Microsoft's profit margin on Surface Touch Cover could be 50 percent

The combination protective covering and innovative physical keyboard may be a highlight to the company's bottom line when it comes to the new tablets.


One of the highlights of Microsoft's recent introduction of its Surface tablets was the Touch Cover, a combination protective covering and innovative physical keyboard. It may also be a highlight to the company's bottom line when it comes to the new device.

Walter Pritchard, a Citigroup research analyst, recently spent time with Microsoft execs and the Surface, and has written that he believes the Touch accessory will be priced somewhere between $60 and $100. In comparison, you would need to purchase a $49 Smart Case and spend $69 for a wireless keyboard to get a not-so-equivalent from Apple for the iPad.

Microsoft plans to offer two keyboard covers---Touch Cover and Type Cover. Both protect the Surface and act as keyboards. The Touch Cover has a touch sensitive keyboard and has garnered the most attention. The Type Cover is thicker and has a tactile keyboard. 

In addition to offering a better deal than Apple's equivalents on the accessory front, Microsoft should make a healthy profit margin on the keyboard cover, according to Pritchard, who believes the company could net 50 percent on the Touch Cover. He concludes that the margin on the Touch Cover alone "could help substantially with the economics of the [Surface]."

Those economics could face trouble initially, as Microsoft will be working hard to get the Surface Windows RT's price as close to $500 as possible to compete with the latest iPad. (The company has already said the Surface Windows 8 Pro will be priced like an Ultrabook laptop, which means closer to $1,000.) But Pritchard believes the profit Microsoft can reap from its Touch Cover may help push the price of the Surface RT tablet down to $400 by the second half of 2013.

One can't help but wonder if Microsoft can make a 50-percent margin on an accessory that includes a full keyboard and trackpad, what Apple's profit margin is on its Smart Cases, whose biggest technological innovation is the ability to wake up your iPad when you open the case. In developing its own tablet hardware, Microsoft may have been wondering the same thing.

[Via Business Insider]

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