Microsoft's Surface pricing dilemma

http://jhatax.blogspot.com/2012/08/the-dilemma-of-pricing-what-should.html

by jhatax • 14 years ago

35 59 14 years ago

jhatax.blogspot.com

gfosco• 14 years ago

Couldn't agree more. If you're going after the iPad, you have to compete on price. There's no way enough people will choose Surface over the iPad for the same amount.

The bigger question, for me, is the pricing on the Pro model. While the RT model is more comparable to the iPad, the Pro model could be the real gem of the tablet space. I really want one, but it's possible they will price it higher than is reasonable.

cargo8• 14 years ago

As a technologist, I hope most people can see the real value being added by the Surface over the iPad, and I think the corporate / enterprise angle is being lost entirely in this analysis.

On the other hand, you're absolutely right about Microsoft taking a loss to gain market share. Xbox was first, and is now the most popular gaming console in the world. Then is Bing, which despite not yet turning profitable for Microsoft did prevent Google from attaining a monopoly and has made Microsoft the only other company with a legitimate index of the internet and reasonable market share in search. I can definitely see Microsoft taking some hardware losses on the Surface to plant the seeds for the Windows 8 ecosystem.

Toshio• 14 years ago

> the corporate / enterprise angle is being lost entirely in this analysis.

Stay classy, microsoft. Keep fighting the consumerization of IT and the BYOD movement. Keep pretending you have a chance against the iPad. Never give up hope that someday, if you just wish hard enough, it will be 1997 again.

WiseWeasel• 14 years ago

As a technologist, I'm becoming more and more convinced that implementing an interface mixing touch and mouse/keyboard input, and shipping Windows 8 as a runtime for both "Windows-8-style-UI" apps and classic Windows desktop apps are terrible mistakes.

As a developer, you need to choose between supporting Windows 7, with a huge market today, and Windows RT, with no market today, but with Microsoft's promise of a market tomorrow.

For users, the added complexity is likely unwelcome. Now when you see some software for "Windows", you'll have no idea if it happens to be the version of Windows relevant to you.

lnanek2• 14 years ago

Can't really disagree, priced to move Kindle Fire sure bought amazon a place in the tablet world quickly.

volandovengo• 14 years ago

Nice Analysis! Shouldn't the pricing take into account the Nexus 7 as well? Even priced at $400, the surface will still cost the price of two Nexus 7's.

It looks like a race for the bottom on the pricing of tablets these days!

MatthewPhillips• 14 years ago

Equivalent iPad isn't 499. Surface doesn't have a 16gb model. The equivalent iPad is 599.

redial• 14 years ago

Yes. And Also, the 16gb iPad starts at $399.

Alcedes• 14 years ago

I disagree, if your going for the value play, you can always get the nexus 7. MS has to differentiate by showing how cool office optimized tablet version is. However, it looks like MS has dropped the ball again if the reports of office on the tablet being a half assed port are true. Using the Nexus 7 just shows how crappy the app experience is relative to iPad.

drivebyacct2• 14 years ago

Can we please stop this errant speculation until pricing is announced? No one, except a few people in Microsoft have any idea what it's going to be priced.

edit: Sorry, feel free to downvote, didn't want to distract from... you know.

kenjackson• 14 years ago

The margins on the iPad are rather substantial. I don't see why the Surface can't give up 50% of the margin and still be OK (although they don't have the economy of scale or supply chain infrastructure as well understood).

I'd like to see the 16GB RT come in at $429 (why is +8GB so expensive on tablets and phones, but cheap when I go price it in the market?).

The Surface Pro should find some way to start at $699. That might be a no frill version.

And they should make sure that they sell the cover/keyboard separately. That way it keeps the "price" of the device down.

sixothree• 14 years ago

Microsoft is being aggressive with the design of this product. Maybe there's a chance they'll be aggressive with the price as well.

$429 is probably the very high top end of what I would consider paying for a device that can't run windows software, has no ecosystem, and has a high likelihood of being abandoned in a year or so.

$699 would be an extremely attractive price for a ultrabook replacement. So I highly doubt it will be so cheap.

barista7• 14 years ago

Also to consider is that Surface already comes with Office and other apps built in. I'd certainly pay more to get those apps on my tablet.

mgkimsal• 14 years ago

This is similar to the webOS pre pricing issues, and the HP webOS tablet pricing issues.

