Has Microsoft Priced the Surface RT Out of the Market?

eHow Tech Blog

After months of speculation, Microsoft has finally revealed the pricing of its new Windows RT-powered Surface tablets. Pundits have long wondered what the price point would be: Would Microsoft price the device in the $200-$300 range to better compete with Amazon, Samsung, Barnes & Noble, and Google? Or would it, instead, price it closer to Apple’s iPad? It turns out the device costs $499 for the 32GB model without a touch cover. Is that a dangerous price point?

I think so. Microsoft’s ecosystem for Windows RT is still budding, and the potential is completely unproven. We don’t know what consumers will think of the Surface yet, let alone Windows RT. Apple has gotten away with the higher price point because it offers a packed ecosystem, of which the app selection is the most attractive. Yet Microsoft has priced the entry-level tablet at $500, and if you want a cover, you’ll need to drop $599 for the 32GB option or $699 for the 64GB model. That’s expensive folks; you can get full-powered budget laptops for that price.

I’m not alone in my worries about Microsoft’s ability to compete with Surface, either. I think Windows RT will confuse consumers. As I’ve said before, it runs on an ARM processor instead of x86, which means you can’t run all the desktop apps that you expect on most Windows machines. Will consumers know that?

Worse, at least one analyst thinks Microsoft is setting itself up not to become the number one tablet maker, but instead just one of the bunch. That means the pricing isn’t aggressive enough. “We believe a key risk for Microsoft is that pricing for its Surface tablet could end up being a fatal mistake with the delta too significant, particularly against Google and Amazon,” Sterne Agee analyst Shaw Wu said in an analyst note on Oct. 18. “As we have said before we believe Microsoft needs to price aggressively to give it a fighting chance in the highly competitive tablet market. We believe $299 including the cover-keyboard would have been much more compelling. So far, non-iPad tablets buyers have proven to be ultra price sensitive as seen with the $199 price points and HPQ’s aggressive TouchPad pricing as the company depleted remaining inventory.” As such, Wu argues that Microsoft is setting itself up to be a number four or number five player in the tablet market — behind Amazon, Google, Amazon and others. That’s not good news for Microsoft.

Worse, I’ve seen plenty of reports suggesting that Google is about to introduce a 32GB Nexus 7, and other rumors have pointed to the company possibly dropping its 8GB model to just $99. That’s an incredible tablet for fewer than a hundred bucks. How can Microsoft compete with that? Its tablet costs $400 more.

The Surface RT launches on October 26, when the world will officially get a chance to see how well it stacks up. The good news for Microsoft is that it has already sold out of the first batch of 32GB Surface RT tablets without a cover.

The cynic in me suspects that could be a marketing stunt to make it appear more popular than it is, though.

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