Microsoft faces 'major dilemma' pricing Surface tablets against iPad - Page 2

The other part of the analysis that they are leaving out, besides the investment made in apps, as all the hardware investment people have made as well. There are so many Idevice accessory you can buy on the market, not that anyone really needs most of them but it is a huge market and people have lots of this stuff. In order for them to switch they will have to give it and maybe buy a replacement product if it even exist. I know people who bought Ipod and iphone then turned around and bought a mac as an idevice accessory. Now of these product from M$ or Android have this level of support nor do they work well with all the Macs at people homes.

 

These companies have a lot to over come. M$ should know this when they had the dominate position, even apple has not crack the M$ dominate position they have in the PC space. Humans are creatures of habit so until something completely new comes along to disrupt apples space they are screwed to have minor role in all of this.

 

The chart clearly says OEM Surface Style RT tablet.  The chart is imagining the costs/profits for Dell or Acer to make a similar machine running Windows.  The $90 is what the manufacturer will have to pay MS for the right to use Windows on their tablet (The $90 amount was rumored months ago).  The explanation for the extra $12 in "other" is referring to Apple's economies of scale for all the little items that go into the tablet.  Apple buys parts by the 10's of millions so they can command significantly better prices than the other manufacturers doing runs of 10s or 100s of thousands.  That has been well documented for years.

 

The data is reasonable and valid as an estimate, think things through and read carefully before spouting off...

Will it come with a spare to be quickly sub'd-in when it crashes during an important demo?

HAHA, what a bunch of BS! What world are you living in? Microsoft been playing the catch-up game since 2007 with their failed eco-system of smarphones and music players. Music business failed miserably, smartphones business fell apart, all developers left to Android eco-system and all MS got is a burning NOKIA spraying gasoline all over itself. Check your sources again. Microsoft is in a deep hole that Google keeps throwing dirt on top.

 

 

 

The article is about the "dilemma" in pricing the Surface tablets.  The $90 is what MS' Partners will have to pay MS to license the Windows 8/RT OS and Office.

 

Since MS relies on Partners to make the bulk of machines selling MS Software -- it is valid to include the license fees as a cost for the Partners!

 

... 'course, there could be a Partnering of the ways...

 

 

Edit:  @Sierrajeff and @GregInPrague beat me to it...  Of course the OP's knew it too -- they were just muddying the waters...

Edited by Dick Applebaum - 6/25/12 at 10:46am

Exactly. Apple doesn't license its OS to other equipment makers. This is the basis of MS business. Therefore if you want to build a Windows machine, you have to pay MS for a Windows license. For MS to compete on a level playing field they have to add back to their hardware costs what they would otherwise charge an OEM. If not, there is no way an OEM would get into the business since they could not afford to compete with MS. It's irrelevant to Apple, who absorbs the cost of the OS development as subsidized by the hardware, and does not risk undercutting its partners from whom they almost solely rely to license its OS --- since Apple does not do this.

Keep daydreaming. MS is only getting into the tablet market so they can steer potential iPad users from Apple because they don't get Windows licensing money from Apple.

Assuming that Microsoft believes in its "one Windows for them all" strategy, and as far as I can see it obviously does, then an attempt of building a best of breed Surface shouldn't go the way of lowest price - surely with time other OEMs will supply that segment.

 

Surface should be in the desirable plus segment, competitive with the iPad but premium (just as Apple competes with quality and designed computers sold at premium price). That would create the 'aura' Windows needs and allow space to the OEMs.

 

But to do that, it really needs to be good. 

Microsoft does have a very nice eco system in place for their OS, it is called the internet.  There is nothing I can not find on the internet I need for my PC.  One of the biggest complaints I have with my wife's iMac is that I pretty much have to pay for everything, freeware is pretty much non-existent in the MAC world.

Exactly... the model was buy the cheapest PC to run the apps you need, which cost over $130 base (Windows+Office) 

 

The iPad is get the the most memory you can afford at the connectivity level you require.  Apps are free or really cheap (OS is 'free', most apps are free, and the 'office' apps are... $30)

 

This kills the OEMs for their only differentiator is price, which is a function of quality in their game.

