Microsoft's Surface pricing could be 'a fatal mistake,' says analyst

Microsoft's Surface pricing could be 'a fatal mistake,' says analyst

Summary: Microsoft's less than aggressive pricing of its Surface tablets "could prove to be a fatal mistake" and relegate it to be a niche player behind Apple, Google and Amazon, claims an industry analyst.

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Microsoft Surface tablet may need much more than just an innovative keyboard cover to save it, claims one analyst.

Sterne Agee analyst Shaw Wu believes that Microsoft hasn't been aggressive enough it its pricing of the Surface tablet, and that the $499 price tag for the base model is too high, and therefore "could prove to be a fatal mistake and relegate it to be a niche No. 4 or No. 5 player".

According to Wu, a price point of about $299, including the keyboard cover, would have been more compelling, giving it "a fighting chance in the highly competitive tablet market" as non-iPad buyers have shown themselves to be ultra price sensitive.

It also seems that Microsoft is playing things carefully. Wu's supply chain checks suggest Microsoft is planning to build some 2 to 3 million units in the December quarter, compared to Google's 5 to 6 million for the Nexus 7 and Amazon's 3 to 4 million for the Kindle Fire HD.

Wu estimates that Apple will sell some 22.3 million iPads in the same period, with the iPad mini raising that by between 3 to 4 million units.

One upside of this pricing noted by Wu is that is that it gives Microsoft's hardware partners breathing room to price their offerings more aggressively.

But it's not all good news for Microsoft's hardware partners, as Wu believes that even with its high price point, Surface will likely cannibalize tablet sales from players such as Dell, HP, and Lenovo.

The real winners according to Wu will be Google and Amazon, because both are willing to sacrifice profitability for market share. Search turned mobile giant Google, Wu notes, has "established leadership with Android and its apps ecosystem," while Amazon has a "strong track record in reselling digital media". This is the secret sauce that Wu sees Microsoft's Surface as not having.

Wu also has doubts about Microsoft's ability to combine hardware, software, and services and deliver the level of quality and seamless integration as Apple does, pointing out that Microsoft attempted to do the same with both the Zune media player and Kin smartphone, both of which "didn't turn out too well". Wu even goes on to point out that while the Xbox is seen as a success in terms of market share, "one could argue that on a financial basis, it has not done well given the billions in investments and losses it has incurred in the past decade".

Image source: Microsoft.

Topics: Tablets, Hardware, Microsoft, Windows

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154 comments
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  • It cannot be too aggressive b/c of OEM pressure

    They don't wanna upset OEMs too much.
    LBiege
    • MS survival depends on the Surface

      MS has stated its intent to transition to a device and services company. The success of Windows 8 depends greatly upon the users' experience with with W8 that OEMs are sure to screw up with crapware and low margin components. MS urgently needs to create a "device" experience that does not resemble buying an OEM PC and instead mimics the experience that Apple excels in creating when you open the box and turn on your Apple device.

      MS has had no qualms about strong arming the big OEMs in the past and I doubt that their ethics and tactics have changed much, if any. I was surprised by the price points and also feel that MS set the cost too high to stimulate wide spread enthusiasm for their entry into the device market.
      Splork
      • Be like Apple

        If the only way for Microsoft is to be like Apple... Then they already sink. Their corporate culture is simply not compatible with Apple's.

        Why not be themselves?
        danbi
      • That is exactly what we should expect ...

        ... from the Microsoft Surface tablet. We even see that in the pricing structure just announced by Microsoft.

        Microsoft cannot control what their OEMs do but they are clearly intending to sell the surface with few manufacturer's options - Just like Apple. It will be a user-friendly experience without regard to the experience level of the user.

        It will still be up to Windows OEMs to decide the rest but the Surface is a departure for Microsoft in that the Surface is a "reference standard" for others to follow (or enhance).
        M Wagner
        • or Fail!

          Surface moved from a 3.5 K device to a 3.5 H device and as such will fail.
          DontUseMicrosoftAtAll
    • Consider iPad's price

      with its useless iOS.

      With Windows RT (it is still Windows), ability to run Office, new interface and innovative hardware design, it is actually cheaper than I expected.

