Pricing for the Surface Pro – An Avoidable Mistake

Yesterday, I wrote about the coming launch of the Surface Pro on February 9. It was announced by General Manager of Microsoft Surface, Panos Panay in a blog post earlier in the day.

The Surface Pro, as you may have read, is priced at $899 for the 64GB version, with a 128GB version available.

To my mind, this is a mistake, actually, a really big mistake. Let me explain.

The mistake is not only because cheaper options exist, comprising currently stronger brand names, but because Microsoft is completely missing market sentiment at this point.

The PC market fell last year for several reasons, including the much-discussed migration to tablets and smartphones, but also because of tighter economic times with buyers simply choosing cheaper computing options.

The Surface Pro is not a “cheaper computing option“. Not by a long shot.

Not when adding a keyboard takes you to $1,130. Take another look at the options out there at lower prices;

  • Apple iPad ($699 for 64GB model),
  • Nexus 10 ($499 for 32GB model) and
  • Samsung Galaxy Note ($580 for upgraded 64GB).

One only has to look at the story of the Surface RT to see how avoidable this slow-motion tragedy is.

The Surface RT was a sales disappointment – we can probably agree on that now. Fewer distribution channels, confusion by buyers who wanted x86 application compatibility AND a too-high price led to many potential buyers giving it a pass.

Interestingly, what was the profit margin for the Surface RT, as calculated by iSuppli? $284! That means that Microsoft – in wanting so bad to become a “devices and services” company, refused to sacrifice margin for volume.

That’s the kind of thinking that will get you roughed up in this penny-pinching global market these days, unless you are Apple. If you keep doing the same things, you’ll keep getting the same results.

No BOM numbers have been announced yet for the Surface Pro, although I’m waiting, like many others, for iSuppli’s teardown numbers.

If the Surface Pro’s profit margins are above $300, which I think they will be, then the $899 price is a self-inflicted wound. To Microsoft, I’d say: this is going to hurt.

No doubt about it – $699 would be a killer price for the Surface Pro and enable it to sweep out iPads and Galaxy’s from their corporate beachheads as well as become a consumer hit.

The message to Microsoft (it’s probably too late though) is: cut your price and do it now. Do it through coupons or “temporary sales” to save face, but DO IT!

This mistake is still avoidable.

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