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

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.

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.

Show Comments