Is Microsoft Surface Already Doomed?

Microsoft (Nasdaq: MSFT  ) Surface is on its way. It’s not quite here yet, but the software giant just took the wraps off of its big foray into tablet hardware.

The company notably declined to disclose one of the most critical pieces of the competitive puzzle: price. Instead, Microsoft simply said its pricing would be “comparable” to other ARM Holdings-based tablets, and Intel (Nasdaq: INTC  ) Ultrabook PCs.

According to rumors from the Far East, the final price tag of the Windows RT model sporting an NVIDIA (Nasdaq: NVDA  ) Tegra 3 is expected around $599, and the Windows 8 Pro model, with Intel’s latest Ivy Bridge chips, could ring up to $799.

That’s suicide.

If the Windows RT Surface ends up at $599 for the entry-level 32 GB model, that would put it at pricing parity with Apple’s (Nasdaq: AAPL  ) third-generation iPad, with 32 GB of storage. Without exception, every single tablet that has entered the market over the past two years to compete directly with the iPad on price has lost. Badly.

Never mind Motorola’s bold attempt to price even higher than the iPad, when its first Xoom tablet launched early last year; there simply aren’t any success stories of competing tablets at the same price. The only tablet to see decent sales thus far is Amazon.com’s (Nasdaq: AMZN  ) $199 Kindle Fire, putting the device in an entirely different market segment from the iPad.

Even though the Windows 8 Pro Surface should be more on par with Ultrabook laptops in terms of features and pricing, many consumers will likely still compare it to the iPad as a tablet.

Street analysts are also seeing pricing as a key component to Microsoft’s competitive strategy. Sterne Agee’s Shaw Wu says that the Surface would need to be at or below $199 Kindle Fire territory to do well, and Topeka Capital Markets’ Brian White says that the device “will need a healthy price discount to the iPad” to score sales. Even Apple’s last-generation iPad 2 is available at the $399 price point.

That’s even before you consider the possibility of an iPad mini later this year, which could price anywhere from $250 to $300, leaving even less pricing room for rivals.

At $599, Surface would be doomed.

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Fool contributor Evan Niuowns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Amazon.com, and Intel. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple, NVIDIA, Intel, Microsoft, and Amazon.com. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts on NVIDIA. The Motley Fool has a disclosure policy.

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Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 21, 2012, at 8:20 PM, xmmj wrote:

    Doomed is too strong for this situation.

    You have to understand that there are many many iHaters out there who - for a variety of imagined provocations - refuse to buy anything Apple. They will will flock to the Surface as some did to the Fire.

    If the Intel based product comes in at $799, it will be competitive in the ultrabook category since it does, indeed run a full version of Windows OS, and so will be able to run all the regular laptop applications.

    The big question will be how well the products and the OS in particular, perform.

  • Report this Comment On June 21, 2012, at 8:46 PM, SuntanIronMan wrote:

    I like how the entire basis of this article is a blog rumor from an unnamed source out of Taiwan. Even the original blog post wasn't as definitive as this article is. The unnamed sources in the original blog post "estimated" the price, which has now turned into "expected" in this article. Went from a basically a rumored 'Eh, if my estimates are correct...' to 'This is likely what's going to happen! Bet on it!'. Lol.

    It is like that elementary school game of telephone. You line up a bunch of people and whisper a secret sentence to one person at a time. By the time it reaches the final person, it bares little resemblance to the original sentence.

  • Report this Comment On June 21, 2012, at 9:04 PM, gtbohrer wrote:

    Partisan much? Let's make sure we keep the bosses' Apple stock strong, guys!

  • Report this Comment On June 21, 2012, at 10:03 PM, FoolSolo wrote:

    Whether factual or hypothetical, the $599 price tag is an interesting price point. In my personal viewpoint, I can't see this price being significant enough to alter iPad's current trajectory.

    The fact is, Surface is a PC! iPad is an ecosystem of products and services, with hundreds of thousands of cool apps. For Surface to be something special it needs to break out of the "I'm a PC" paradigm and do some cool things that people really value. Perhaps at $300 it might be compelling on price, but it needs a coolness factor to stand out.

    Perhaps integrating Kinect capabilities into Surface, and recognizing gestures and voice commands. Right now I don't see anything compelling to convince me to buy Surface over iPad.

  • Report this Comment On June 21, 2012, at 11:43 PM, dastaub22 wrote:

    The iPad has hundreds of thousands of cool apps?

    I would like to see a distribution graph of the apps sold. I would speculate that 90% of the sales come from 10 - 15% of the hundreds of thousands of cool apps.

    MSFT makes tools for developers to use [developers ! developers ! developers!] When the OS makes it way to the 3 screens, that will become clear again. I assume that's where MSFT is heading, it 's trying to tap its hundreds of thousands of developers.

    The above article is to say the least, not neutral.

  • Report this Comment On June 22, 2012, at 2:29 AM, seattle1115 wrote:

    They're building on the enormous success of the Zune.

  • Report this Comment On June 22, 2012, at 11:11 AM, GOBOSH wrote:

    Dastaub22 commented that is all about the apps, and that is correct.

    But nobody seems to get the killer app for Surface- MS Office can run natively. That is huge!! It will appeal to an entirely different crowd.

    I'm writing this on a MacBook (but also have a PC) and I have an iPhone and iPad, so I ain't anti-Apple. But the minute the Tegra 3 version is available (need all day battery), my wife will inherit an iPad 2. I use my tablet for work 80% of the time (20% Zombie Gunship), and not having MS Office native forces me to also take my laptop on the road. Surface should allow me to leave it at home.

  • Report this Comment On October 10, 2012, at 8:46 PM, atlanta1fan wrote:

    Google 23andme mac v pc: "Mac users had significantly higher incomes...more likely to have taken medication to prevent malaria (perhaps a sign of adventurousness), and less likely to be politically conservative." Basically PC users sit at home on their fat lazy rear ends, are poor, dumb, unmotivated, unsophisticated, unrefined, and unartistic. Basically what we all knew in the first places. PC users are like their computers, big pieces of wasted space. I'm not saying that, just talk to the social scientists.

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