Tuesday, October 16, 2012

If you buy a Microsoft Surface, it probably won't be because of the price

Earlier today, Microsoft announced the prices for its Surface for Windows RT tablets. The entry-level Surface for Windows RT tablet comes with 32GB of storage and sells for $499 (U.S.); the same model with a black Touch Cover keyboard sells for $599. The 64GB model bundled with a black Touch Cover sells for $699. If your tastes run to a more colorful Touch Cover, those are available separately for $119; if you prefer a more conventional keyboard design, the Type Cover is also available in black only, for $129.

Several months ago, there were some rumors that Microsoft would try to underprice Apple with an entry-level Surface tablet priced as low as $199; those rumors were disproved today. Microsoft has taken pains to point out that it's pricing its 32GB model where Apple prices the 16GB third-generation iPad, and the 64GB bundle is priced the same as Apple's 32GB model without a keyboard. Microsoft's prices are very competitive, but Windows RT will only have a tiny fraction of the apps available for iOS or Android when it and the Surface tablets are released next week.

Microsoft seems to be at a loss to describe exactly what the Surface is--according to Windows business unit president Steve Sinofsky, it's neither a tablet nor a notebook computer. Microsoft's new television ads don't help--they show people dancing around with Surface tablets as they connect and disconnect keyboards, but they don't actually show anyone doing anything useful with the devices. That's the trap that tablets like the Motorola Xoom and BlackBerry Playbook fell into--Motorola and RIM showed their tablets playing videos and games, but not doing anything useful.

There's not going to be a lot that consumers will be able to do with Surface tablets when they first ship, at least in comparison to iPads and Android tablets. It will take time for developers to build up a competitive catalog of apps, and developers won't bother until they see Windows RT gaining market momentum. By themselves, Microsoft's prices will do little to stimulate sales.

In addition, I believe that we're going into the Christmas of 7" tablets: Apple said that it plans to make an announcement, most likely of a 7" iPad (among other products,) on October 23rd. The focus this holiday season will be on tablets selling for $199 to $299, not $500 or up. Consumers will be comparing the small iPad to the big iPad, or the small iPad to Amazon's Kindle Fire HD, Barnes & Noble's Nook HD and Google's Nexus 7. They're unlikely to be comparing anything to the Surface for Windows RT.

Microsoft may believe that Android, on tablets at least, is highly vulnerable to being displaced. Under this scenario, Microsoft's goal would be to make Windows RT the credible alternative to iOS, and then wait for Apple to make a serious mistake, just as the Xbox 360 capitalized on Sony's mistakes with the PlayStation 3 to become the video game console market leader. (It's the "I don't have to outrun the bear, I only have to outrun you" idea.) If that's Microsoft's approach, all they have to do is beat Android, not take away a significant number of iPad sales. If Microsoft fails, however, people will be comparing the Surface not to the Xbox, but rather, to the Zune.
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