

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

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mgkimsal
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.

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steve8918
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.

~~~
barista
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
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.

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w33ble
Exactly. Look at the Touchpad and Playbook for examples.

Just because a product "works" after being killed doesn't mean it'll do what
you want/need it to. The iPad is a safe play, it'll have new apps for the
foreseeable future. The Surface (particularly the RT model) is very much up in
the air.

~~~
barista
Both touchpad and playbook failed because the platform ecosystem failed. You
are equating Surface the device to Windows the platform ecosystem. One is
unproven the other has been the most vibrant platform there ever has been.

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JoelSutherland
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.

~~~
freehunter
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.

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wtvanhest
_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.

~~~
pyre
Would you really? What about the "mistake" of thinking that the web was just a
passing fad?

~~~
glhaynes
The end result of that mistake (combined with all the other mistakes and good
decisions made in that era) was having a near-monopoly on the Web browser
market.

~~~
pyre

      > having a near-monopoly on the Web browser market.
    

...And doing nothing with it.

There was no game plan other than, "embrace, extend, extinguish." It just
happens that 1) they didn't fully scuttle it (i.e. pull IE once it was the
dominant web browser) and 2) the Web is a powerful enough force that it was
able to overcome this.

Microsoft _gave_ us the Web 2.0 revitalization of the web via their
introduction of XmlHTTPRequest, but they didn't do anything with it, and it
definitely wasn't part of any sort of strategy. Mostly a happy accident.

~~~
glhaynes
Oh, totally. If you're playing Microsoft Simulator, you really want to start
at right about the year 2000 or so — gives you a great starting position but
also tons of opportunities to improve on previous players' high scores.

 _(Somebody please make Microsoft Simulator!)_

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kenjackson
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
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.

~~~
barista
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.

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rlu
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.

~~~
freehunter
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.

~~~
Shamanmuni
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.

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Shamanmuni
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.

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gfosco
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.

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josephlord
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.

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

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

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cargo8
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.

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WiseWeasel
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.

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rhplus
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.

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

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volandovengo
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!

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Alcedes
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.

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lnanek2
Can't really disagree, priced to move Kindle Fire sure bought amazon a place
in the tablet world quickly.

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hbharadwaj
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.

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forgotAgain
Without apps does it really matter?

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danso
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

~~~
jhatax
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.

~~~
icefox
"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.

~~~
barista
You probably are in the minority, but I feel frustrated that there are no
decent office like apps available on the tablets. There is a reason why, apple
wants iPad to primarily be a consumption device. Office apps are not on top of
their list. Microsoft looks at tablets as a productivity device so they are
bundling the office apps in.

~~~
glhaynes
The iWork apps are well-reviewed and have been heavily pushed by Apple so I
don't really understand much of your post. :)

~~~
barista
Did you forget that they are not bundled and you actually have to pay for it?
Office is built in for free with Surface.

~~~
glhaynes
I was referring to the statement that "there are no decent office like apps
available on the tablets" and the inference that "apple wants iPad to
primarily be a consumption device". When did we start talking about bundling?

EDIT: Oh, I see. When you said "no decent office like apps available on the
tablets", I interpreted that as meaning that they weren't available at all,
but you were saying you were frustrated with them not being bundled. Apologies
for having misunderstood.

It's still impossible for me to see that Apple "wants" the iPad to primarily
be a consumption device — why would they? (They want to sell iPads! They don't
care too much what you do with them.) And, if they _did_ care, why would they
make iWork? The iPad introduction keynote spent a _lot_ of time showing each
of the iWork apps off, very much casting the device as a productivity device
(among other things, of course).

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drivebyacct2
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.

