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Apple (Nasdaq: AAPL ) sells a ton of Macs and iPhones, but there's only one growing market that it actually dominates. The world's most valuable tech company is the undisputed top dog when it comes to tablets, but that may change if reports of Microsoft's (Nasdaq: MSFT ) aggressive pricing on its upcoming Surface gadgets hold up.
Tech blog Engadget posted a report claiming that Microsoft's entry-level Surface -- the ARM Holdings-based model running Microsoft's scaled-back Windows RT -- will hit the market at a bold $199 in two months. An inside source at a tech conference doesn't make this chatter real, of course, but it would be a daring if not desperate move by Microsoft if true.
The audacity of hope
The market has warmed up to the $199 price point over the past year. Amazon.com (Nasdaq: AMZN ) has sold millions of Kindle Fires at that price point, and Google's (Nasdaq: GOOG ) Nexus 7 is off to a strong start from that same diving board.
The difference here is that Microsoft's Surface isn't some entry-level, 7-inch munchkin. It packs the same NVIDIA (Nasdaq: NVDA ) -fueled quad-core processing power as the Nexus 7, but we're also talking about a device with four times the storage of the $199 Nexus 7 or Kindle Fire. We're also looking at a 10.6-inch tablet that's even larger than Apple's 9.7-inch iPad.
Some analysts have wondered whether the company could crank the Surface out at a lower price than the iPad. But there's just no way Microsoft can sell it for $199 and turn a profit. It might as well give them away and grant buyers a lifetime supply of Charms Blow Pops.
The game is limbo, and it's merely up to the software behemoth to decide how low it wants to go.
There is a precedent here, though. It's widely believed that Microsoft sells its Xbox 360 at a loss, though the company would make up the difference in software royalties, Xbox Live subscriptions, and digital marketplace transactions. There could be an equally promising ecosystem here, but there's also the risk that customers will buy nothing after the initial purchase.
The bigger risk, for now, is that Microsoft will also anger its hardware partners. ASUS, Samsung, and Windows PC makers won't be happy if the company is subsidizing a tablet at prices that they can't match since they don't have the keys to the ecosystem. There's also the probability that the higher-end Windows 8 Pro version of Surface will cannibalize traditional laptop sales, so pricing there is going to be an even more sensitive topic.
Then again, it's not as if Microsoft can afford to approach the Surface as a profit center on the hardware. Early tablet makers got scorched by getting greedy on pricing, figuring the spec sheets would win out.
They became bigger suckers than the Surface buyers getting the lifetime supply of lollipops.
Getting the balance right
Research firm Strategy Analytics issued a report last month, indicating that Apple's share of the tablet market was a rich 68.3% as of the end of June. If Microsoft wants a piece of that action -- and Google's Nexus 7 has probably already been gnawing away there this quarter -- it has to hit the market priced to sell.
It can't hit the market at iPad-like prices and expect to move the needle. An integrated keyboard and larger screen can only take you so far when the ecosystem isn't proven. Microsoft's only going to get one shot to prove that it belongs in this space, and it's more important that it gets it right with consumers than with its hardware partners.
Yes, $199 is crazy -- but it may be the only way Microsoft forces Apple to break a sweat.
Born to run
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Report this Comment On August 16, 2012, at 7:42 AM, melegross wrote:
If the Surface can't make it on its own merits, then Microsoft may as well fold their tent, and go home.
If they release this for $199, then they will lose a good $300 per tablet. That would be a bigger loss that what they suffered with the Xbox. And with the Xbox, it's estimated that even with the money from game licensing, and the other services added in, Microsoft lost over $8 billion over the years for the Entertainment division.
The nutty idea that they can lose such a large amount for each tablet sale is mind boggling. They could never make that back. This tablet is, whether we like it or not, a quality hardware product. There is no way they can meet Apple's manufacturing cost with their own metal body.
So they have a chance of losing at least $300 million for each million RT devices they sell. Sell 10 million, and that's a $3 billion loss. Too much even for them.
Then thers the problem of whether consumers could ever be convinced to buy an RT tablet for significantly more than that $199 base price. My feeling is that they couldn't be. $199 will instantly become the standard for a 10", well made, well performing RT tablet. And if that becomes the truth, then the only one to benefit will be Apple, as Win8 tablet makers simply wont make them.
Report this Comment On August 16, 2012, at 9:17 AM, Secs27 wrote:
The kindle fire is not a productive device. It is designed to get people to buy stuff from Amazon. If you have used it, you know what a poor device it really is. The nexus and the nook tablet are far superior to the fire, but a 7 inch tablet is hard to do much on except for playing games.
The iPad, is in a league of its own and it is not only great for games, but it can be used very productively in many walks of life, from medicine to mechanics. It is the perfect size.
You are forgetting one very important thing about the Microsoft Surface pro. It will be far superior to the ipad because it is something he iPad is not. A full blown computer with the beauty, build quality and portability of my iPad with the power, ports and file system of my laptop. My iPad, as good as it is, cannot replace my computer. But, the Surface pro will be able to replace my laptop and my iPad. It won't compete in the lowly area of the kindle, it will appeal to people who want something that as the power to rep,ace their computer, with the portability and ease of use as the iPad. I believe the Surface pro will be a winner and I am eager to buy one.
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