Microsoft's Surface pricing dilemma
jhatax.blogspot.com
jhatax.blogspot.com
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.
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.
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.
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.
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.
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.
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.
> having a near-monopoly on the Web browser market.
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.
(Somebody please make Microsoft Simulator!)
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.
$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.
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.
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.
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.
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.
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?
> In the years since, the Nexus 7 ... have established
> themselves
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.
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.
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.
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.
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.
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.
It looks like a race for the bottom on the pricing of tablets these days!
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
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.
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.
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.
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).
You see, when you use Word/Excel/Powerpoint, your primary interaction is by keyboard, supported by mouse. Exactly the input devices, that tablets do not have!
As an Excel jockey during day, I do not want Excel on tablet. I want Excel on notebook (with trackpoint preferably).
MS is porting Office to iOS (probably after first releasing it on WinRT.
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.
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.
That's why there is no "tablet" market where the iPad is a high-end player. There is an iPad market, which is huge and where US$499 is a reasonable price, and then there is a tablet market, where you'll find the Nexus 7, Kindle Fire, Nooks and others fight each other (but not the iPad) for a lower price point. In this second market, an entrant above the US$ 300 range is doomed to fail because it won't compete with the iPad. Microsoft has some great people working for them, but they have no product that can compete with the iPad.
edit: Sorry, feel free to downvote, didn't want to distract from... you know.