Aggressive pricing seen as key to Microsoft Surface's chance of successMicrosoft's new ARM-based Surface tablet will likely need to undercut the price of Apple's iPad in order to have a fair chance in the marketplace, analysts believe.
Shaw Wu with Sterne Agee said in a note to investors on Tuesday that Microsoft will need to price its ARM-based Surface close to, or even below, Amazon's $199 Kindle Fire. The risk would be Microsoft taking a loss on the hardware, as Research in Motion has done with the PlayBook and HP did to sell off TouchPad inventory.
Separately, Brian White with Topeka Capital Markets also believes Surface "will need a healthy price discount to the iPad" if Microsoft hopes to gain traction. He said Microsoft will likely have a difficult time undercutting the iPad, since Apple's iPad 2 is priced at just $399.
In addition, White also believes that Apple could release a smaller, so-called "iPad mini" this September at a price point between $250 and $300. That would make it even more difficult for competitors like Microsoft to undercut Apple, and would also open up the iPad to a new market segment.
Wu noted that Microsoft's press conference, held in Hollywood on Monday, was very Apple-like in its presentation. He sees it as a positive that Microsoft is being more proactive in addressing the mobile device market where it has had little traction, but also noted the Surface will cannibalize Windows partners like Dell, HP, Acer, and Lenovo.
Industry sources who spoke with Wu indicated that one of the reasons Microsoft has decided to take more control and produce its own hardware is the lackluster results Nokia has had selling devices based on the Windows Phone platform.
"Despite heavy promotion and advertising and carrier desire to have a viable alternative to Android and iOS, Windows Phone 7 has found disappointing customer acceptance," Wu wrote.
To White, Monday's event was a clear sign that Microsoft is looking to find its identity in the post-PC era. He said that Microsoft's decision to control both hardware and software in creating the Surface was "the sincerest form of flattery to Apple."
In White's view, the ARM-based Surface tablet will be more of a threat to the Android ecosystem than Apple's iPad. And he thinks the Windows 8 Pro Surface tablets, featuring Intel processors, could have a place in "certain parts of the enterprise world." But he said Monday's presentation gave him no reason to think most consumers would prefer Surface over an iPad.
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