The $199 Surface for Windows RT tablet--why the rumors might need to be true

There are legions of reports, starting with Engadget, that Microsoft may price its entry-level Surface for Windows RT tablet at $199. The reports tend to fall into three categories:

1. Microsoft would never do that to its licensees, 
2. It would be awful for its licensees if Microsoft did it, and
3. Microsoft can afford to do it.

In a sense, all three are true: Under normal circumstances, the last thing that Microsoft would want to do is to compete with its hardware licensees. If Microsoft did it, its (four, count 'em, four) Windows RT licensees would undoubtedly be hurt--there's no way that Asus, Dell, Lenovo and Samsung could, or would, match that price. And yes, Microsoft can afford it--and it has a history of deficit-spending its way into markets. It's estimated that the company lost several billion dollars on its Xbox game console business before it became profitable, and the company recently took a $6 billion write-off on its acquisition of online advertising company aQuantive. The company has also lost billions of dollars on its online business, although it's still nowhere near profitability after years of investments.

I fall into a fourth camp: Microsoft has to do it, for the same reason that the company rushed out its Surface tablets with a last-minute, under-rehearsed announcement that didn't include any price or availability details. My premise is that developers simply aren't showing much interest in creating apps for the tablet user interface formerly called Metro. Microsoft knows better than anyone else whether developers are showing interest in Metro--they know how many developers are using Visual Studio to create apps, and at least roughly, how many apps are under development.

Microsoft also knows that the biggest strength of the iOS platform is its enormous collection of apps, and that Android struggled as a tablet platform because of a lack of apps. Without a strong assortment of apps, and with no price advantage over the iPad and Android, Windows RT will be "dead on arrival." Microsoft has probably already resigned itself to having a big "app gap" when Windows RT ships, so it has to come up with another motivation to get consumers to buy Windows RT tablets, and thus build an attractive market for app developers. That motivation is price.

Microsoft's big lesson may be HP's experience with the webOS TouchPad. At $399, TouchPads gathered dust at Best Buy stores around the U.S. However, when HP dropped the price to $99, hundreds of thousands of the tablets flew off the shelves, even though they were discontinued and HP's commitment to further webOS development was in serious doubt. Demand was so great that HP built more of the tablets, and those that are still available sell at prices close to the original retail price.

Microsoft has to get a lot of Windows RT tablets into consumers' hands in order to encourage developers to write for the platform. If the company believed that the tablets under development by its licensees wouldn't be popular enough to make much of a difference, it had to act--first with the Surface pre-announcement, and now, with a $199 price that will be too good for a lot of people to pass up.

I go back to my point above--Microsoft isn't afraid of taking big losses in order to buy its way into a market. It's also not afraid to lose money on hardware--estimates of Microsoft's costs for replacing Xbox 360 game consoles with the "Red Ring of Death" problem range as high as $2.5 billion. So, while selling the Surface for Windows RT below cost would certainly be an act of desperation, it's already in Microsoft's play book.

When "something for everyone" may be too much

On the cover of the current issue of "TWICE" (This Week in Consumer Electronics,) there's an ad for Nikon's cameras with the tagline "There's a Nikon for Everyone." It got me thinking about something I noticed at the Sony and Panasonic booths at last week's NAB conference. These companies have so many different camcorders and cinema cameras that even the people selling them can't keep track of all of them. For example, when I was in the Sony booth, I couldn't find the 35mm cinema cameras (NEX-FS100, FS700, F3, etc.) I asked one of Sony's salespeople where they were, and she said that all of the company's cameras were on display in the huge circular "camera pit" at the center of the booth. I'd walked around the entire pit and hadn't seen the 35mm cameras, so I went around again but didn't find them. It turned out that the 35mm cameras were in a completely separate section of the booth.

There are so many products that they overlap each other in price and functionality. The same is also true for still cameras from Canon, Nikon, Sony and others, and smartphones from Samsung, HTC, LG, Motorola, Nokia, etc. Makers of notebook and desktop computers have the same problem--just look at the proliferation of models at HP, Dell and Acer. Manufacturers make so many models in order to avoid losing a sale, but they wind up confusing potential customers. Each of these products costs a significant amount of money to develop, manufacture and support. Resources that could be used to develop entirely new products are instead used to create minor product variations to fit into every conceivable price point.

Apple is a great example of a better approach to the problem. At any one time, Apple has a single line of smartphones, tablets, and notebook, all-in-one, mini and full-sized desktop computers, each of which is refreshed once a year. Apple continues to sell a single version of the previous year's tablet and smartphone (two years in the case of phones) at lower prices. Each computer line has four or five models, which vary by display size and processor. When a new computer line is launched, the previous line is discontinued. It covers all the price points, yet it's simple for consumers to understand and for Apple to sell. It also works well with Apple's strategy of making product announcements into newsworthy events.

Sony lost $6.4 billion last year; Panasonic lost $10.2 billion. They no longer have the money to invest in endless product proliferation--which might explain the relatively paltry number of new products shown by Panasonic at NAB. They, and companies like Canon, Nikon, Samsung, etc., would be well advised to focus on fewer, better products that are clearly differentiated from competitors and from each other.

If at first you don't succeed, quit

PC World has a great article about wby Windows PCs are having so much difficulty competing with Apple's MacBook Air. When the Air was first released, it was an overpriced, underpowered novelty that sold well to Apple fanatics, but poorly to everyone else. Jason Cross, the author of the PC World article, points out that Sony had a notebook computer, the X505, that was about as thin and light as the Air, in 2003. Dell had the Adamo, and then the Adamo XPS, starting in 2009. None of them sold well, because they were all very expensive, and the Dell models had the additional drawback of poor battery life.

Both Sony and Dell abandoned the ultralight segment, but Apple continued to press on with the Air, despite poor sales. The fourth-generation Air, released not long ago, is widely acknowledged to be the "must-have" laptop of the year, combining extremely small size and weight with a fully-usable keyboard, excellent performance and a competitive price.

I bring this up in large part because of HP's announcements last week that it would discontinue its webOS-based hardware and maybe, sometime, get rid of its PC business. HP could have decided that it needed to be in the mobile business for the long run, and with webOS, it already had the best tablet operating system next to iOS. Instead, it abandoned the mobile business, and has signaled that it has no commitment to the PC business, either. Sony and Dell took the same approach with their ultralight notebook businesses, and Dell is moving in the same direction with tablets. Sony has two tablets ready to launch, but I wouldn't be surprised to see the company pull back if they don't sell well, either.

Apple demonstrates that success requires long-term commitment, but it's not just Apple that has that attitude. Microsoft is legendary for working on products until it gets them right; the saying for years has been that Microsoft doesn't get it right until Version 3. If Microsoft had quit after Versions 1 or 2, there wouldn't be Windows or the Office suite--in fact, there probably wouldn't be a Microsoft.

HP's own top management acknowledges that mobile computing is the future, but it gave up on mobile because its first tablet didn't make a big splash in its first 60 days. That's incredibly short-sighted thinking. Does HP seriously believe that there's no place for mobile computing in the enterprise market? Instead of having some control over its destiny in mobile, HP will be forced to partner with other companies and adapt its systems to their offerings.

Success requires time, effort, and the willingness to fail in order to learn. If you don't have a long-term commitment to be willing to fail on the way to success, you shouldn't even start. Do something simpler, like building clones of other people's PCs, or clones of other Internet companies. You'll still probably fail, but it won't require any creativity or risk.