Pricing for the Surface Pro – An Avoidable Mistake

Yesterday, I wrote about the coming launch of the Surface Pro on February 9. It was announced by General Manager of Microsoft Surface, Panos Panay in a blog post earlier in the day.

The Surface Pro, as you may have read, is priced at $899 for the 64GB version, with a 128GB version available.

To my mind, this is a mistake, actually, a really big mistake. Let me explain.

The mistake is not only because cheaper options exist, comprising currently stronger brand names, but because Microsoft is completely missing market sentiment at this point.

The PC market fell last year for several reasons, including the much-discussed migration to tablets and smartphones, but also because of tighter economic times with buyers simply choosing cheaper computing options.

The Surface Pro is not a “cheaper computing option“. Not by a long shot.

Not when adding a keyboard takes you to $1,130. Take another look at the options out there at lower prices;

  • Apple iPad ($699 for 64GB model),
  • Nexus 10 ($499 for 32GB model) and
  • Samsung Galaxy Note ($580 for upgraded 64GB).

One only has to look at the story of the Surface RT to see how avoidable this slow-motion tragedy is.

The Surface RT was a sales disappointment – we can probably agree on that now. Fewer distribution channels, confusion by buyers who wanted x86 application compatibility AND a too-high price led to many potential buyers giving it a pass.

Interestingly, what was the profit margin for the Surface RT, as calculated by iSuppli? $284! That means that Microsoft – in wanting so bad to become a “devices and services” company, refused to sacrifice margin for volume.

That’s the kind of thinking that will get you roughed up in this penny-pinching global market these days, unless you are Apple. If you keep doing the same things, you’ll keep getting the same results.

No BOM numbers have been announced yet for the Surface Pro, although I’m waiting, like many others, for iSuppli’s teardown numbers.

If the Surface Pro’s profit margins are above $300, which I think they will be, then the $899 price is a self-inflicted wound. To Microsoft, I’d say: this is going to hurt.

No doubt about it – $699 would be a killer price for the Surface Pro and enable it to sweep out iPads and Galaxy’s from their corporate beachheads as well as become a consumer hit.

The message to Microsoft (it’s probably too late though) is: cut your price and do it now. Do it through coupons or “temporary sales” to save face, but DO IT!

This mistake is still avoidable.

Please Leave Your Comments Below...

  • Arnold

    What is it that people can not understand that you can not compare
    Apple iPad ($699 for 64GB model),
    Nexus 10 ($499 for 32GB model) and
    Samsung Galaxy Note ($580 for upgraded 64GB).

    To a surface Pro. CANNOT DO IT – ITS 2 DIFFERENT THINGs!!!! WTF MAN!!!

    You compare those the Surface RT, that is the same family of ARM devices. Then you see:
    Surface RT ($599 for 64GB model)
    Apple iPad ($699 for 64GB model),
    Nexus 10 ($499 for 32GB model) and
    Samsung Galaxy Note ($580 for upgraded 64GB).

    The Surface Pro has to be compared as an Intel device to a Macbook Pro, A Lenovo machine like a the Yoga or the Helix, and any of the millions of ultrabooks out there.

    WTF!

  • DenverBuckeye

    It’s hard to imagine anyone other than a mindless Apple zombie writing this article. The fact of the matter is there is a market (maybe small, maybe large) for a all-in-one tablet PC option. Whether that’s a detachable screen, convertible/swivel or some other form, some users want a tablet experience AND an i5/i7 processor that runs desktop applications — not glorified phone apps. I’m personally willing to spend $1500 on something that can be a Windows 8 tablet and a laptop and has swappable battery.

  • Bay

    DenverBuckeye, Arnold, OK I get it. You think I’m comparing apples (pardon the pun) to oranges, right? Your point is well taken, at least for the tech-savvy. Isn’t this the same argument that was made for the disappointing Surface RT, with the “saving grace” of Office 2013? Well, we know how that fared.

    If you believe the Surface Pro has no shot with the consumer market and your primary audience is the enterprise, fine. This product will bomb as a consumer product and you can try your chances in the enterprise. Problem is – I’m sure you know this – the bulk of organizations are perfectly fine with Windows 7 for now. And there are many cheaper ultrabooks running Intel chips.

    Also, the consumer market is by far larger. Most consumers use their tablets to consume content, not to create detailed Excel spreadsheets. They don’t care whether it’s an i5, i7, ARM or Snapdragon – they just want to stream their movies and access their ecosystem (you may have noticed that Google and Apple have the most and the best apps.) and they want to do this as cheaply as possibly or with a brand leader i.e., Samsung or Apple or Google.

    DenverBuckeye, come on back in 6 months and I promise you we’ll be lamenting poor sales of the Surface Pro. The reason will not be a mystery – it will be the “old” entitled Microsoft thinking that has made them an also-ran in the new world of computing devices.

    Six months is not too long. We’ll be here.

    • Arnold

      Never did we say it does not have a shot with the consumer market, Just that you are comparing apple to oranges and unfortunately you are not the only writer that does that and unfortunately not the only Techie that as well. And when it comes to the Best Buys and Staples of the world, they also do not know how to differentiate…That’s why to a certain extend you are correct about the average consumer not caring and not knowing. Because of people like you writing articles like this and not doing something more constructive to help out the average consumer. Like writing an article of the differences and why then the Surface Pro is coming in at a great price when compared to other touched enables ultra books or laptops. If writers such as your self wouldn’t be (and I am sorry to say this, but honestly this is what it looks like you are doing) Sabotaging Windows 8, then the average consumer would be better informed and could make a better decision when they need to make a purchase.