Well it is called a table-t is it not?

No crap statement of the day, duh.

 

I don't think Microsoft has the dilemma anymore.   They had a dilemma for 4 years, in waiting for OEMs to come up with something to compete with first the MBA, and then the iPad.

They have solved the dilemma as they are building the reference platform for their MBA attack platform (SurfacePro) and their iPad attack platform (SurfaceRT).  They then can spend that $90 in startup costs (sunk) to pay for building out a manufacturing capability,and voila... they get the manufacturer's profit...

 

Dilemma solved.... oh... those 'partners'... well if they can make the same thing cheaper (more than $90 cheaper)... great.  If not, well, they can always become a contract manufacturer for Microsoft. and make 5% margins instead of 44% (more like 20% because of retail 'store/web front'  costs...).

 

No Dilemmas for Microsoft.   All dilemma for the 'partners' (beg for crumbs from MS, or switch to Android?)

Ok, so if what you want is a really slim notebook with a magnetically connected keyboard that will constantly be falling off, and want to stay in the Windows world, then I guess I see the Surface Pro.

But the ARM Surface really has me puzzled.

The big selling point seems to be this 'ingenious' keyboard/cover.

But it makes no sense unless you're really using it purely as a mini-laptop.

1) the keyboard only works for landscape mode

2) The camera is apparently tilted 'up' 22 degrees (in landscape orientation) so that when placed on a desk it isn't pointed 22 degrees down to the table surface. So what happens when you want to use this as a tablet in portrait orientation? Going to have to be aiming 22 degrees to the right?

3) Again, if you want to use this as a tablet (you know, the primary use), then when you have the keyboard case folded behind, your hands are holding onto a keyboard. This case is clearly meant to be taken off when used in portrait, so what again is the advantage of this over just a separate keyboard (other than the clever, I'll admit, magnetic charging. That's a nice touch.)

 

Microsoft is doubling down on the idea that what people REALLY want is an ultra portable laptop that occasionally can be used as a tablet.

I think they're wrong.
 

 

Microsoft will supposedly ask those PC OEMs to pay $85 per copy of Windows RT.  That would collapse the PC OEM profit pool all by itself.

The expensive-software-on-cheap-hardware business model won't work in the post-PC era.

 

 

 

But Ultrabooks, priced at $1000, aren't even moving the needle.  Neither did 10 years of UMPCs and Tablets and Slates running various Windows Tablet PC releases.  So now Microsoft is doing what the usually do after a product completely fails in the market.  They re-brand it.  They're re-branding Slate and calling it Surface.  The Surface Pro is really just a jumbo magnesium HP Slate 500: http://www.appleinsider.com/articles/10/10/22/hp_releasing_799_slate_500_to_take_on_ipad_in_tablet_market.html

 

I think this is how it will all play out:

 

Surface for Windows RT will probably be initially priced from $499, just like the low-end 3rd-gen iPad.  To drop the price any lower at launch would imply that it isn't as good as iPad.  From what little exposure the press was actually given to Surface, it's glaringly obvious that neither Surface is as good as the low-end 3rd-gen iPad, but Microsoft will try hard to avoid admitting that fact in any way.  And the few, proud, early adopters will gladly pay that $499.  Might as well make hay while the sun shines, no?

 

Surface Pro will probably be initially priced from $999 on the open market, because that's what the 11" MacBook Air starts at.  That's the Surface Pro's real target, isn't it?  The target that nobody in the Ultrabook consortium could hit.  And, just like RIM tried with the PlayBook, Microsoft will give free evaluation copies to high-profile potential customers.  They'll gladly do full turnkey installations, from Surface Pros all the way down to Windows Server 2012 at the back end.  All in the hopes that just one Fortune 500 company will actually use them and like them.  And just like RIM, Microsoft will fail.  (Meanwhile, 92% of Fortune 500 companies are testing or deploying iPad, thanks to the "consumerization" of corporate IT.)

