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Blog by Insglas

Why Surface Can Fail

The new tablet by Microsoft has hit the headlines of all major tech media and seems to have sparked a real big hype around the device. The tech journalists have meticulously described all the known features of the new device, the Web is teeming with fotos and hand-ons of the new device. All, in all, Surface is the number one topic these day.

However, Microsoft have been smart enough not to lay all their cards on the table and didn't tell the public how much Surface will cost. Mostly, I believe, because they have no idea themselves.

The price tag is really the key factor in whether the tablet will be a success or miserably flop: hardly anyone will buy Surface with Apple selling millions of iPad all round the globe, even if the tablet by Microsoft is in now way worse (and in some respects may even be better).

In other words, Microsoft hast to sell Surface cheaper than iPad to beat Apple. Let's try to figure out what this price could actually be.

Even though Microsoft didn't explicitly announced that the magnetic Surface cover and the touch-based keyboard will come along the tablet in the basic package, it is clear as day that they will. Otherwise, I can't explain why they out so much emphasis on them in their presentation and advertising campaign. Therefore, we should compare the prices not between Surface and iPad but rather between Surface and iPad with a smartcover and a keyboard.

As of today, the 3rd generation iPad comes starting at about US$610 (US$499 for iPad, US$39 for the smart cover and about US$69 for the iPad keyboard). It follows that Surface should cost at least about US$560 to secure a sufficient price gap between the devices.

The Microsoft tablet will come in two version: the RT version with Windows RT pre-installed and the Pro version, running on the full-fledged Windows 8. Microsoft have not yet announced at what price they are going to sell their new OD. However, keeping in mind the start prices for Windows 7 (Home Premium came at US$119.99 and Ultimate at US$219.99), we can conclude that Windows 8 will be available for similar money.

That pricing supports the theory that the basic version of Surface will be available for about US$560. It is pure mathematics: US$560 (the highest more or less attractive Surface price margin) — US$120 (the possible price for Windows RT) = US$440. With the production costs of Surface lying presumably on above iPad's 310 bucks, it reduces the profit that Surface itself will make down to thirty dollars. It means, in effect, that selling Surface at US$560, Microsoft will practically give away Surface almost for free, which would be really stupid. So much fuss around… thirty bucks?

It all boils down to the fact that the basic version of Surface will cost definitely more than iPad and probably even more than iPad with accessories (i.e. more than US$610). In all other scenarios, the tablet will reap too little profit to render it a success. This high price, in its turn, makes the success chances of the Microsoft tablet utterly bleak.

 

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