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Every time a highly anticipated smartphone or tablet surfaces, it is only a matter of time before we see a “break down” of the device that gives us an estimated price for components. Things are no different with the Microsoft Surface RT, as research firm IHS has now taken a serious look under the hood and come up with how much it actually costs to make a Surface.

So what’s the verdict? The 32GB version of the Microsoft Surface RT sells for $499 and costs $271 in parts. As for the Touch Cover that sells for $120? That only costs $16 to make. In contrast, the Amazon Kindle Fire HD sells for $199 and costs only $165. That means that Amazon is only charging $34 more than the cost of parts, while Microsoft is selling their tablet for $228 more.

Before you start jumping to conclusions and shouting to yourself “That’s price gouging at its finest”, let’s really think about this for a moment. Sure, the Amazon Kindle Fire HD is only charging $35 more than the tablet is worth, instead they are relying on its multimedia and app services to make back the money. Microsoft also has strong services and apps it can rely on for extra money, so what gives?

Marketing and Research Cost Big Dollars

Marketing and research aren’t considered in these kinds of break downs— nor is the labor considered. While I have no doubt that Amazon is spending a reasonable amount of coin on ads, the dollar amount likely pales in comparison to the billions being spent to market Windows 8.

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Its also worth noting that the Kindle Fire HD research and development is probably less involved when it comes to the software since all they have to test/build is the custom UI that is already based on Android. For the Surface, Microsoft is using the brand new Windows RT OS that likely required quite a big dollar commitment to put together.

Could Microsoft have charged less to its customers and still turned a profit? Heck yes, they could. As their Windows Store and Xbox Music/Video services take off, they would make the money back— especially if they sold the Surface on the cheap requiring an Xbox Music/Video contract. The point is that these kinds of break-downs really tell us little and generally just make people jump to conclusions.

We don’t know how much TRUE profit that Microsoft is making on the Surface after it is all said and done. Sure, a Windows 8 CD and packaging materials might only cost a few bucks to make— but Windows 8 is worth more than that when you consider the employee costs, bug fixing and other research that goes in.

That said, I do think that the Touch Cover could have been priced much cheaper, maybe around $75, and that might have made the Surface even more appealing. What do you think, is the Microsoft Surface RT priced fairly in your opinion? Considering the massive R&D/marketing costs, what do you think a fair price would have been?

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  1. These breakdowns also don’t take into account value-perception. If you price your hardware too low, it is perceived as “cheap.” It also tears down the entire ecosystem. Look at the iPad Mini. While I do think that the price was a bit too high, there would be nothing wrong in my mind of it being priced at $300. Even at that point, though, it would have been seen as too expensive. iPad is a premium device (in Apple’s mind), and is priced accordingly. And the perception trickles down to consumers, whether or not that’s true. The Surface has been priced to enforce that same perception. Windows doesn’t want people “picking up a surface.” They want people to consciously buy them. This is a hard task in the short term, but with the proper marketing, etc…. we’ll see.

    Of course, I’m probably going to skip the Surface RT for the ASUS VivoTab Smart or the Acer Iconia W510, both of which are priced the same but offer full Windows 8. So take that for what it’s worth.

  2. Microsoft is really charging a little more than the other competitors in the market. Though too it comes up with windows 8 and a good firmware but the original firm cost and the cost Microsoft is charging is really too high. I believe marketing cost is only one part of the story. Microsoft uses huge dollars over high level of research and development. But I will still skip buying this at that cost.

  3. Elvira Robinson / November 5, 2012 at 11:45 pm /Reply

    “Microsoft” the name itself reflects the quality of product. Microsoft has spent many bucks for development of this system taking into account research, marketing, development, packing, bundling into promotion so at-least that amount is reasonable.

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