Fallout From ‘Pricing for the Surface Pro – An Avoidable Mistake’

It seems my original article a few days ago about how the Surface Pro was priced too high set off a little firestorm among my readers.

I was excoriated for comparing apples to oranges, that is in my comparison of the Surface Pro with the iPad, Samsung Galaxy and Nexus 10. The Surface Pro, I was informed, was better compared to notebooks or convertibles.

In addition, many who came down on me noted that the Surface Pro could do what no other tablet could do, namely run Windows applications – in addition to applets. Thus, it would find a home in the Microsoft-centric enterprise in a way no other tablet could.

Many readers I think missed the main premise of the first article, which is not that the Surface Pro is a bad design, just that it is overpriced.

In case I need to be more explicit, I’ll say it again, judging from the Surface RT, the Pro is a great design – it just costs too much….especially if Microsoft is making a $300 on each product.

It seems to boil down to the premium you place on x86 compatibility, actually not you, but the great mass of people who buy tablets. Currently, it is worth very little to them.

Ergo, if you set a price that values Windows-compatibility at $3-400 more than the market leaders – it is not a winning combination. I’ll quote again from the IDC/Goldman Sachs study;

“The compute landscape has undergone a dramatic transformation over the last decade with consumers responsible for the massive market realignment. While PCs were the primary Internet connected device in 2000 (139mn shipped that year), today they represent just 29% of all Internet connected devices (1.2bn devices to ship in 2012), while smartphones and tablets comprise 66% of the total.

Further, although Microsoft was the leading OS provider for compute devices in 2000 at 97% share, today the consumer compute market (1.07bn devices) is led by Android at 42% share… “

There is the rub, isn’t it?  Those who wrote off my original premise are still in year 2000 mode.  The PC is no longer king and its only going to get worse.

Folks cannot have it both ways.  The Surface Pro is either competing with tablets or with notebooks.  If you believe that Microsoft launched the Pro wanting to replace all the old enterprise notebooks, fine.  They can cannibalize a shrinking market and be done with it.

If on the other hand, you are competing with tablets, then the iPad, Nexus 10, and Galaxy Note are your competitors.  You cannot just imagine a market and poof! it magically appears. The market is what it is.

People who wanted tablets have not been waiting and sitting on their hands, pining for the Surface Pro.  No, they’ve been buying iPads and getting embraced by Apple and Android ecosystems.

So let me summarize this again;

1. The Surface Pro is a great machine
2. It is mainly targeted at the consumer, a secondary target is the enterprise (hence the Best Buy outlet)
3. It is mainly targeted at the tablet market, NOT the notebook replacement market
4. It costs significantly more than its main competitors
5. Its margins are likely to be in the range of $300
6. Its sales are likely to underwhelm at this price point unless you sell at a more competitive price point

A great example of course, is Amazon, who sold the Kindle at no margin for a while and carved out a space in the market.  Now, they are making some money off the Kindle HD.  Microsoft is seeking to be like Apple without earning its way to that position.

If they do that, the center cannot hold.  They will fail at it.  Sure they’ll sell a few Surface Pros and make a lot of noise about enterprise adoption.  But all they’ll be doing is replacing old notebooks, which is NOT their goal.

So I hope that clarifies things.  But more likely it might set off another firestorm… go ahead and sound off in the discussion below, even if you agree with me..