      It is only right and acknowledgeable that full Windows 8 tablet may be priced around or a little higher than an ultrabook with its added stylus support. WinRT Surface surely provides an option to take advantage of the metro interface, IE 10, new Office and other apps at a lower price, and that alone should justify its pricing when compared to a toy like iPad.
      Jae K Oh
      • Are you serious?

        Your post is so completely wrong that I don't know where to begin.
        iOS is useless? Clearly not for a whole lot of people.
        Windows RT is still Windows? No, it is NOT. It is an entirely new framework that is incompatible with win32. Can you take a current Windows desktop application and run it on a tablet? No? Then it's NOT 'still Windows'. The version of Office included is a rewrite that is missing large pieces of functionality of the regular Office suite.

        And the article is talking about the ARM-based tablets. If you want full blown Windows x86 compatability, you need to buy an x86 tablet, whose price point *starts* close to the $1000 mark.

        Surface is a very interesting offering, but the article is correct. Why should I buy a risky non-mainstream tablet that costs the same as the currently overwhelmingly popular tablet, but without the ecosystem of hardware accessories, applications, and support?
        iloving
        • Are you serious- iloving?

          The base model Srface has twice the storage as the same-price ipad. The Office 13 suite that's included is said to be full-featured, and I hope it truly is because all I use now is the Office 13 beta and I absolutely love it! I even uninstalled Word and Excel 2010 because I no longer wanted to use thos, since the new versions are far superior IMHO.
          xplorer1959
          • Office RT != Office 2013

            Wikipedia has a convenient summary. https://en.wikipedia.org/wiki/Office_2013

            Key features missing are Macros and compatibility with older formats. While this may not be important to many, it's dishonest to claim that Office RT is 'full featured' when there are are some major functionality gaps.
            iloving
          • iloving, Surface has twice the mem and SSD as iPad

            and the screen is much bigger at 10.6".
            So for the same price, you get twice as much RAM, twice as much SSD storage, a full size USB and a very nice keyboard cover....the ipad has been blown away esp. considering win8 RT is a much better OS than iOS. MSFT has always been much better at software than Apple and that's not changed.
            That is why Apple has licensed and begged MS to continue making software for the MAC over the years. The early to mid 80s Apple IIs came with AppleSoft basic burned onto a ROM chip. Who wrote that love version of BASIC. Microsoft of course. They have the most compelling appls for all of Apple's platforms as well.
            What has Apple done except ride the back of MSFT with iTunes for Windows, the only thing that made their devices sell in the quantities they have, obviously...well Apple has Quicktime and iTunes for Windows and they are horrible examples of software. They are huge security nightmares, as is Apple's OS and now that the legions that have targeted MS all these years, millions of bad guys working round the clock with government backing, we are seeing huge OS X botntes and Apple malware and problems and they've barely started to target it!! 95% of the bad guys are still gunning for the 1.3 billion Windows base and they have to use social engineering for the vast majority to harm a PC.
            OS X is riddled with holes and once they are targeted heavily, Apple will sink and the users will not have a clue what to do, except cry and drink more Apple Koolaid in hopes of making it all go away.
            xuniL_z
          • Get a clue xunil

            Apple isn't begging Microsoft to make anything for their computers. Are you high?

            Also, you have no way of knowing whether the surface I goo or not. You haven't used it. Saying that Windows RT is better than iOS is a huge error on your art. You've never used it. On top of that, Windows RT has an extremely small software library and is incompatible with x86 programs. As for saying it has twice this or that, I don't think it taters much until we see how we'll the software runs or how large the binaries are.
            liquidmark
          • Get a grip!

            Come on you children - let put the toys back in the pram and wait until the Surface has actually "surfaced" before we make wild comparisons!
            iain@...
          • liquidmark, we'll know soon...499.00 pre-sale already backordered...

            Yep and my mistake the 499.00 model does come with twice the RAM and SSD storage as the iPad at 499., but it doesn't include the cover. It's available seperately for 119.00.
            BUT the 499.00 pre-orders are already showing as backorder status. So at least we know there is demand and they are going to be rolling out in fairly large numbers.