IIRC, someone from HP was quoted as "The market has determined that the price for tablets is $499". Couldn't be more wrong. It's determined that the price for iPads is $499. Effectively there wasn't any other 'tablet' market to speak of at that point (still isn't much outside the iPad even today).

What happened during the HP touchpad firesale at $149 - they flew off the shelves. For various reasons, of course, but many people would love a decent 9-10" tablet for under $200 (I dare say even under $300). The HP touchpad at $299 would have been selling at a loss to start with, no doubt, but HP (or palm before them) could have figured out a way to monetize that space outside of just hardware sales - content sales, app sales, etc. Getting, say, even a few million sold in a quarter would have demonstrated it as some competition to the iPad. Instead... everyone is focused on pricing to meet the iPad (or playing around with $20-$50 differences), which will doom these to failure.

Surface looks neat, but they can't sell these at $499+ and make serious inroads in to the tablet market. $299? Sure, but even there, we're going to see a smaller form-factor from Apple in the next few months (according to rumors) which will probably be at that price point.

Re: the Zune debacle - I don't understand why people didn't realize in 2007 that Apple already had 5+ years of an entire ecosystem built up around their device - cables, chargers, add-ons, etc - hotels with ipod docking stations, etc - trying to compete with something that entrenched in society by matching on price? Without any other intangibles on your side? And with a history of already ditching your previous 'plays for sure' campaign leaving earlier adopters high and dry? I really really really don't understand big corporation groupthink, and this Zune fiasco was just one example in a long line of ipod-competitor-wannabes.

rlu• 14 years ago

He certainly brings up good points but he completely ignored the fact that the Zune was never aggressively marketed.

Is it fair to say that the Zune may have done far better if people even KNEW how it was better than an iPod? A lot of non-tech people probably hadn't even HEARD of the device!

Ultimately I think the Zune failed because few people knew it existed, and fewer still knew how it was better than an iPod. If everyone knew it (a) existed and (b) was better than an iPod then I don't think the pricing of it would have been a big deal.

freehunter3• 14 years ago

And they released it in brown first. If there's one thing Microsoft should know by now, its that the tech-savvy folks will take every chance to ridicule any slight flaw in their products. They should have learned this after their driver disaster in Windows ME. The same driver/hardware compatibility issue shouldn't have happened in Vista, but it did. The same lack of benefit awareness shouldn't be happening with Windows 8, but it is.

Microsoft needs to realize that they're selling in a crowded space now. They're not the only players, so they can't rely on a lack of choice forcing people to understand their products. Before anyone is ever told that there's a new Microsoft product, Microsoft needs to get their marketing people to explain what the product is, how users will benefit from it, and why it's better than the competition (or their previous products.) And this needs to extend to their hardware/software partners. I had problems with Vista originally because Creative kept telling me that the XP drivers for my soundcard would work. They didn't.

Microsoft seemingly releases a product and hopes the market will get it. In the past, it was adapt or die because MS was the only real game in town. Today they need marketing first, then engineering. If enthusiasts decide they don't like the product, that's what they're going to tell non-enthusiasts. That's the problem Microsoft doesn't seem to care about.

Shamanmuni2• 14 years ago

Kudos to that. The funny thing is that in the past Microsoft wanted phones and tablets to look like desktops, and it didn't work. Now they want desktops to look like phones and tablets. I predict it won't work.

Windows hasn't changed it's layout from 1995 for a reason, people know it and they don't want it to change. Many people still hate the Ribbon on Office just because it's different from what they were used to. Now they built Metro, which is radically different, and expect people to love it because it has Windows on the name. They just don't get it, the 90's are over and you can't do whatever you want without alienating your customers.

AncientPC• 14 years ago

The Zune was too little, too late.

54 days later, Steve Jobs announced the iPhone.

