Government // Enterprise Architecture
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4/9/2013
03:29 PM
Michael Endler
Michael Endler
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Windows 8 Tablets: Why Microsoft Must Slash Prices

Microsoft can maintain its market dominance with Windows 8 if it tries something not in its normal playbook.

When consumers evaluate personal electronics purchases, one principle can generally sum up the experience: good, fast, cheap -- pick two. It's a tried and true business formula, a twist on the notion that customers get what they pay for. Microsoft needs to erase that two-out-of-three strategy from its tablet playbook.

With the first wave of Windows 8 tablets, consumer mileage has varied on the "good" and "fast" fronts. "Cheap," though, has rarely been a blip on the radar, least of all for Microsoft's Surface tablets. With both Windows 8.1 (Windows Blue's current nom de jour) and a new spate of devices on the horizon, this needs to change. Redmond needs to rush satisfying tablets to market -- and they can't just be competitively priced. They need to be downright cheap.

Here's the reasoning: The Surface RT, decried though it's been, is actually a pretty nice device. If Microsoft had charged $250 for the tablet and maybe another $50 for the Type Cover, I probably would have bought one at launch, and I suspect I'm not alone. At that price, I'd have been willing to remain patient while Microsoft developed its lackluster app library. Yes, the iPad would have offered more variety and polish, but the Surface RT would still have been a decent media-viewing tablet that, with its watered-down version of Office, would have featured better content-creation tools than anything on iOS. That's enough use to justify a couple hundred dollars.

[ How much does touch matter? Read Windows 8 Doubt: 3 Ways Touch Won't Help. ]

Unfortunately, the Surface RT costs nearly twice as much as I am willing to pay. Ultrabooks and even the Surface Pro -- the most thought-through Windows 8 device to date -- are no better. Newer, faster and more energy-efficient models that run on Intel's next-gen Haswell processor are just around the corner, so why should someone buy an expensive item today when a better, and perhaps less costly, alternative is only a few months away?

Windows 8 and Windows RT have struggled, in other words, due only partly to their UI awkwardness, mediocre apps and various rough edges. Cost has been the other culprit; there's a price beyond which customers simply aren't willing to deal with learning curves, impatience and other frustrations that might be more palatable with cheaper devices. For many consumers, the Windows 8 devices evidently cross that discouraging cost threshold, and the result has stuck Microsoft in a holding pattern of bad press.

Microsoft seemed to assume that Windows 8's dual identities would be an obvious game-changer, and that Windows RT's native Office app would trump the iPad. Had Redmond been correct, the story would be different. People deal with learning curves if the payoff is a premium experience. But it's become clear that most customers have decided Windows 8 asks too much while offering too little.

Asking less of the consumer would not only help Redmond stimulate adoption, but also help address its other lingering problem: apps. Where the user base goes, developers will follow. According to MetroStore Scanner, the Windows Store currently has around 57,000 Metro-style apps, and app submissions, which had been on a downward spiral since launch, but have risen steadily throughout March and April. The progress is nice -- but the libraries of iOS, Android and even BlackBerry 10 put Redmond's catalog to shame.

Microsoft allegedly spent $1.5 billion to promote Windows 8. It's an astronomical sum, enough to fund a typical Hollywood marketing blitz three or four times over. All that money was directed at the consumer market, which, as analysts have recently made clear, has the power to determine whether Microsoft remains a leader or regresses into a role player. Imagine if Microsoft had instead tilted its budgets such that an iPod Touch was more expensive than a Windows RT, and a MacBook Air more costly than a Surface Pro. Imagine if OEMs had been incentivized from the start to produce low-cost models, a process that has, according to unverified reports, only recently unfolded. How many millions of additional users might be in the Live Tiles ecosystem? How many more apps might there be?

But there's not much use at this point in criticizing Microsoft's earlier strategy. Hindsight is 20-20, and Redmond has probably reconsidered a number of previous decisions. The point in bringing up the company's earlier missteps is not to pour salt in the wound, but rather to prescribe appropriate remedies.

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hrlngrv
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hrlngrv,
User Rank: Apprentice
4/11/2013 | 2:25:45 AM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
I'm not convinced Office is a selling point for tablets. Small screens just aren't that pleasant to use for word processing and spreadsheets. Office on Windows Phones have made them a market leader. In a docking station, maybe, but that's even more additional cost.