            Now, I do know that MSFT has been very conservative in the number of intial machines ordered, I think it's 3 to 4 million, so that takes some of the edge off of it, but not a bad start regardless.

            Somebody needs to knock Apple off their perch, since all of the technology is begged borrowed or stolen. Unless someone wants to say which part of the OS is not based on existing software? BSD. Mach Kernel. GUI taken w/o permission from Xerox (i just don't know why they waited too long to file against Apple, they would have won easily and the Mac UI would have either had to be created by Apple LOL!! or stolen from some other unsuspecting inventor. Apple can get to the patent office quickly and are capable of tweaking stolen software enough to buy their way out of sticky situations.
            You know about the original OpenDarwin team, right? Apple and Steve Jobs convinced them to write code for GCD and add blocks to the C version Apple uses, in return for a fully functional OpenDarwin OS. As soon as Jobs got what he wanted from that team, he directed Apple to cease contact and they never shared another piece of code with the team. The team is well documented as quitting in disgust over being duped by Jobs.
            That is just one example of the kind of "talent" Jobs had and how Apple software was created.
            BOYCOTT APPLE!!
            xuniL_z
          • Two years later and Apple is still sitting on their perch

            Microsoft hasn't taken over the tablet market and the surface line of tablets were met with more yawns than anything else.

            Hmph. I was right again... Imagine that.
            liquidmark
          • get the office 365 if u want full office.... or u just hate ms???

            if some one want to use office on RT (full feature office)... use office 365....

            surface RT is good enough for regular windows user...
            truffle1234
          • Like editing equations written with equation editor 3.0? LOL!

            So I went to the article you posted. The differences are absolutely trivial... Thanks for the info.

            A fully functional version of Office included... Seems to me this is a great deal.
            bathswana
        • Windows 8 tablets will be significantly below $1000...

          According to Lenovo and press (see http://www.geek.com/articles/gadgets/lenovo-windows-8-tablet-gets-priced-at-799-20120924/ ), Windows 8 PRO tablets will be starting at $799 - pretty good for a quality product from a recognized manufacturer, that will run your x86 apps, and not become obsolete when the next version of 'droid is released. And with the MS Surface RT product, you will get a complete copy of MS Office Home and Student bundled in (2013 version once that is released).
          randysmith@...
          • Oooh nice!

            $800 for a full x86 tablet + keyboard + full Office 2013? Now THAT is very tempting indeed! Thx!
            iloving
          • LOL

            NeoOffice on my Mac has never failed me. Not ONE client has an issue with my documents, spreadsheets or presentations.

            And ALL the same I have received from Microsoft shops I can edit, remark, store changes etc. with no problems.

            I think the whole MS Office is GOD moment has passed. Time for the shills to understand this and move onto another topic (uh...you don't have an hourglass spinning around now).
            DontUseMicrosoftAtAll
          • LOL The RDF in Action.

            Again, Surface comes, for the same price as a 9.7" ipad with 2 times the RAM and 2 times the storage and 10.6" screen. There is no comparison.
            As for your Office choice LOL!!! MSFT Office is still growing marketshare as the far and away best and most used Office suite in history and that's not going to change.
            ONly Office for MAC saved the dying MAC in the mid 90s when the company almost went under for good. What dismal days for Apple.
            Hey, still have your Pippen? LOL!! How about your Newton? LOL!! ONe of the colored MACS? LOL. how about the 5000.00 LISA? LOL!!!
            I actually think it's great that any company can convince people to pay far more for far less, with full lockin and convince them they've made the best choice. Like the old saying goes "there is a sucker born every minute" and that applies perfectly to the Apple cult. LOL!!
            And what is the funniest of all is that MSFT owns the enterprise with a still growing marketshare that makes Apple fall off the radar, they don't even register. failure in selling to the enterprise big time. Meanwhile, MSFT has had great success with XBox and Bing, compared to Apple's search engine anyway.
            If Apple did not have the windows infrastructure to run their iCrap business on top of , they'd be nowhere. Imagine if iCrap software only ran on OS X...LOL!!!
            Apple Pippen, anyone? LOL.
            xuniL_z