 

The Surface honeymoon will end quickly.  Consumer sales of the Surface for Windows RT will plummet after the die-hards and hobbyists get theirs.  Corporate sales will simply never happen.  Prices will then drop, inevitably, as Microsoft attempts to use the PC Industy's traditional last resort against Apple: low, low pricing.  But, also inevitably, low prices won't boost sales much if any.  All it will do is cut Microsoft's margins on Surface hardware.  The whole Surface business plan will become unsustainable without massive cash infusions from Microsoft's bread-and-butter Windows + Office businesses.  And Microsoft will gladly dump that money into the Surface project because they can't afford to let Surface get thrown down the KIN staircase.  It's serious this time.

 

The blame game will then start in earnest.  Maybe even as soon as next summer.  Microsoft will point their finger at Intel and say "If you had designed a better faster more energy efficient x86 chip, Surface Pro would have been a smash hit."  Intel will point their finger right back and say "Yeah, well then why didn't the Surface for Windows RT sell at all, with its ARM chip?"  Microsoft will reply "Because we were forced to maintain backward compatibility with desktop Windows 8 and its apps."  To which Intel will reply "Then you shouldn't have built yet another lame iPad clone and tried to jam Windows into it, all over again, in the first place." 

And Intel will win the argument with that statement.  Microsoft will continue building and selling discounted Surfaces, at a huge loss, funding the project with Windows + Office profits.  Ballmer will stay on as Microsoft CEO for two reasons: because he wants to and because nobody else wants to.

The whole Surface thing is great to watch. If Microsoft prices their devices lower to compete (because hey, Microsoft is the only one making money in the Windows ecosystem anyway and is the only one with money to actually spend on putting together a nicer piece of hardware), they'll undercut the manufacturers who have always been the ones cutting each others margins/throats to be Microsoft's b*tches.  If they leave the price higher, the other OEMs just keep putting out the crap they do today, and that doesn't sell either.

 

So does Microsoft want to upset their entire current business model on the off chance they can even compete in mobile if they try, or are they content to watch as Apple continues to dominate and pulls users away from the desktop at an increasing rate? No real guaranteed win in there for Microsoft in any case. :)

 

Recognizing the problems Windows is going to feel as consumers don't need it, maybe Ballmer is actually doing the smart thing (pains me to even write that) by trying to (for once) get ahead of the curve, or at least to not fall further behind, but it's a hell of a gamble.

According to a new article in PC World,

http://www.pcworld.com/businesscenter/article/258280/windows_8_update_windows_phone_8_apps_wont_run_asis.html#tk.rss_news

Windows Phone applications will not run on Windows 8. That means whatever applications businesses may write for the phone will have to be rewritten for tablets, laptops and desktops running Windows 8.

Even more Ballmer Buffoonery - why buy this Surface Slablet when it can't even run mobile apps.

Doesn't this also apply for google? If they come with a low priced tablet it undercuts profit margin for manufacturers. Which would move to windows for bigger profit margins. So maybe not all is lost for them!?

This is for Windows OEMs making a Surface-like tablet, not for the Microsoft Surface.

I think Microsoft will price the surface with a very low margin to grab market share. They now want Apple's model of selling the software and the hardware. I don't think they care about their "Partners" anymore. For now, most of their "Partners" have no choice with regard to an Operating System anyway. 

The thing that seems most relevant to me is the OS. It is listed at $90. If Microsoft is really going to get into the hardware business, needs to look at pricing differently. They need to subsidize the Surface by providing Windows to the OEM for $5-$10 license fee. They have already spent the money developing Windows 8 and the cost of doing that can be returned through sales of standard PC's to the Enterprise and consumers.  They don't have to sell RT or the license on the Pro version for $90. Apple will be selling Mountain Lion for $20 and that works out to $4 per computer. If it is delivered electronically than easier still. I was looking at the retail packaging the other day with my copy of Windows Vista and it was a ridiculous in a waste of materials and design. All I wanted was the software, not some elaborately designed case for a disc. I anticipate that MS will find a way to muff this product just like they did with Windows Phone last week. 