Where's the price reduction going to come from? MSFT itself can eat the cost of the Windows license, but if OEMs would also need to sell their tablets at lower cost, the only place with significant give is Windows OEM license fees. I doubt MSFT is going to subsidize Windows tablets like they subsidized the Xbox, so how much less could they charge for Windows 8 or RT for tablets?

However, it's apps that are the weakest spot. I just can't believe enterprises are going to be big Windows 8 tablet buyers for the small screen issue mentioned above as well as wanting to avoid supporting a different tablet OS than the standard desktop OS (7 or XP, for now). That means Windows 8/RT tablets have to catch on with consumers, and cost is secondary to what they'd do with the tablet after they bought it.

Windows tablets need to run new UI apps, and there has to be enough apps to tickle the fancy of tens of millions of different people. What MSFT really needs to figure out ASAP is how to quadruple the number of apps by 4th quarter for the 2013 holiday season. One idea might be MSFT cutting its share of Windows Store revenues to 10% and capping their take at, say, US$25,000 for really popular apps. Yes, that may put a huge dent in Windows Store revenues, but what does any retailer do when sales have been in the tank? SALE!
melgross
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melgross,
User Rank: Ninja
4/11/2013 | 2:05:26 AM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
Michael, you're presenting an absurd argument. If Microsoft needs to discount to that low price level, then they've lost before they start. Microsoft is trying to compete with a quality tablet, at least in hardware. As that tablet costs about as much to make as the iPad, pricing must be about what the iPad's is. If they sold it for $250, they would lose at least $100 on the sale of each tablet, and possibly $150. It could be even more!

So how would that help? Sell a million tablets and lost $100 to $150 million? Sell 10 million and lose $1 to 1.5 billion? Yeah, that would be brilliant thinking , right out of the box. And if they sold 100 million over a couple of years, as they would need to for success, though those numbers would still be well below iPad sales, they would lose a staggering $10 to 15 billion!

Is this a way to run a business? Sure, right into the ground. Like so many other so called business writers, you don't seem to have a clue on what running a business means.

They already lose so much money on most of their businesses that they can't afford to lose more on this. And what would this tell everyone? It would say that no one wanted this so they had to sell it at fire sale prices. That would be true even if they came out at those prices.

The same thing would be true for the Pro. Selling it at half the price might actually bring sales to an acceptable level, but at what cost?

Nothing can save a product that people don't want to buy.
Michael Endler
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Michael Endler,
User Rank: Author
4/10/2013 | 9:37:32 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
Sort of, but not exactly. If Microsoft and its OEMs drive down tablet costs by using cheap components, they won't get very far. The devices need to be inexpensive AND solidly constructed. So if "crap" refers to build, no, not at all what I meant.

If "crap" refers to Windows 8 itself, that's a different conversation. But even then, I think we define "crap" partly in terms of price and expectation. Windows 8 doesn't give a lot of users what they'd expect from an expensive device. But for a consumer-oriented cheap consumption device, it's decent enough. Not great, no-- which is why I suggested being cost-competitive with the iPad and other alternatives won't be enough. The new, small form factor Windows 8 tablets would need to be even cheaper. I wouldn't buy a Surface RT for $500 when I can get an iPad Mini for 65% the cost. But if I could get a Surface RT for 80% the cost of the cheapest iPad, I think I'd be pretty happy with the purchase.

That Windows 8 needs refinement is clear, and Microsoft is working on it. But it's not clear if Microsoft is making the correct refinements. It's also not clear how quickly these refinements might arrive. If Windows Blue doesn't deliver them, how many more update cycles will it take? So, If Windows 8 is going to gain market share before these enhancements hit (which is a necessity, since Microsoft could otherwise fall too far behind to catch up), it will take well-built, cheap devices that pitch Windows 8 or RT to consumption-loving consumers. Windows is about much more than this-- but Microsoft needs these consumers now. Windows 8's end game is in the ecosystem, and developers won't help create the ecosystem unless there are more users. These small tablets could help.
Michael Endler
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Michael Endler,
User Rank: Author
4/10/2013 | 9:27:47 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
During college, foreign language credits were the only ones that could be taken pass/ no pass--i.e. without a letter grade. Evidently my liberal attitude toward this policy has come back to haunt me.
Don108
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Don108,
User Rank: Apprentice
4/10/2013 | 8:38:39 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
So what you seem to be saying is that people will buy cr@p if you make it cheap enough. Maybe, but eventually people will realize that they're buying cr@p.
Andrew Binstock
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Andrew Binstock,
User Rank: Author
4/10/2013 | 8:11:54 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
I know you're intentionally conflating nom de plume/nom de guerre and soupe du jour, but to get it right: nom de jour s/be nom du jour Only the latter means "today's name" The former means the "name of the day" such as the names of the days of the week. Here's the usage in context in French grammar: http://grammaire.reverso.net/4... Cheers!
nc300
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nc300,
User Rank: Apprentice
4/10/2013 | 7:26:59 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
There are different types of market - Government, Enterprise, Large Business, Medium Business, Small Business, Consumer, and many other in between. Government will buy anything expensive, consumers will buy anything cheap (I am making it simpler).