At the time Apple was selling a 5th generation iPod or an iPod mini, and the iPod nano was less than a year away.

jhatax2• 14 years ago

As someone said, the Surface is entering a crowded market. The Surface is launching more than 2 years after the first iPad hit the shelves. In the years since, the Nexus 7 and the Kindle Fire have established themselves as compelling consumption devices at the $199 price point. It is not like Microsoft did not market the Zune at all. They did, but most of their marketing was vacuous or not correctly targeted. There is nothing to say that their marketing department has sharpened its pencils in the four years since 2008. Did anyone like the IE9 advertising campaign launched by Microsoft? In fact, can anyone recall a recent Microsoft advertisement (other than an ad for an XBox 360 game) that made them want to go out and buy the product? I cannot, so I do not have much hope for the Surface commercials.

All of this said, how many of you will buy the Surface over the iPad if both were available for the same price? The HN audience aside, how many non-techie folks do you think will buy the Surface over the iPad if there is no financial incentive?

JoelSutherland• 14 years ago

They absolutely need to price it low for their own sake.

The point of the initial surface tablet, and Windows RT itself is to force devs to develop Metro apps so that Windows 8 can have a compelling tablet experience.

The end game is not Windows running ARM, it is Windows on x86, even for tablets. Intel seems to have finally gotten it together and is releasing price/performance/power competitive mobile chips. A year from now I would expect very few Win RT devices to sell for over $400. There just won't be any reason to run an ARM Windows device with its limited app compatibility.

That said, MS can't jump out of the gates and push people to x86 now or there wouldn't be enough of a reason to develop Metro apps instead of traditional desktop ones. And if there aren't Metro Apps, the 'switch-ability' of Windows 8 is of little value.

So I guess my overall point is that the Surface RT had better be cheap or it puts Windows as a whole at risk.

freehunter3• 14 years ago

It's kind of funny, because Microsoft gets derided for this behavior all the time, and now people are saying they need to step it up. Price the competition out of the market, force sales because of inertia, get developers locked in to get users locked in. Lose money now because they have money to lose, then once they're the only game in town they can jack up the prices.

It's a perfectly valid business model if done carefully and legally. I'm not sure Microsoft has the balls (or legal foothold) to repeat their mistakes from the 90s.

wtvanhest2• 14 years ago

I'm not sure Microsoft has the balls (or legal foothold) to repeat their mistakes from the 90s.

If I became Bill Gates in the early 90s, I would make every one of their "mistakes" all over again. A law suit is just the inconvenience their lawyers dealt with on the path to domination.

danso• 14 years ago

So the author claims that if Surface is as good a device as the iPad, even if it has the same price point, that is too high a price point. But I don't agree that the dilemma is so similar to iPod vs Zune.

The iPod/Zune content environment was music. Yes, iTunes was (to the general public) a pretty good music service that locked you into the iPod ecosystem. But in general, people already had/could get digitial music. They just needed a great portable device. The Zune was not a better device than the iPod, but even if it were equivalent by some objective standard, people will gravitate toward the leader, all other things being equal. And unless they were locked into the iTunes music system (and if they were, then they're already an ipod owner, so not really relevant to the question), consumers could port their music to either iPod or Zune and get roughly the same listening experience.

So without a financial incentive, why go Zune?

But in the Surface vs. iPad debate...Tablets are still a relative niche market compared to the number of people who own/use a regular desktop/laptop. iPads absolutely own the tablet market, but there's still plenty of room among regular computer users who have been waiting. Moreover, there are people who are still hesitant to live Mac/PC dual lifestyles (even though that's not an issue for any experienced computer user).

And most importantly, there is software that is entirely exclusive to Windows systems, not least of which is Office.

If it were possible to only play Beatles and Lady Gaga MP3s exclusively on Zune, isn't it feasible that Zune would've gained a greater foothold? In the tablet wars, Microsoft has the power to choose which platforms its popular software will run. And considering the market penetration of Word/Excel/etc., even as Google Docs and other alternatives grow, that ecosystem is much more prevalent a feature than it was when it was Zune vs iPod

jhatax2• 14 years ago

Hi, I am the author of the post. Your opinion might differ, but the Zune v2 had a number of features that the iPod lacked: Wireless Sync, built-in radio, and Social/sharing are three that immediately come to mind. From a services standpoint, the Zune pass was a great music discovery service, and the Zune web service, circa 2008, was a cool way to share music with your friends (and way better than Ping). The public perception might not have been the same, but I am speaking on the basis of pure technical merit.

The marketing team strongly believed that these features would push customers towards the technologically better product, and did not think that providing a financial incentive was necessary. We all know how that played out - they had to eat humble pie and drop the price before finally dropping the product.

