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Microsoft Has a 'major dilemma' Pricing The New Surface Windows Tablet vs. the iPad


Editor in Chief
Jul 27, 2011
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According to Chris Whitmore, an analyst with Deutsche Bank, the new Microsoft Surface Tablet will have a major uphill struggle against Apple's iPad. In his analysis he indicated that Microsoft is "grasping at a competitive response," and will have a "major dilemma" when trying to price the new Suface competitively against the iPad. He does a cost breakdown analysis with projected parts costs for the components and manufacturing between the two tablets, and things look somewhat bleak for Microsoft if his figures are correct.

Based upon his estimates, Microsoft and their partners will need to price their tablets at about $650 in order to keep a gross profit margin of just 20%. This is well below half of the 44% gross profit margin that Apple has with the iPad. As you can see from the middle column of the chart above, for Microsoft to compete on a level profit margin with Apple, they would have to sell the Surface at $820 for the RT version.

The Pro version of the tablet will not even compete directly against the iPad and is more likely to go up against ultrabooks and the Macbook Pro. Still, Whitmore believes that the Surface Pro will actually find better success than the RT version because it is more likely to be adopted by IT departments in the Enterprise market. This will slow the adoption rate of iPads into that market segment. Here's a quote with additional details,

Still, Whitmore believes Surface models running Windows 8 are more likely to find success because they offer backwards compatibility with traditional Windows software, like full support for Microsoft Office. He said the Surface Pro has the potential to slow adoption of Apple's iPad in the enterprise, but even that would be the best-case scenario for Microsoft, in his view.

"In such a scenario, Microsoft will be swimming upstream against the consumerization of IT trend with a heavier, bulkier and more expensive product," Whitmore wrote.

He projects total tablet shipments in 2012 will reach 97 million units, growing to 124 million in 2013. He sees iPad sales exceeding 60 million this year, and growing to 74 million in 2014.

Projections from Deutsche Bank call for Apple to maintain between 60 and 65 percent of the tablet market, while Surface RT and Android tablets will struggle to gain traction.

What do you think of this analyst's predictions?

If you are curious about the competition's new tablet, or just like all technology in general, head over to our sister-site @ Microsoft Surface Forum.

Source: SurfaceForums.net via AppleInsider
When the iPad came out, people said it was too expensive as well.

Sent from K48
Couldnt edit my post for some reason, sorry for the double post but ignore my first comment.

Sent from K48
nice point biobunny!
Keep in mind that the OS in the list is not COST for microsoft, but Revenue/Profit. So basically they have bandwith to lower profit on the hardware. And also... they do not plan to stay in hardware for long time. They try to tickle their hardware partners to comeup with more innovation and then leave the hardware market themselves, making their profit entirely on the OS again and patents.
Microsoft will struggle, it not fail totally, in the consumer market. The most likely place they will see success is the wired, industrial market. An intel based tablet with only 4 hours of battery life weighing 2.5 pounds is not going to thrill the mobile user at all.
By the way, there's been lots of speculation about battery life, but the speculating based on what looks like reasonable measures has been seven to eight hours. Lots of stories online. Here's one:

Microsoft will struggle, it not fail totally, in the consumer market. The most likely place they will see success is the wired, industrial market. An intel based tablet with only 4 hours of battery life weighing 2.5 pounds is not going to thrill the mobile user at all.

Why do you say that? The battery life is only speculation at the moment as is the price. I agree it will be a bit hefty compared to the iPad, but it's not that bad.

If you look through this and other forums for iPhones and iPads, what's the number 1 question asked by noobs?

How do I use MS Office?? documents etc. The surface will have this as a native app. (I don't believe we will see an iOS version for a long time yet imho)

That and the easy integration with home pc/laptop may sway any new tablet consumers towards Win8..
I think MS has enough leverage to get their components priced similarly to Apples prices, so the comparison by the bank is speculation.

Also Microsoft has the leverage of crediting other high margin items on future large corporate contracts, to influence corporate buyers.
I don't expect Microsoft to compete on price.

I also don't expect their consumer tablet to do anything at all.
In this post at Asymco last week, Horace Dediu suggested that Microsoft currently makes about $80 of profit per PC sold (Windows and Office); if they can genuinely pull in ~$140 margin per Surface, then that gives them around $60 to take care of 'cost of sales' and maintain current profits. And it begins to become clear why they're only selling them through Microsoft stores...
I think that we need consider the price,but the function of Surface or iPad is more important,if it not only has the price advantage but also the function advantage,it will be successful!

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