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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.

• By Scott Bekker
• November 05, 2012

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 [email protected] or leave a comment below.

More Analysis by Scott Bekker:

• Is Microsoft's 'Big Year' Big Enough?
• What About Windows RT?
• Column Archive