MS is trying to build a product that will please everyone, for over $1000. They will bundle everything and charge for everything. This strategy will not work in consumer market at all, where a user really only needs a few apps. So price is definitely #1 criteria in this market, and Michael is absolutely right about it.

#2, is Windows tablet really a complete replacement for laptop / desktop? (Maybe for a traveling salesman. But a traveling salesman can also very well use other cheaper tablets.) In fact, this tablet cannot do all the stuff that I am currently doing on my laptop.

So the big question is, who needs this tablet? And what extra can this tablet do that a cheaper laptop and/or tablet cannot do?

In an attempt to please all markets, MS has satisfied none.
zman58
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zman58,
User Rank: Strategist
4/10/2013 | 6:35:47 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
You make is sound like they purposefully shot the cash cow in pursuit of a turkey in the woods.
zman58
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zman58,
User Rank: Strategist
4/10/2013 | 6:32:10 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
pblanc,
You are on the right track. I believe they should go even farther and raise the price of the product to double what it currently is. They are not asking enough for them. Doubling the price will create the impression that it is even more valuable than it is at current prices. This market perception of greater value should drive up demand and create far more revenue and greater margin for Microsoft. This would be a win win strategy--they should do it immediately. I will seriously consider buying one once they make this strategic move.
Michael Endler
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Michael Endler,
User Rank: Author
4/10/2013 | 6:16:00 PM
re: Windows 8 Tablets: Why Microsoft Must Slash Prices
I don't disagree that the Surface Pro is a dream come true for certain users. The build quality is strong, it's relatively powerful (though I wonder if it will seem somewhat less so when the Haswell tablets and hybrids hit), and it puts both a real laptop and a real tablet in one portable package. So why shouldn't Microsoft be able to charge more for a premium device? There's an argument to be made that in the case of Surface Pro, maybe a higher price is fine. It hasn't set the world on fire but it's sold much better than the Surface RT. It's also the only Windows 8 device that I've heard companies are currently considering. Still, the Surface Pro enthusiasts are a niche market, and a relatively high price (especially in light of the fact that Surface Pro might not seem so "unique" in a few months) doesn't do much to change that.

Microsoft's potential problem isn't that it's going to crumble into bankruptcy. It has $60 billion in the bank and is going to be around for a long, long time. No, the problem is that Microsoft might not be dominant for much longer. Producing niche products only contributes to Redmond being a mere player, not an industry-leading All Star. One could argue that niche products are fine for now, since Surface Pro is just a start. That's fair. Microsoft has some wiggle room due to the enterprise customer base. But that wiggle room buys only so much time. Analysts currently predict that Microsoft, currently ruler of 90% of the world's PCs, will be battling for second place with Apple OSes by 2017, with Android far ahead. To a company accustomed to being the biggest fish in the pond, this possibility is troubling. We haven't hit the point at which Microsoft has waited too long to produce a real crowd-pleaser-- but it's coming.

But Surface Pro isn't really what the article is about. I think Microsoft should try to produce premium devices that maximize whatever Windows 8 is capable of. Hopefully this will soon include not only elegantly implemented access to traditional software but also unique perceptual computing technology and apps-- not just touch but gesture and voice too. That's a role that, if carved out, could allow Windows 8 to establish its own personality, and to offer pleasing experiences and workflows that iOS and Android can't match. If those devices are excellent, then Microsoft can charge what Apple charges for its MacBook Pros.

But in the meantime, Microsoft needs Windows 8 adoption now. Inexpensive 8-inch tablets will do that.

Michael Endler, InformationWeek
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