Oh dear: I had such high hopes of Microsoft’s Surface tablets — particularly when those rumors of an extremely aggressive price of $199 started circulating. Even the speculation around a $299 to $399 price point left some hope of success. Now that the pre-order service has gone live, it’s apparent that the price point Microsoft has chosen will restrict its sales to the usual fervent tech buyers and Microsoft staff (although they don’t get one free from the company, which is actually quite a good way to improve unit shipments).
Priced at $499 for a 32 Gb version — plus an additional $100 for arguably its best innovation, the keyboard cover — the Surface RT simply isn’t competitive. Sure, it’s a similar price to an iPad (but probably around twice the price of an iPad Mini) and may be similarly priced to the (unseen) 10-inch Nexus when released (but more than twice the price of the Nexus 7), but this ignores the installed base and apps ecosystem for the Android and iOS devices — and you don’t even get a full Windows experience on this ARM tablet. A cut-down version of Office is nice, and may be worth up to $50 for some consumers, but an Intel-based Acer Iconia W510 can be had for the same money. And arguments about differences in on-board storage make less an less sense as these devices increasing tap into iCloud, SkyDrive etc.
Microsoft is also ignoring the stage of development of the tablet market. We are now seeing third- or fourth-iteration tablets on rival platforms, and firms like Amazon are lowering costs by using differing business models. This isn’t like Xbox, where Microsoft could jump in at the start of a new generation because each generation effectively started from scratch; it’s not even like Internet Explorer, where the firm was late to market but used its sheer critical mass to drive the browser to No. 1.
It’s a depressing illustration of the position that Microsoft finds itself in – keen to be a “devices and services” company but tied to a variety of OEMs that it is desperate not to offend (at least in the short term). It has to price high and build hardware to “inspire” partners, but the trouble is that few are inspired by devices that fail to sell. Ironically, after all the efforts to port Windows to ARM architectures, Microsoft may have been better served by waiting a year or so until x86 tablets had established an ecosystem and then releasing the ARM device with better battery life and a more competitive price (as component costs fall).
As more and more OEMs release details of their Windows 8 touch devices, pricing trends are starting to become apparent: $499 to $649 for an x86 tablet (Acer, Lenovo); $500 to $800 for a touch-enabled laptop (pretty much all the OEMs); and premium pricing for large all-in-ones and innovative form factors (Asus TaiChi, Sony Vaio Duo 11, Dell XPS 12). All in all, this pricing is reasonable and demonstrates where OEMs are focusing: touch-enabling traditional form factors and sticking with x86 architectures. It will be these devices (with perhaps a couple of cheap OEM RT tablet) that businesses start to experiment with and that consumers buy as their “next PC” — not the failed attempt to jump on the ARM bandwagon that the Surface RT represents.
Don’t get me wrong: I think the Surface is a beautifully designed tablet with some excellent engineering and a novel UI — better than most of the existing competition. Doubtless, the couple of hundred consumers who buy them will love them to bits. Unfortunately, this all sounds depressingly familiar; perhaps Microsoft should have called it the Zune HD Surface.
In what is likely to become a trend in the next month, two OEMs announce their Windows tablet pricing pretty much at the same time. Acer has bagged the “first!” title for announcing and getting journalist/blogger hands on its Windows 8 tablets; (I’m assuming, of course, that those leaked ASUS prices were simply a joke/placeholder). Shortly after, Lenovo unveiled the pricing for its raft of tablets. My initial impressions: not bad, some interesting innovation, still a bit pricey for consumers (particularly for an Acer), and it throws Microsoft Surface pricing into even more doubt.
As of November 9, you will be able to buy a Windows 8 tablet for less than $500. That price will get you the 10.1-inch, 32 Gb Acer Iconia W510, fully $100 cheaper than the equivalent iPad (although the screen resolution is much lower). But, disappointingly, to get a keyboard dock included, you need to get the more expensive 64 Gb version with a $750 sticker price; as yet, there’s no price for buying the keyboard dock separately.
Interestingly, Acer also plans to sell the Iconia W700 for $799 to $999. Wait, what? An 11.6-inch tablet using a “proper” Intel CPU, with a better resolution screen, twice the storage, a dock, and a Bluetooth keyboard will be within $50 of the keyboard version of the W510?
Lenovo seems keen to cover every conceivable base with its Windows tablet offerings:
The ThinkPad Tablet 2 is broadly similar to the Acer Iconia W510 and starts at $649 ($799 with a keyboard dock). The ThinkPad name clearly indicates that this is a business-focused device.
The ThinkPad Twist is another business-focused machine and is really a convertible laptop rather than a true tablet. It starts at $849 — a fairly aggressive price for a true laptop replacement.
Similarly, the IdeaPad Yoga 13 is a convertible 13-inch that starts at $1,099 (yikes!). There is also an 11-inch IdeaPad Yoga 11 that — most interestingly — is a Tegra-based Windows RT device starting at $799.
Finally, the IdeaTab Lynx is the consumer tablet (and a close relative to the Acer Iconia W700). It has an 11.6-inch display with a Clover Trail processor and starts at $599 (plus $150 for the keyboard dock).