Tablets are a niche product, but the category, as it stands today, has been entirely defined by the iPad. This is not very different from how the iPod defined the music player market. AFAIK, application developers continue to target iPad first, and Android next; developing for Windows devices is not even in the rear-view mirror of developers. Microsoft is hoping that developers will re-prioritize once the Surface launches, but what if the device is a dud?

My research into user behavior does not reveal a hesitation on the part of users to live a Mac/PC dual lifestyle. In fact, Windows users that own iPads do not believe the iPad to be a part of the Mac ecosystem. iPad apps stand on their own, and most of them do not have Windows or Mac counterparts. This said, please send analysis that indicates the duopoly is confusing my way.

I wrote a post last year about Microsoft releasing Office for the iPad. If it continues to overlook the iPad in an effort to drive sales of the Surface, it will be the biggest loser, IMO. Office is Microsoft's cash cow; sales of the suite exceeded Windows last year, and show no signs of abating. In my non-scientific interviews of iPad users, I am yet to meet a user - business users and college students in particular - who will think twice before paying between 5 and 10 dollars for a la carte Office apps. Other than Office, I cannot conjure up a long enough list of applications that are Windows only. Remember that the entry-level surface is Windows RT only, and will not run traditional x86 applications.

greedo2• 14 years ago

Tablets aren't a niche anymore; Apple sold 17 million iPads last quarter, greater than the number of computers that #2 PC vendor HP sold.

TheHegemon• 14 years ago

I got to say, I have a 30GB Zune and a 120GB Zune and I still use the 120GB daily.

The 30GB one fell out of my car three times and had so much abuse that I'm really surprised and amazed of the quality and durability of it.

As you probably don't hear this enough whoever was on the Zune team are geniuses and I love it. It's going to be a sad day when my 120GB dies and especially considering it's almost impossible to find a new Zune under $300 nowadays.

Once again thanks for all the work you guys did on it, and I'm extremely sorry that it did not get as much traction as it should have.

icefox• 14 years ago

"I am yet to meet a user - business users and college students in particular - who will think twice before paying between 5 and 10 dollars for a la carte Office apps"

Hi! Nice to meet you. I don't feel like I need office apps in my life and wouldn't pay 5-10 dollars for them. Between the web and ios apps I realized I don't need them like I did in the 90's.

greedo2• 14 years ago

"And most importantly, there is software that is entirely exclusive to Windows systems, not least of which is Office."

MS is porting Office to iOS (probably after first releasing it on WinRT.

rbanffy2• 14 years ago

> Tablets are still a relative niche market

2 years after the iPad was introduced and with 84 million sold, this is arguable.

> iPads absolutely own the tablet market

Android owns the tablet market. Apple owns the iPad market, which happens to be much larger. If Microsoft wants to compete in the tablet market with the RT, they'd better have something for under US$250, which would be a credible point in the non-iPad tablet market, assuming they can bring substantially better functionality to the table. If they want to compete in the iPad market, they'd better make an iPad better than Apple's. The same reasoning about substantially better functionality remains.

> And most importantly, there is software that is entirely exclusive to Windows systems

Which is software that has no compelling use case for the tablet format. Do you feel sudden urges to use spreadsheets on tablets? Are you frustrated not to be able to compile that Visual Studio project on your tablet?

Most important than that, the vast majority of Windows-only software will only run on the high-end x86 surface (and only on W7-like mode). Even assuming Microsoft is eager to destroy their relationship with their OEMs in the ARM tablet space, I can only imagine the damage directly competing with their x86 PC partners would do to their relationships and what would happen if those partners started pushing non-Windows PCs to their users (who really couldn't care less what the machine is running and will be very happy with whatever the manufacturer installs as long as it works).

Putting the Microsoft brand on a device doesn't make it automatically desirable. I think this is the lesson Microsoft has to learn before they succeed.

edit: downvote for disagreement... How mature.

pooriaazimi• 14 years ago

> Android owns the tablet market.

I haven't seen anyone who owns an Android tablet. And I know 40-50 people with iPads. I don't know about it, but Android 4.1 might be very good on tablets and Nexus 7 might (hopefully) sell millions, and I'm happy about it because it makes Apple try harder on iPad, but "Android owns the tablet market" is far from the reality I'm living in.

