Microsoft Surface vs. iPad 4: The Battle of Margins

Today, I plan to compare the features of Microsoft’s Surface RT and the iPad 4, which it targets.

However, another question on my mind is: how much profit are Microsoft and Apple making on these tablets, respectively?

We know for example that the Google and Amazon make little to no money on their tablets. Gizmodo writes:

For some perspective, the 16GB Nexus 7 carries a $159.25 material cost and a $200 price tag. And Amazon has been very candid that it loses money on every Kindle Fire HD it sells.

The iPad Mini also costs $188 to make but sells for $329 (the 16GB version) in Apple’s online store. That’s a profit of $141 or 75% margin.

But let’s turn our attention to the Surface. The 32GB version is $499 online in the Microsoft Store and Sameer Singh helps us out with the breakdown of its parts – $299.

The margin therefore is 60% for Microsoft – very healthy indeed, particularly as sales are doing quite well from many reports.

Let’s turn our attention to the iPad 4. An apples-to-apples 32GB version costs $599. But what does it cost to make? iSuppli gives us this info: $333. Therefore, their profit margin is $266 or 80% – a truly Apple-like margin.

Obviously, Microsoft begins from a position of weakness, so why not shave margins to build the market?

They answer is so as not to tick off their OEMS, who have to add the OS cost to their machines – $50-80. If Microsoft went to 10% profits, say, their OEMs will exit the market smartly.

So while enjoying their margins, Microsoft is desperately hoping that their OEMs create the volume supply in the market at cheaper prices needed for critical mass. Do you think they will?

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