      You said: “Also, the consumer market is by far larger. Most consumers use their tablets to consume content, not to create detailed Excel spreadsheets. They don’t care whether it’s an i5, i7, ARM or Snapdragon – they just want to stream their movies and access their ecosystem (you may have noticed that Google and Apple have the most and the best apps.)”

      That is exactly write, that is why you should stress the point on why RT is a great option for those at a better price point. As far as the apps go. Guess what if people such as yourselves would not be talking down windows 8 so much there would be a greater interest and maybe developers would develop greater apps. At the end of the day the apps will come and the operating system will evolve as well and be better than anything Apple of Google can offer.

      And you will eat your words.

      • WillyThePooh

        I am sure Win8 will do fine.But not Surface RT/Pro as it is not positioning itself for the general public.

        • Arnold

          Not positioning itself for the General Public??????

  • DCJason

    I’ll add that this reviewer is bias. Making comparisons of hardware that do not perform the same function is just plain ignorant. It seems like there are a lot of pro-Apple reviewers screaming at the top of the lungs how awful having a tablet and computer all in one….hmmmmm….. I think they are protestesting too much. 5+ years ago when I purchased a Sony Viao laptop, it cost about $1000 plus Office ($200-300?). So now the Surface Pro costs about $1000 but now I can get Office 365 for $100 a year. So I get a tablet (never did want to buy an Apple product anyway) AND laptop in one….sounds like I’m saving money. And I get the most up to date Office, 20GB of SkyDrive, free Skype minutes…all for $100? Again, sounds like I’m saving money. So what are you moaning about? Drinking too much Apple koolaid?

    • Bay

      Jason, you must understand that the majority of folks who buy tablets don’t see things the way you do. The sales numbers prove it. They want access to their movies on Netflix, ability to Facebook and send email and download their ebooks from Amazon. That’s where the growth is. You are stuck in a market that no longer exists.

      You have to see the market as it is (and will be), not as you would want it to be. As for my being an Apple shill, that’s funny. I have one iPad at home vs. 6 windows PCs and servers. Also, my all-time most popular article on this website is “Making the Case: Google is Deathly Scared of Microsoft“. Read what I say about Apple there.

      That would hardly cast me as an Apple shill now, would it? It is just really important to speak the truth to and about a company whose products I’ve used (and still use) for over two decades.

    • Bay

      Jason, you must understand that the majority of folks who buy tablets don’t see things the way you do. The sales numbers prove it. They want access to their movies on Netflix, ability to Facebook and send email and download their ebooks from Amazon. That’s where the growth is. You are stuck in a market that no longer exists.

      You have to see the market as it is (and will be), not as you would want it to be. As for my being an Apple shill, that’s funny. I have one iPad at home vs. 6 windows PCs and servers. Also, my all-time most popular article on this website is “Making the Case: Google is Deathly Scared of Microsoft“. Read what I say about Apple there.

      That would hardly cast me as an Apple shill now, would it? It is just really important to speak the truth to and about a company whose products I’ve used (and still use) for over two decades.

      • WillyThePooh

        Comparing Surface Pro with iPad/Nexus is like comparing orange to Apple. But I do agree the ultrabook price is out of reach of most people. That’s why Mac + ultrabook only occupy a small potion of the computer market share. Most people opt for a device that’s under $500. Those, that could afford $500+, are most likely have iPad already.

      • DCJason

        The Surface Pro is NOT a tablet! Yes, Surface RT is, but the Surface Pro is a combination of a laptop with the additional function of a tablet. Compare the Surface Pro with another combination device and then we’ll know you are doing a fair comparison. Apple, Google, etc is not producing ANYTHING to compare to what the Surface Pro is. Your article was on the price of Surface PRO, not Surface RT yet you keep on going on about functions that ONLY tablets can do and price comparing.

        I laughed at your comment of me being ‘stuck’ in a market that no longer exists. What planet do you live on? How many Windows users are there in the World? Tablets are ANOTHER market…..not a replacement.

        And every Windows users who has an aging computer/laptop is going to add to the sale of another Window OS statistic. And many of those will be the Surface Pro. And that fact that it costs about the same price as they paid for their laptop but they ALSO get a tablet function, they will see it like me……they are rewarded by not having spent money for a iPad, Chrome Book, etc.

        • Bay

          Jason, if you see Microsoft’s aim as cannibalizing the shrinking notebook market with the Surface Pro, then you and Microsoft have different playbooks.

          Of course Microsoft seeks to break into the tablet market with the Surface RT AND Surface Pro. That is a given.

          Don’t miss my bigger point – I actually think the Surface Pro is a great design – perhaps even a killer design. The article is simply about pricing, specifically too-high pricing.

          If it turns out that they have $300 margins, then that is a mistake. Amazon did it right with $0 or maybe even -$10 with the first Kindle. Now they are making a profit with Kindle HD, but they took a hit at first to break into the market.

          Back to the Apples and Oranges argument. Let me be frank – it is irrelevant. x86-compatibility is not the be-all and end-all these days, in case you hadn’t noticed. And… the consumer market (I’ll say it again) is much bigger than the enterprise.

          That’s my whole point. So no Microsoft-hating here, just saying the price point is all wrong.

  • http://www.facebook.com/profile.php?id=507818256 Rafik Samman

    I get it, all the technical writers these days are in love with Apple… This is the only conclusion I can come too when I read surface pro reviews. You’re comparing an IPad, Nexus, Note to a Tablet running laptop specs. You can’t do this. Microsoft is not asking you to pick up a 1000$ PC tablet to replace your IPad, Nexus, Note tablet. In which case you are getting a creative device and not a consumption device.