Days before Apple (NASDAQ:
) is expected to unveil a cheaper and smaller version of its
popular tablet, Microsoft (NASDAQ:
) has announced that Surface will go head-to-head against the
third-generation iPad with a starting price of $499. Surface
partially undercuts the iPad by offering are a minimum of 32GB of
memory versus Apple's (NASDAQ:
) 16GB iPad. Microsoft is also selling its 32GB Surface with a
keyboard cover for $599 -- the same price as the 32GB iPad, which
does not come with a cover. Apple charges an additional $39 for
its keyboard-less polyurethane cover and $69 for its leather
While consumers can purchase the Surface covers separately for
$119.99 (for the Touch Cover) and $129.99 (for the Type Cover,
which features actual buttons), Microsoft will also offer a $699
package that includes a Touch Cover and a 64GB Surface. This is
the same price Apple charges for the 64GB iPad, which does not
include the additional accessory.
These differences are small enough for the average consumer to
overlook, but could prove to be critical motivators among techies
and business users who demand more from their tablets.
Hype and Rumors
Up until Tuesday morning, some prospective customers were
still hoping that Microsoft could achieve its
rumored $199 price point
. In August, Crowell, Weedon & Co. analyst James D. Ragan
warned Benzinga readers
that a sub-$200 MSRP may not be feasible. "[It] seems like a low
price for the technology in there," he said. "I'd be a little
surprised if that's the price.
"They have to buy all the components -- the SSD, the
processor, NVIDIA (NASDAQ:
) processor, a touch screen. I just think it'd be hard to make
money at $199 on that."
The $499 price tag may be hard to swallow for those who
believed Microsoft would sell the tablet at $199. But in doing
so, the Windows maker would have likely required that users sign
a two-year contract for one of its services, such as Office 365.
In the long run, consumers may have not saved any money.
By meeting Apple's pricing structure, Microsoft might have
actually made a very smart decision. The price is high enough
that it will prevent consumers from assuming that Surface is just
another Kindle Fire, but low enough to steer some sales away from
Unlike the PlayBook from Research In Motion (NASDAQ:
) and the TouchPad from Hewlett-Packard (NYSE:
) -- two failed tablets that started at $499 -- Surface comes to
the market with one significant advantage: Windows RT.
It may not be the same operating system as Windows 8, but it
is a close variation that will give Surface the power to run
full-fledged Microsoft programs, including Office. Other tablets
are limited to "apps," which tend to be watered down versions of
their PC counterparts. This provides Microsoft with an advantage
over every other tablet currently in production.
Some of the biggest competitors to Surface will come from Dell
), Hewlett-Packard and other PC partners that currently work with
Microsoft. But in providing consumers with the most bang for
their buck, Microsoft appears to be the clear winner.
In promoting Surface, Microsoft can spend as much as it wants
on advertising. But until consumers and business professionals
are able to try the device themselves, the ads might not have
Microsoft is trying to change this by opening new stores
across the country. Until then, it might need to enlist in the
help of Best Buy (NYSE:
), Wal-Mart (NYSE:
), Target (NYSE:
) and other retailers to set up demo kiosks and big displays that
attract consumers. The Windows maker may also need to embark on a
mall tour to bring Surface to the masses this holiday season.
In 2013, Microsoft might have to go even bigger. The company
once sponsored Lollapalooza (back when it was still a touring
event) to promote the original Xbox. This helped Microsoft expose
its game console to an entirely new audience and could be a
critical part of its long-term strategy for Surface.
Microsoft may also want to consider building temporary mall
kiosks (similar to the ones Dell opened across the United States)
to serve as a placeholder until more of the company's retail
stores have opened.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.