine
      • because

        Jobs had a reality distortion field surrounding himself, and it's still lingering around Apple. MSFT never had anything close.

        MSFT will also have the problem of competing against its OEMs. A Surface RT against, say, a Samsung Windows RT tablet will be a choice just between different hardware. If the hardware is very similar, could MSFT charge a lot more than Samsung? Unlikely.
        hrlngrv 
      • *

        BECAUSE THEY CAN
        oliver o
    • Keep Price where margins are good

      This is essentially hopefully to be the "flagship" tablet and as such I think MS should price in accordance with their costs and make sure make a good margin of profit. There will be other rt and intel tablets out there that can take up the rear (or even the front). But it has to be good/great. It looks great now. There is no reason to race to the bottom in this release-why even enter it and do all the research and engineering and race to the bottom. It does not have to come out of the gate as the iPad killer. Nothing can do that no matter how great it is. What it has to achieve is traction among MS fans that want something better than they have been offered in the past from lackluster designs from OEMs, and capture those that just do not want an Apple or Android base product. This is essentially, or should be the Lexus of the line. If it gains traction, there will be plenty of lower priced more economical models that follow. A Barnes and Noble Wook for example would be the play for the low end.
      brickengraver
    • For me the real question isn't price

      Surface/Windows 8 is a very interesting looking product. To me the real question in my mind is the key boards longevity, regardless of any price point. Is the key board designed for casual use or for use in a productively situation. Think about it, have you ever herd of a laptops key board failing from years of extended use? I haven't

      If a person is going to venture into the Windows 8 world he/she isn't going to want to have to worry about how long the key board will last or fail to operate for any reason. We all can talk about how long it will last, but till you put it into the hands of a consumer you really won't know if the product was worth the price you paid for it.

      Say what you want about OEM, but anything a OEM put out there is going to last as he sure doesn't want to see loads of returns. The key board could be the Achilles heel of Surface ..... only time will tell
      Over and Out
    • Get the facts

      Fact: The new iPad pricing starts at $499. Not all people need the $829 model with 64GB and both Wi-Fi + Cellular.
      Liverack Dovidson
  • So only Apple should charge high prices ...

    ... and everyone else should fight for scraps? This is the implied refrain from so many Zdnet bloggers. Actually MS should do the opposite of what you advise, and demonstrate with Surface, that it is possible for OEMs to produce quality PC systems, and obtain higher margins.
    P. Douglas
    • This is the bed mad e by MS and it's OEM partners so I would think to

      expect them to sleep in said bed is hardly out of line. ON the other hand MS could do an XBox which is the better known product by MS had done XBox like moves for years say with MS Word a terrible product when it first came out but it was bundles with every PC sold and since people had it for free why purchase Word Perfect and the like? Sometimes it works....Sometimes it does not. It remains to be seen what MS will do but selling at a loss is certainly not out of the question.

      Pagan jim
      James Quinn
      • It is always good to hear ...

        ... MS detractors giving sound advice to the ecosystem. PCs are crap and will always be crap, so you guys should only charge crappy prices for your stuff.
        P. Douglas
      • It is always good to hear ...

        ... MS detractors giving sound advice to the ecosystem. PCs are crap and will always be crap, so you guys should only charge crappy prices for your stuff.
        P. Douglas
      • It is always good to hear ...

        ... MS detractors giving sound advice to the ecosystem. PCs are crap and will always be crap, so you guys should only charge crappy prices for your stuff.
        P. Douglas