There’s much speculation about a new class of Surface devices to be released later in 2013. Beyond the Haswell-based buzz, rumors circulate about a smaller series of Surface RT devices - those with an 8-inch screen.
In April of this year, details emerged of Microsoft’s plans to enable a smaller class of devices that might even include a reduced license fee structure. At the time, the only discussion of device manufacturers focused on the OEM community.
As the Windows 8.1 release date nears, there has been discussion on potential pricing of this new class of devices.
Did Price Restrict the Surface RT?
I’ve been a happy Surface RT owner since its release in October 2012. Being a household of multiple tablets – including the iPad and HP TouchPad – I eagerly anticipated the arrival of the first Surface device. It’s been a great fit for my needs – not perfect – but actually more than I’d hoped for. The build quality is exceptional, battery life is excellent and performance has been flawless. I've been able to use the RT with Windows Home Server 2011 and Server 2012 Essentials shares as well as use it to 'Play To' my home theater receiver. Release of the Surface Pro in January didn’t cause me to jump, largely due to the cost and promise of a new batch of interesting hybrid convertible models on the horizon.
However, the proliferation of the Surface RT devices did not take place as I’d hoped it would. Using yet another device - that it seems only I love - makes me wonder whether this is another Palm Pre scenario. I’ve had many devices that were critically acclaimed and sometimes superior to the competition but that were withdrawn for lack of interest. What’s the problem with the Surface – the new Windows interface, lack of proper advertising, improper consumer expectations or is it too expensive relative to the competition?
Is an 8-inch Windows RT Device the Answer?
Given the success of the iPad Mini and many Android-based models – including the Kindle Fire – the sub-10 inch mark is considered somewhat of a sweet spot for tablets. Could a smaller Surface RT be the catalyst to ‘click’ with consumers?
I’m not convinced that the smaller size is the secret to breaking the Surface into the wide adoption it deserves. There’s one exception to my hesitation – price. Last year, I’d listened to speculation that the Surface RT would arrive at an affordable price. I’m not sure why, but I’d pegged the Surface RT at a $400 price point including a keyboard. I figured that price would ensure success – and I was certain that Microsoft would set the price competitively to make the big impact that was necessary for the format to succeed.
If the new smaller Surface RT were priced competitively – at $250 or under – I believe that the computing world would take note. Assuming the competition is preparing a new series of Android-based tablets for the holiday season at the sub-$200 price point, this could be another uphill battle for Windows-based tablets.
As an indication of things to come, consider the Acer Iconia W3. This 8-inch tablet runs a 32-bit Windows 8 OS and lists for $379.99 for a 32 GB model. Partly due to poor reviews and being challenged with a sub-par screen, it's now selling on Amazon for $299. However, many speculate that it was released 'as is' to get a gauge on the 8-inch form factor.
Recent price cuts and financial disclosures by Microsoft further underscore the price pressure on all Surface devices – including a potential 8-inch Surface RT. I've heard our own 'Surface Geeks' throw out what I hope is the correct outcome – that a new Surface RT will be in the 8-inch form factor while the 'Surface 2' will continue where the Pro left off but with Haswell processors.
Estimates Became Reality
In advance of price points being released for the Surface RT, a blogger named Sameer Singh estimated that it would arrive at a price between $399-$499 for a 32 GB model. Singh based his estimate on analysis of a Bill Of Materials (BOM) for the then-unavailable device. Singh correctly picked the $499 mark as it would carry a 38% profit margin.
Using a similar approach, Singh estimates that the new 8 inch Surface RT will carry a price tag of $349 to ensure a gross margin of approximately 42%. The argument against a lower price point is especially interesting. Singh asserts that Microsoft must price the Surface at a premium to maintain a positive relationship with other OEMs considering development of Windows RT devices.
Will It Add Up?
Take a look at Sameer Singh’s blog post to review the BOM based on likely components. While I can’t argue any of the analysis, I do have concerns about the smaller Surface RT entering the market at the $349 mark. Remember, we're talking about the potential for an 8-inch Surface RT. Given that you can purchase a 10-inch RT currently for $350, it's likely that any new Surface will exceed that number. Although I want to be pleasantly surprised (wrong), I am concerned.
Let’s recall the HP TouchPad debacle of 2011. While the TouchPad was considered a solid performer with innovative features, sales were non-existent due to two factors – lack of an app ecosystem and a high price. Sound familiar? History could repeat itself.
Only when HP cancelled the device and introduced a fire-sale price of $99 and $149 did the TouchPad sell. (It was described at the time as a 'nerd stampede' to the retailers who sold it.) The market’s response to the TouchPad at the $99-$149 price point validated interest in a lower-priced alternative to the iPad 2.
I don’t doubt that Microsoft has to tread lightly with their OEMs to encourage platform growth. That said, every OEM with the exception of Dell has moved away from an RT-based tablet. The battle can be lost in the crucial first months after release (days in the case of the TouchPad). My thought is – if it can’t be priced competitively - we’re once again setting ourselves up for disappointment, regardless of the manufacturer. Perhaps the battle – and any hope for a successful Microsoft tablet – has been lost already. The Surface brand has most-certainly been tarnished; perhaps irreparably.
So ask yourself, will you buy an 8-inch Surface RT?