I’ll be honest, when I started to do research for this post, I started out thinking that Microsoft Corporation (NASDAQ:MSFT) had a problem. However, the more I thought about it, I think the company’s problem may not be an issue after all. The potential issue is the Surface tablet, and the problem I see is pricing.
The First Time In A Long Time
For the first time in a while, Microsoft Corporation (NASDAQ:MSFT) got my attention when they introduced the Surface tablet. Apparently I’m not the only one, as Travis Hoium of Fool.com also seemed impressed by the tablet and Windows 8. He wrote last year that, “Windows 8 brings common functionality for desktop and mobile users, something not even Apple Inc. (NASDAQ:AAPL) does. He said that when it comes right down to it, there are about a billion customers that really have nowhere else to go.
I’m not comfortable investing based on the idea that customers have no other choice. Microsoft Corporation (NASDAQ:MSFT) has a virtual monopoly in the PC industry, but they can’t afford to force customers to look elsewhere. If those customers look hard enough, they are likely to find a Mac, or even a Google Inc (NASDAQ:GOOG) Chromebook as an alternative. That being said, Windows 8 was designed with a touchscreen in mind, and the Surface represents the first time I’ve seen Microsoft produce hardware that could catch the attention of shoppers. However, the real question is, will the Surface sell?
This Thing Has 99 Problems And 98 Could Be Solved With Better Pricing
When it comes to the Surface RT model, I know that it comes with Office, but that won’t be enough for most users. The problem is, at $499 a customer can get a 16 GB iPad and get at least 600,000 more available apps. If that iPad user wants something akin to Office, they can purchase QuickOffice (which is owned by Google) for about $15 and get a full office suite that syncs with Dropbox, Box.net, Google Drive, and others. Adding a keyboard to the iPad is cheaper too with the Logitech International SA (USA) (NASDAQ:LOGI) Keyboard cover selling for $79.99 on Amazon.com, Inc. (NASDAQ:AMZN) versus the $119.99 cost of the Touch Cover Microsoft sells.
The only thing the Surface Pro is a Pro at is pricing. Starting at $899, Microsoft Corporation (NASDAQ:MSFT) priced themselves out of the market. Users are going to need the Type Cover for $129.99 to get real work done. While the Touch Cover looks cool, it’s like typing on a piece of cardboard. This means a business user would spend at least $1,028 on the 64 GB model. However, since Microsoft Corporation (NASDAQ:MSFT) chose to not offer separate user defined storage, the actual user accessible storage is 23 GB. I know that you can add external storage through the USB or SD card slot, but that adds to the final price. In addition, when was the last time you saw someone carrying a tablet around with a hard drive attached?