 

 

I like this sort of prediction. I think that , as usual, reality will go beyond fiction. When threatened, formerly dominant companies like Microsoft are prone to desperate moves ... which dig their own grave. I think it will be fun to watch, really ...

Maybe this can be applied to the Enterprise as well. Tell corporations they have one year to adopt Windows 8 or be left behind with support. Windows 7 will be sold for another year at a premium price to Windows 8 and only be supported for one year after that. XP users will cease to exist for MS. No security updates, no service packs, no discounted tech support etc. Where are corporations going to go? Buy all new hardware using Apple? No! Moved everyone to Ubuntu? No!. Just like the OEM's, they have no where else to go.

 

I`d love to see MS do well with this hardware but I have no clue where you are getting these "numbers" of which you speak.

 

There isn`t an Android tablet that has ever looked like it might try to compete with an iPad.

 

The vast majority of Android phones are running on crap hardware with outdated OS's that will never see an update.

 

Quite honestly I haven`t seen an Android OS that could compete with iOS in stability in it`s entire history (I`m fluent in both OS's) perhaps until ICS came out...maybe.

C'mon, guys - we aren't comparing apples and oranges here...

 

Possibly more like Apples and DogTurds, time will tell.

 

But the simple fact is, the iPad is a device, the Surface will be a computer, in tablet form (at least according to MS).

 

Not designed for quite the same things, not capable of quite the same things.  And I think that Apple, even while it makes its device a little more "computeresque" with each upgrade, has proven that there is a huge market for just what the iPad does.

 

I also think that, mostly for that reason, MS's only real opportunity here is to sell it like this:

WE did what Apple couldn't do!  We made a computer in the most accessible, portable form there is!

 

If they can float that, they might sell a few...dozen.

the PC OEM profit pool:

 

 

Perfectly stated.  It's as if Microsoft is just going through the motions of entering the pad computing market in earnest.  Without the actual earnestness.  Because pad computing can and will cut into their bread and butter Windows + Office legacy desktop computing profits.

 

PC Era: expensive software, generic low-margin hardware.

 

Post-PC Era: cheap software, bespoke high-margin hardware.

 

Microsoft is trying to have it both ways.  Trying to drag expensive PC era software into the post-PC era.  They want to charge their pad computing OEMs (if there are any left) $85 per copy of Windows RT. Hoping that it will fail, so they can try (for what, the third time already?) to cram "no compromises" Windows into yet another pad computer.  The only differences between Surface and the HP Slate 500 being 1) no stylus, and 2) 1" bigger screen.

 

Only 9,000 or so HP Slate 500s have been sold since October 2010.  Rounding error-sized numbers.

Good luck with Slate 2.0, Ballmer.  Let's see if you beat that 9,000 number by summer 2014.

 I run a $500 quad core 3 Ghz desktop.  I guess I'm to cheap to pay $2,000+ for something comparable from Apple.

Apple is just not competive in the desktop market so the smart (not cheap) money is with Windows whether you like it or not.

That said there is no way I would use a Surface as a desktop it would be just too underpowered.  The only justification for tablets and reasonably priced(<$2000) laptops is portability.  Apple is very competive in that market.

You had me going for it at first, I was suckered in with the troll mask on.

LMAO !!

So Microsoft could discontinue licensing its Operating System as Apple did in 1998.

This is another consideration.

 

There is a marked difference between software written for mouse interface gestures (click, drag,  right click etc ), and touchscreen gestures (pinch, rotate, swipe etc).

Unless software has been specifically written for a touch interface it won't work on it.

There is a very good reason why Apple's macbook series don't have touchscreens!

 

Microsoft is letting people believe that they can put a full OS 8 on a tablet and everyone will be able to use it for work.

They need to have some big software names (Adobe, Autodesk and others ;) do some serious rewriting of code very quickly, or it just won't happen.

