Has Microsoft Learned Nothing?

The new Microsoft  (NASDAQ: MSFT  )  Surface family is official, and it doesn't look good.

The updates
On Monday, the company announced the Surface 2 and the Surface Pro 2.

The new Surface 2 and Surface Pro 2. Source: Microsoft News Center.

The Surface 2, running Windows RT 8.1, has the most dramatic changes of the two updated product lines. Most important, it sports a much faster Tegra 4 processor to help the original Surface RT's performance issues. And battery life was boosted by 25%, even with a thinner and lighter form factor.

The Surface Pro 2, running Windows 8.1 Pro, kept the same form factor as its predecessor. But the internal updates provide dramatically better performance. Equipped with an Intel Haswell processor, graphics performance and battery life are up by 50% and 75%, respectively.

So far, so good. Until we get to pricing...

Stubborn, stupid, or crazy?
Microsoft's decision to continue to compete in the tablet market after a $900 million writedown of unsold Surface inventory earlier this year was surprising in and of itself. But its pricing on the new line-up is borderline crazy.

The Surface 2 lineup starts $449 -- just $50 less than its predecessor's original price and $100 more  than the original Surface RT after July's $150 price cut on the device.

The Surface Pro 2 starts at $899 -- the same price as the original Surface Pro and $100 more than the first version's price after its early August price cut.

Hello, Microsoft? Don't you recall that nearly $1 billion writedown and those major price-cuts earlier this year?

Even Window's guru Paul Thurrott was surprised: "Microsoft has unexpectedly held firm on pricing, suggesting that it hasn't completely learned from the mistakes of the past."

Terrible timing
While pre-orders begin today, shipping begins on Oct. 22. Of course that falls directly in the time frame for Apple's rumored iPad event.. On Oct. 15, Apple is expected to reveal a fifth-generation iPad and a second-generation iPad Mini with a Retina display. If Apple maintains current pricing on new iPads, the fifth-generation iPad will start at $499 and the iPad Mini will start at $329.

Microsoft's rumored 8-inch Surface tablet wasn't revealed at the event. As the first small tablet from Microsoft, it's an important missing piece to Microsoft's tablet lineup. But after Microsoft's announcements of overpriced tablets, and considering the formidable competition in the sub-8-inch tablet segment, the company hasn't given investors any reason to expect that the 8-inch tablet will improve Microsoft's poor performance in the category.

Price matters -- especially in tablets. Is there any hope for Microsoft's tablet segment?

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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 September 24, 2013, at 11:15 PM, GameBot wrote:

    The Surface Pro is priced correctly, it is a enterprise device not aimed at consumers.

    The Surface 2 (RT) is priced out of the market for consumer media consumption devices. As such yes it is over priced is pitched to the average consumer who wants a tablet to surf , email and watch a few shows.

    The question that should be asked ... Is the market for Surface 2 large and strong enough for the product and its OS to be worth while to developers.

    If Microsoft fails to sell enough of them it will not be.

    Of course MSFT is going to continue to sell the Surface RT (old one) for some time to come and much cheaper.

  • Report this Comment On September 25, 2013, at 11:24 AM, techy46 wrote:

    Microsoft has to walk a very narrow line with Surface by pricing high to start and not crowd their ODM's out of the market. I'll bet we'll see Surface 2 come down to $399 or even $349 once the old Surface RT inventory is gone. We'll also see a Surface 2 Bay Trail at $399-449 that will have W8.1 and equal or beat the Tegra 4 version. Remember W8 is about the entire ecosystem of device vendors not just MS and that includes Acer, Asus, Dell, HP, Lenovo, Samsung and Toshiba.

  • Report this Comment On September 27, 2013, at 12:50 PM, MiketheITGuy wrote:

    Crazy? Crazy like a fox...

    With the Surface Pro 2 Microsoft has defined what a "high end" tablet is; the iPad is now "low end". Early next year 64-bit Bay Trail will be available and will define what a "mid range" tablet is at a price equal or less than the "low end" iPad. Unless Apple develops a more powerful, touch friendly O/S that can allow tablets to take advantage of advancements in technology they will be left further and further behind.

    Prices on "high end" tablets will fall. Who will want an under-powered "low end" tablet (no matter how stylish) when more powerful products are available for less? Unless Apple moves fast they will lost the tablet war. I think I hear the fat lady singing...

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