Microsoft's Surface RT pricing 'aggressive,' 'mystifying,' say analysts

Misses opportunity to expand tablet market, take it to Apple and its iPad

Microsoft's pricing of its Surface RT tablet was called "aggressive" by some analysts today, "mystifying" by others, even as they all remained skeptical that it's low enough to make inroads on the dominant player, Apple's iPad.

"It's an aggressive price, especially compared to the prices of the RT devices from their OEM partners," said Tom Mainelli of IDC. "[But] I'm not sure it's aggressive enough, when you consider that one of the big draws of Surface is that slick keyboard and it's going to cost an extra $100 or more."

"This is aggressive and right where it needs to be priced," echoed Patrick Moorhead, principal analyst at Moor Insights & Strategy.

Earlier today, Microsoft began taking pre-orders for the Surface with Windows RT tablet (Surface RT), with prices starting at $499 for a 10.6-in. display and 32GB of storage. The entry-level model omits the Touch Cover, a cover-cum-keyboard that Microsoft has heavily promoted in the months since it unveiled its first-ever home-grown tablet.

The Surface RT also comes in a $599 configuration that includes 32GB and a Touch Cover, and in a 64GB model with a cover for $699. Touch Covers will be available separately for $119.99, and the Type Cover, a slightly thicker keyboard with key travel more like that of a lightweight notebook, will be priced at $129.99.

Other analysts questioned those prices.

"I was hoping for $399," said Carolina Milanesi, an analyst with Gartner, in an interview today. "They believe the Office suite is enough to justify that premium [of $499 and up], but they're late to the party. From the consumer standpoint, Office is not what will make you get a Surface RT."

The suite Milanesi referenced was Office Home and Student 2013 RT Preview, a four-app bundle of touch-enabled Word, Excel, PowerPoint and OneNote written for the "Modern" -- formerly "Metro" -- user interface (UI) on Windows RT.

Microsoft is including Office 2013 RT with all Windows RT-powered tablets and devices, its own Surface as well as ones designed and sold by its computer-making partners.

"But enterprises looking at Windows [on a tablet] will pick the x86 version, Windows 8, not Windows RT," Milanesi continued. "For enterprises, Office would be an advantage. Not for consumers."

Ezra Gottheil, an analyst with Technology Business Research who tracks mobile devices, including the Surface and Apple's iPad, was much more pessimistic about the Surface RT at today's prices.

"I can't figure this product out at all," said Gottheil. "I don't know what kind of impact Microsoft thinks it will have, but its only hope was to very aggressively priced."

And at $499 and up, the Surface RT didn't meet his definition of "aggressive." That would have required significantly smaller numbers of $350 or so.

"It just doesn't make a lot of sense. You can get a very good portable PC at these prices," said Gottheil. "Where it stands, it's hopeless."

The elephant in the room was Apple's iPad, the benchmark tablet for most experts and consumers. Apple sells the iPad at $499 for a 16GB model, $599 for 32GB and $699 for 64GB, all minus covers or keyboards. It also still offers a 16GB iPad 2, a 2011 model, for $399.

Some of the experts didn't shy from comparing prices of the Surface RT and the iPad, saying that consumers certainly would.

"[The Surface RT] is not a PC," said Milanesi, "or a PC replacement. So from consumers' perspectives, they will look at it and say, 'This is a tablet. What I know about tablets is that I know about the iPad.' So it may come down to a 'religious' perspective, with those considering the Surface RT people who would never buy an Apple product."

That's a relatively small market, she emphasized. "This is a very high-end position for someone coming late to the tablet party," Milanesi said. "The hardware is really good, but from a price perspective, they would have had a much bigger impact at $399."

Even IDC's Mainelli, who did tag the Surface RT's opening price as aggressive, worried that Microsoft blew an opportunity.

"At $500 for the whole package I think a lot of people would pull the trigger [but] at $600 it's a harder sale, especially with the current lack of RT apps," Mainelli said, talking about the $499 Surface RT sans a Touch Cover and the $599 model with one.

Microsoft, of course, has a partner ecosystem it has to keep in mind, something Apple, Google, Amazon and other tablet makers do not. That may have contributed to the pricing decisions Microsoft made, said Milanesi.

"On the plus side, these prices are good for the partners," she said of the room they may have to compete with the Surface RT, or even undercut it. "Microsoft had to price the Surface RT only to sell enough. They cannot flop, they have to show some traction. That's why I still think [the Surface RT] is a marketing tool for them, a way to display Windows."

Gottheil, however, remained unconvinced that Microsoft's pricing strategy was smart, or that it even had a strategy. "It's going to be very hard to explain the value proposition to consumers," he said. "The one hope they had was to show good price-performance."

So who will buy a Surface RT at these prices?

"It's not going to be bought by someone who would buy an iPad, or even an Android tablet," Gottheil argued. "I think it's for a very specific market: consumers who have a primary PC, want a tablet, and for whom Office is very important. But it's not even clear if Office will not be available on Android or iOS.

"I just don't see this a successful product concept at this point," Gottheil concluded. "It's always been a problem child. It's poorly defined and poorly positioned. It would be a mystifying product even at a considerably lower price."

Customers in eight countries -- Australia, Canada, China, France, Germany, Hong Kong, the U.K. and U.S. -- can pre-order a Surface RT from Microsoft's online store, which today promised delivery by Oct. 26.

The Surface RT will also be sold in all Microsoft retail stores starting Oct. 26, including the 34 holiday "pop-up" stores it's assembled in malls and shopping centers in the U.S. and Canada.

Computerworld's Matt Hamblen contributed to this report.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Read more about tablets in Computerworld's Tablets Topic Center.

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