I don't get it either. A tablet is not supposed to have a keyboard. What they have designed is a terrible tablet and a terrible laptop combined together for a terrible user experience. We don't know how the software will work but they will probably sell quite a few to people like lamewing who don't care how much it sucks as long as it says Windows on it. It has to be better than that crappy Apple kit with all those crappy apps, music, books, movies, TV shows, podcasts, and textbooks.

I think MS has to abandon the idea that to be successful, they have to put Windows on everything. As it has already been pointed out, MS may make more money selling Office for iPad than Surface tablets. Let's hope they don't do something stupid like withhold the iPad version to try to force the Surface to be successful. I don't think that will work.

 

You've gotta be kidding.

 

1) Very little freeware, if any, measures up to the standards of paid software. A lot of the free junk floating around the "Microsoft ecosystem called The Internet" (LMAO) is barely usable, or has a lousy UI, or is poorly-supported. But YMMV. You *might* just be able to find everything free that happens to meet your needs. But form an objective standpoint, you get what you pay for. Just look at the state of Linux today.  Yikes!   All the best software will cost you money.

 

2) The Mac App Store has a Free section. Lots of goodies there, for each category. That's not "pretty much non-existent." Though I wouldn't mind hearing what "pretty much" means. I'm guessing in this case it's just a synonym for "nebulous."

 

3) You or your wife bought an iMac. Apple hardware. You're telling me you can't afford software?? You spent over $1000 on an Apple computer so you can go on the cheap on the software side?

 

Even a nice suite of productivity software doesn't need to cost hundreds of dollars. 

Have you tried the Mac App Store? Plenty of free titles in there. Also, you get what you pay for. Developers like to eat.

I think we are all caught up in the thought that Microsoft is trying to upend Apple in the tablet space, but I imagine they are more likely targeting the Android tablet market in a bid to grow a strong second place. There IS room for another viable tablet OS and so far I don't think that is going to be Android.

Our family owns two iPhones, a Macbook Pro, and three AppleTVs. I'm seriously invested in iOS. However, I recently took the opportunity in moving overseas to buy an unlocked Nokia Lumia 800 (the gaudy cyan one) since my AT&T iPhone couldn't be unlocked until recently. I have to say I liked the WP7 interface for what it was...something uniquely different. The biggest knock against it was the miserable App Store. Now that my iPhone is unlocked courtesy of AT&T I am back to it, but MS has something going as a good second place finisher. Definitely better than Android.

 

Unfortunately, that's virtually all they know. And they didn't bother thinking outside of that. They figured they could milk the "Windows on everything" cow forever. The "Surface" is just a slightly different version of the same thing. It's essentially a laptop with some stuff bolted on in order to make it *seem* re-iomagined. Except it isn't. Nor is it really a tablet, the way a tablet *should* be. 

 

I disagree!

 

MS did not introduce these as "reference platform" devices -- though they could (eventually) morph into that status.

 

 

 

1) If MS prices them too high (and provides an umbrella for their Partners) -- the devices, likely, will not sell in significant numbers to warrant the investment.

 

2) If MS prices them low enough to be competitive -- MS, likely, will be the only source of the devices and there may not be enough volume/profit to provide a reasonable ROI.

 

3) MS' Partners (with existing, high volume, proven manufacturing/supply chains) have been unable to make these bogeys -- what makes anyone think that MS can profitably do this?

 

 

That is a real dilemma, in every sense of the word.  

 

 

In any case, MS have lost the trust of their Partners!

Hello, Mr. Ballmer!

Quote:

 

The implied cost is based on external manufacturers, not MSFT themselves. Were MS to license for free, or a significantly reduced rate, then that discount would apply.

This challenge is no different than any other sector though. Were a steel cutting business to offer welding services, they risk competing with their clients.

 

I think that Microsoft has no choice - the manufacturers missed out on capitalizing on the touch interface that W7 brought to the table - and Microsoft does not want Windows 8 to be in the same boat. 

 

I fully expect to see a Kinect 2.0 camera that turns desktop PCs into "Minority Report-like" interface, and foregoing the hardware change required for touchpads and touchscreen monitors (which are less practical).