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Channel Watch

Reading Between the Lines of Microsoft's Surface Pricing

Microsoft launched the Surface RT tablet with a price tag that failed to impress. Surely, there's a reason for that.

The biggest bomb Microsoft has dropped on its OEM partners in years has fully hit. Microsoft stunned computer manufacturers earlier this year when it announced it would go into the PC business itself in a limited way with the Surface. Now the Microsoft Surface for Windows RT is shipping. What does Microsoft's price for this initial Surface communicate to partners?

First, the facts. Microsoft is charging $499 for the base model. That's a 32GB tablet without the Touch Cover, the magnetic cover with an integrated keyboard that is arguably the signature feature of the Surface.

To get that Touch Cover in standard black brings the price to $599. Selecting another color Touch Cover makes it $619, while the Surface Type Cover, a slightly thicker version with movable keys, is $629. A 64GB device with a black Touch Cover is $699.

How those prices compare to the dominant tablet on the market is...poorly. The current Apple iPad, the device Microsoft seeks to unseat, starts at a base price of $499. In other words, the device with all the mindshare and a massive ecosystem of working and popular apps is the same price. Worse still, Apple's highly capable older model, the iPad 2, can be had for $399.

The counterbalance is that Windows RT tablets made by Microsoft partners are priced a little higher. One of the first models with a public price tag, the ASUS Vivo Tab RT, costs $599, and a keyboard costs $200 more.

With an untested device and a far smaller base of apps with which to challenge the iPad, Microsoft's major chance to give the Surface RT a strong initial position was a low price. I don't have any inside knowledge as to why Microsoft didn't do that, but I think the price communicates a few things:

  • Microsoft early on tried to reassure blindsided OEM partners that its Surface devices wouldn't undercut them on price. While the Surface is cheaper than the ASUS, that concern probably influenced the final price.

  • An ulterior motive, critical to Microsoft revenues, is to protect the value of Windows and Office as long as possible. Microsoft may be delusional, but with the Surface RT price the company is arguing that Windows and Office have more value than the software on competitive consumer devices.

  • Microsoft is unwilling to take a loss on each hardware sale big enough to beat Apple.

  • Microsoft doesn't expect a major success with the Surface RT; this just keeps Redmond in the consumer conversation. Microsoft knows its best segment for beating Apple is with corporate-focused tablets that can run full desktop applications and support enterprise management -- and the company has the Windows 8 Pro version of the Surface coming in January.

What message do you take from the Surface price? Let me know at sbekker@rcpmag.com or leave a comment below.

More Analysis by Scott Bekker:

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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Reader Comments

Tue, Nov 6, 2012 Tom Pittsburgh

Using the same caveat you did (no inside information, purely opinion) I have to disagree. Perhaps you are right that the OEM blindside and statements of reassurance *MAY* have played a factor, but their refusal to announce their price point, target, or any other discussion on price with those same OEM's makes me believe it had nothing to do with the final pricing. If that played a factor, they would have told the OEM what the final target price was intended. Instead, I believe it was because they didn't know the final price of the hardware until later and they were not willing to take a loss on it. Likewise, if it were trying to protect Windows and Office revenue, it wouldn't do so by pricing it above and beyond the current market pricing for similar competitive offerings. Obviously they feel they offer a superior product, but that doesn't mean a superior entry price makes sense, especially given the drawback of no ecosystem of hardware OR software apps. Lastly, if they didn't expect major success with RT, then why would they ever release it? It doesn't make economic or business sense. Let the OEM's make it work and take the hardware hit if it has a marginal success chance. No, they think it will be a success. My thoughts instead are multifaceted, and though some are similar to your thoughts, (such as protecting Office and/or Windows pricing) they are from a different line of thought. It isn't so much they are protecting that pricing per se, but rather (in my opinion) they are placing a value on that codebase. Any serious Office compatible software on any other platform costs $15 or more. How much more would it be worth to not have the incompatibilities, however minor, many of these have? I believe they are pricing office at a $40 retail value and perhaps the Windows OS at whatever (say $70, same as Win 8 desktop). That adds $110 to the base hardware costs. Compare that to Android (free) or iOS (built into hardware costs, so less easy to determine) and you find they are pricing about the same for the same capabilities. However, they are NOT pricing in the drawbacks, which I feel is a mistake (though I may be mistaken ;P ) More importantly, however, I think they are setting up consumers for the stickershock they plan to unvail with the Surface Pro. With a rumored $1,100 est. retail price at release, this is targeted at the ultralight market, not the tablet market. However, that causes a conundrum since it IS a tablet machine. How do you offset this expectation?

Mon, Nov 5, 2012 M Whitener US

How is a high price from MS a bomb on OEMs, who would love to beat that price? And by not making any attempt to undercut the iPad, isn't MS just reinforcing that Surface is more valuable than an iPad? It will be a lot easier to lower the price later and give software to early adopters than to raise the price, or overcome an initial image that this is not a premium product.

Mon, Nov 5, 2012 MylesJ

Making Office part of WinRT raised the price enough to keep low end partners from fighting in the race to the bottom against Android tablets. Microsoft priced Surface high enough to allow plenty of room underneath it for partners with more basic products.

Mon, Nov 5, 2012 Phil USA

I think Microsoft has been hampered by the high costs of 3rd party tablets with limited features. They have put downward price pressure and upward feature pressure on their hardware partners by staking out the upper end of the spectrum. Effectively saying that at a certain feature set and below, you have to come in below these prices. Your other alternative is to offer better features if you want to charge more.

Mon, Nov 5, 2012

Biased comparison. Add keyboard and office-like apps to ipad, you get almost identical prices. Given you can actually work on office on the RT, it's the iPad that looks bad. And microsoft is not expecting success ??? It's already sold-out in many places. Stick to your icrap and don't waste our time.

Thu, Oct 25, 2012 Tech Marketer

I do agree that though Microsoft's Surface doesn't function like a laptop and lacks a keyboard, compared to HP's Envy. And that it can run the traditional Microsoft Office suite as well as the millions of older Windows applications. Something, ironically, Microsoft's Surface RT tablet can't do. But cloud technology must be able to help the Surface users to enjoy dozens of features, and also could enable them to run all their older Windows applications on Surface. Because, one thing I know for sure is that iPad Mini, iPad2 or even Android tablet users can run Microsoft Windows, Office and other Windows based utilities on their iPads or Android Tabs. Plus, they get features like disaster recovery and remote connectivity for free with the bundle-package, which I think is around $1/day. Here are some useful articles on how to run Windows and Office on your iPad or Android Tablets: Run windows on iPad Mini / iPad2 / iPad: http://www.dincloud.com/can-i-run-a-virtual-desktop-on-ipad Run windows on Android Tablets: http://www.dincloud.com/can-i-run-virtual-desktop-on-android Hope you'll find it interesting.

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