Doubt Descends on $199 Surface Rumor

Microsoft’s upcoming Surface, the company’s first in-house tablet PC, is scheduled to launch later this year. Microsoft hasn’t confirmed how much the Surface will cost, but a recent Engadget report pegs its price at US$199, greatly undercutting presumed rival iPad and matching the price of much smaller tablets like the Kindle Fire and the Nexus 7.

When the Surface was first shown earlier this year, Microsoft did not reveal details about pricing other than to say it would be competitive with similar devices.

The market leader in tablets, Apple’s iPad, starts at $499 for the newest version. Competitors like Samsung’s Galaxy Note, which runs the Android operating system, go for more than $500.

The Surface will feature a 10.56-inch display, an emphasis on entertainment apps, a Touch Cover that doubles as a keyboard, and Microsoft’s highly anticipated upcoming operating system, Windows 8.

The tablet is also notable for being the first PC device for which Microsoft will manufacture both the hardware and software. The company does the same with its Xbox gaming console, but its move to the PC side has rattled some its longtime hardware partners, including Acer.

The Surface doesn’t have an official release date but is scheduled to launch around the same time that Windows 8 debuts this fall.

Microsoft did not respond to our request for comment.

Is It Possible?

Pricing is critical for any tablet hoping to launch into a highly competitive market, said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. As manufacturers struggle to launch devices that can compete with the iPad, some are weighted down by too-heavy price tags. Other competitors, like Amazon’s Kindle Fire, maintain a low price and sell for little to no profit, then make up for it in sales from online digital content stores.

Microsoft, though, doesn’t have the advantage of being able to make up for low prices from digital content offerings. It also has other tablets that are set to run on Windows 8 that it needs to promote, making such a low price unlikely, said Moorhead.

“I do not think the Surface will be priced anywhere near $199 without a monthly subscription service, as it would destroy all the other Windows RT tablets that were referenced in Microsoft’s latest blog post,” he told the E-Commerce Times.

For Microsoft, a latecomer in the tablet war, to make a dent, it needs as many compelling Windows 8 tablet offerings as it can, said Moorhead, and if the Surface flies off the shelves for $200, the company risks alienating the rest of its line even further.

“Microsoft needs masses of sexy Windows RT tablets now, and they can’t afford yet to kill the hardware ecosystem for consumer devices in the process,” he said.

If it can promote all of its tablets, though, Microsoft has a chance to be competitive in the ongoing tablet war, said Moorhead, especially if the new applications for Windows 8 turn out to be as promising as the company alleges.

“The key to pricing is applications. It is the prime driver,” he said. “Without Metro apps, the tablet will fail. With them, it has a shot at glory. I believe Microsoft needs at least 5,000 well-known and high-quality apps at launch. If there’s anything the industry learned from Motorola Xoom, BlackBerry PlayBook and the webOS TouchPad, it’s that applications matter, and if you don’t have them at launch, your product will suffer the consequences.”

Scaled-Down Version

However, the company likely wants to make as big of a splash as possible when it hits the market. That could include low pricing, said Bob Egan, vice president of mobile strategy at Mobiquity and analyst at GigaOM Pro, even if a $199 10-inch tablet might be a stretch. That means taking matters into its own hands and producing a product as efficiently as possible.

“Ballmer has the will and the wallet to do battle against Apple, and he is making a big bet on the Surface across multiple form factors,” he said. “Microsoft will continue to erode any, if not all, reverence to existing hardware partners and build much of its own hardware and vertically integrated software and hardware offerings.”

With that kind of commitment to cost-effectiveness, it’s possible the company could launch a ‘light’ version of the Surface, said Egan.

“There is little doubt in my mind that Microsoft will offer an entry, WiFi-only Surface tablet at $199 that it manufacturers itself,” he said.