I agree with the rest of your comment. I wanted to upvote it, but my mouse slipped (I'm used to trackpads) and accidentally downvoted you. sorry about that.

Shamanmuni2• 14 years ago

Microsoft shouldn't just look at the iPad, it's short-sighted. The reality is that Android has become the most common OS on smart-phones and both Google and Amazon are subsidizing tablets so that lots of people are able to buy their first ones with Android cheaply.

When it's time for these people to buy their second tablet, which one do you think they will choose: a Surface, an iPad or one of the many available ones with the OS they know? A classical Microsoft strategy turned against them.

It's not enough to compete with the iPad on price. If Surface is cheaper than the iPad, but the Kindle Fire and Nexus 7 are cheaper than both of them, people will buy the Android ones, and probably no feature will change that.

Apple is comfortable with their first-mover advantage and respected brand, they can continue selling devices with high margin profits to people with disposable income as long as they don't damage their brand with a poor product.

Companies using Android are comfortable selling in bulk and making tiny profits with each device.

Microsoft cannot be Apple, they are entering the market almost three years late. They should compete with Android subsidizing heavily their tablets or risk becoming a niche product on this segment, as Windows Phone.

josephlord• 14 years ago

Initial price is critical because initial reviews and overall reputation will be based on that. Nexus 7 shows that pricing cheaper doesn't harm the product perception if it is clearly a good product.

The other issue if pricing is deliberately set with particular reference to the iPad is that it might need readjust everything when the next Apple product arrives.

The main thing they need to do is show that it a really great product. If it is better than the iPad at three things but there is on dodgy aspect that is what everyone will hear about.

Who is the target market for the Surface? Those who would otherwise get a Netbox/laptop? Existing iPad owners? Current Windows users with no tablets? Mainly business?

I think if they want to hit the non tablet owning consumer they need to offer better product than the Nexus 7 at pricing just a bit higher. I don't think that they can match price with the iPad for that market unless people are treating it as PC replacement (which is dangerous ground for Microsoft but may be the correct self disruption move in the innovator's dilemma.

rhplus• 14 years ago

One of the comments in the article suggest something interesting: how about pricing it at $200 and adding a $10 - $20/month subscription to Microsoft services. Perhaps Xbox Music/Video or Xbox Live Game of the month or extra SkyDrive storage or Office 365 services.

hbharadwaj• 14 years ago

MS just combined 2 different form factors into one. They are so unique at this point in time. People just have to realize the productivity differences and shell out the dough for an increase in computing quality.

elorant• 14 years ago

And then Apple will make a 7" iPad for $300-$350 and it will be game over for everyone.

steve8918• 14 years ago

One other problem I see is why would people spend the same money for the Surface as the iPad, when Microsoft has a history of abandoning their products?

People have already seen the demise of MSFT's Zune products, RIMM's Playbook, etc. If I'm going to choose between an iPad or a Surface, and they are the same price, will I really gamble on the Surface when I know it might not be around 1 year from now? I know the iPad will be around. I can't say the same about the Surface, and if it's gone quickly, then I will kick myself for not buying an iPad.

This is something that the Amazon Kindle Fire did right. They priced it low enough so that there isn't as much risk, and their Kindle brand makes me believe it will be around for a while.

keithnoizu• 14 years ago

What rim just released an os update few months ago and are shipping wireless versions in canada.

barista7• 14 years ago

So did the zunes that people bought stopped working after Microsoft said it was no longer selling any? Portable devices like these don't have a lifespan beyond 4-5 years these days and a company stopping hardware sales has nothing to do with the product already sold.

Besides in case of Surface software running is Windows OS which has been around for a few decades and the premise of Microsoft abandoning that is ridiculous.

RestlessMind• 14 years ago

But the possibility that a device might not be a hit and hence abandoned in a few years might deter developers from developing apps for that device, thus reducing it's value. For a product like tablet, apps are especially important part of the overall experience.

r00fus• 14 years ago

Ecosystem matters, especially content/apps. ARM-based Surface tablets can NOT run existing windows software, so they've got something to prove in this space.

forgotAgain• 14 years ago

Without apps does it really matter?

Microsoft's Surface pricing dilemma

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