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Pricing seen as key to success of Microsoft's Surface tablets

$600 for a Windows RT tablet could have customers walk away, analysts say

Microsoft needs to hook customers with better pricing if it wants to capture market attention with its new Surface tablets, analysts said Tuesday.

Microsoft said it will roll out the Windows RT version of Surface with prices in line with Windows RT machines from makers such as Asustek Computer. Asus has shown a Windows RT tablet, but has not announced pricing or availability. See also: Microsoft Surface Tablet release date and specs.

The Windows 8 Pro version of the Surface will be priced in line with Intel-powered ultrabooks by other vendors, Microsoft said. Those guidelines could put the Windows RT Surface at more than $600, and the Windows 8 Pro at more than $700, and possibly higher, several analysts said.

But those prices are too high to win favor with buyers who might be intrigued by the innovative Surface tablets with their attachable keyboards that double as covers, analysts said.

Jack Gold, an analyst at J. Gold Associates, said that $600 for a Windows RT Surface tablet would be a "non-starter." Even $500 would probably be too high unless that price includes a cover/keyboard, he said.

"I think the Windows RT version needs to be in the $400 range to compete with older iPads and the new Android devices," he said. The new iPad starts at $499.

Gold said a Windows 8 Pro Surface will probably cost $600 to $700.

Tom Mainelli, an analyst at IDC, said he assumed that the cover/keyboards will be sold separately, which could raise the costs substantially, possibly by $100 or more.

"All Microsoft said was that they will be competitive to comparable products, and I assume the covers will be separate," he said. "They spent a lot of time on the covers, so what will a $600 [Windows RT] tablet and cover cost? That will change [a buyer's] liability a lot."

If the Surface Type Cover, the one with keys that have an up and down motion, costs $150 on top of the price of the Windows RT, that "could make it a tough sell all of a sudden," Mainelli said in a separate interview.

The other new cover/keyboard is called a Touch Cover, with keys inside of a 3-mm-thick pad in multiple colors and a cloth-like feel. The Touch Cover's keys don't move up and down much when pressed, but there is still some movement as compared to no movement when touching a capacitive touchscreen keyboard, based on a Computerworld quick hands-on experience.

Both covers work for both Surface tablets and are the same height and width, although the Type Cover is thicker and has more symbols printed on its top key row for application shortcuts.

One advantage for Microsoft, as the hardware innovator in Surface tablets, is that it won't have to pay the software license fees for Windows RT or Windows 8 Pro that Microsoft charges OEMs (original equipment manufacturers).

That OS license to OEMs has been pegged at $85, at least for the Windows RT license, according to reports, which might cut out most of the cost Microsoft could charge for a cover/keyboard.

"Microsoft realized it came to market late and couldn't afford to miss [making a great product] out of the gate," Mainelli said. "They want to create a product that's competitive to Apple's iPad. They clearly believe to do that, is to make it soup to nuts ...

"And I thought what they said about Surface looked compelling," he added. "But we don't know how compelling Surface is until we find out pricing."

Microsoft hasn't said when pricing will be announced, but if the Windows 8 operating system ships on time in October, pricing for the tablets should be known well before then, certainly by the end of August, analysts said.

Another potential value that could lure customers to the Windows RT Surface is having four free Office apps included. Microsoft has dangled the included Office apps before buyers in recent weeks, which could raise the tablet's value by $100 or more.

However, If Microsoft includes the Office apps and still charges $600 without the cover, it might end up being priced too close to the cost of the Windows 8 Pro machine without the cover, starting at perhaps $700, some analysts said. (Gold disagreed, saying that a $100 difference in price between the Windows RT Surface and Windows 8 Pro Surface is a "lot.")

If pricing for the two Surface tablets is close, buyers could get confused on which Surface tablet to pick, unless they are more sophisticated enterprise buyers who are settled on the Surface tablet for Windows 8 Pro to access Windows apps.

Possible confusion over pricing and model features isn't good, given Microsoft's precarious start in tablets.

Forrester Research Sarah Rotman Epps criticized Microsoft for selling Windows 8 Pro and Windows RT Surface tablets in the same retail stores. Some buyers could get confused between the two versions sowing "discontent" with Microsoft if their expectations aren't met, she said.

Sowing discontent with customers isn't a good starting point for Microsoft and its new hardware, but finding the right price for Surface tablets could serve as a form of redemption.

Mainelli summarized Microsoft's potential dilemma this way: "Microsoft believes that Windows RT tablets should command a premium price. I keep telling them that they're playing from behind in both market share and in terms of available apps.

"I'm not sure that consumers will immediately get the Windows RT story. They will think, 'So it's Windows but it doesn't run my old Windows software?' That means Microsoft has to hook customers with a great product at a great price."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

Read more about mobile and wireless in Computerworld's Mobile and Wireless Topic Center.


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