What this means:
We’re unlikely to see x86-based OEM Windows 8 tablets for less than $500 — or $750 for keyboard versions. While it is trying its utmost to shed its cheap-and-cheerful image, Acer still tends to come in at the low end of the OEM pricing spectrum. Similarly, Lenovo’s consumer PCs tend to emphasize value, while the ThinkPad business range focuses on solid reliability. Here, we can see the two OEMs with probably the lowest prices. Sony, HP, Samsung, and ASUS will almost certainly charge more for their equivalent tablets, and even Dell is likely to be on par at best.
The low-end Windows tablets aren’t a great replacement for laptops. We must also remember that the Clover Trail-based tablets are basically rocking an optimized netbook processor. While this should guarantee good battery life and a cooler running temperature, we’ve yet to see how well this tablet configuration performs in real-world, multitasking use; it’s likely to be as good as other tablets, but it certainly isn’t a replacement for a decent laptop. True PC replacements will probably need: 1) Intel Core i3/i5/i7-based CPUs, which will likely be markedly more expensive (I did mention what a bargain the Surface Pro is looking to be!), and 2) systems based on the newly announced AMD Z-60, which will carve out a middle ground between the two Intel platforms.
Is the Windows Surface Pro really “only” $800? This pricing also makes Ballmer’s $300 to $800 price range for Microsoft Surface devices look shaky. The x86-based Surface Pro will be at the top of that super-wide range — but has a high-resolution display, 64 Gb or 128 Gb of storage, keyboard / cover and a Core i5 processor instead of the weedy Clover Trail Atom processor that’s in both the Iconia W510 and IdeaTab Lynx (warning: don’t use it on your lap!). That starts to look like a comparative bargain if it really is only $800. With an extended warranty, the Acer Iconia W700 already runs up to $1,049.
The $199 Windows Surface RT really was just wishful thinking. ARM-based Windows 8 tablets should be cheaper than x86 tablets, but how much cheaper? $299 to $399 or $399 to $499 seem to be the current bets (without keyboards), but we haven’t seen any offerings as cheap as this yet. Lenovo is obviously hoping that the innovative design of the IdeaPad Yoga 11 will command a massive premium! Let’s face it, a $499 Windows RT tablet isn’t going to fly with consumers, particularly when an x86 is the same price (for a lower spec potentially) — thats even assuming consumers can be dragged away from the Apple aisle. Even $350 to $399 is beyond the “impulse buy” price range that might help them fly off of the shelf. I’m not sure Microsoft will need those midnight openings to satisfy pent-up demand.
Obviously BOM (Bill of materials) is restricting how low prices can go. There is already some excellent analysis putting the cost of building a Microsoft Surface RT tablet at $300+, an x86 version would be slightly more. As Android tablet makers discovered, the display & touchscreen elements don’t come cheap – and that was when they didn’t have to pay for an OS! For a new product category without volume supply / manufacturing economies (like Apple has) there is precious little margin to be had if the retail price is to be attractive to consumers.
To be fair, it’s still early days. The Surface Pro isn’t scheduled to be released until early 2013, and Acer or Lenovo could adjust prices down as other OEMs lift the veil on their hardware. The most promising devices so far (that we know the price of) are those PC-replacement convertibles; they match the price of Ultrabooks and offer the best of both worlds, albeit in a more bulky package.
My guess is that by the end of the year, Clover Trail Windows 8 tablets (without keyboard) will be available from $399; “PC-replacement” tablets will be around the $799 mark; and Microsoft will still choose to price the Surface Pro at more than $800 ($899 or $999 seem most likely) to appease its OEM partners.
As expected, Jeff Bezos announced new Kindle products yesterday in Santa Monica — and what an interesting range of products these turned out to be! While the updated Kindle eReaders offer better performance and a lower price point for those dedicated eBook lovers, it’s the Fire range that really impressed.
In place of the low-powered, fairly low-spec, North America-only original device, there are now three to four devices — running the gamut from version 2 of the original all the way up to the 4G-enabled 8.9-inch Kindle HD with its own data plan. The pricing of the devices is even more intriguing — at $159 for the lower-end 7-inch tablet, $199 for the 7-inch HD tablet, and $299 for the 8.9-inch HD tablet (Wi-Fi only), these represent a new challenge to other manufacturers’ Android devices and Microsoft’s upcoming Windows 8 tablets. Additionally, European markets (the UK, Germany France, Spain, Italy) will get to see the 7-inch Fire devices (both version 2 of the original and the HD device) at more or less the same time as the US – no sign of the larger device, but that’s probably reserved for the US market while supply ramps up.
What does this mean?
Android tablets (aside from the Nexus) are dead in the water. With Google and Amazon both squeezing the price of Android tablets, its difficult to see how Samsung, HTC, etc. can compete in this space, especially given that they don’t have Amazon’s and Google’s alternate revenue streams to supplement loss-leader hardware. The Verge published a very good article on this prior to Amazon’s announcement.
Microsoft finds itself at a crossroads. Microsoft now has two options for the Windows 8 RT tablets:
Stick to its “The Kindle Fire and the iPad are just for content consumption; Windows RT tablets will be for so much more” message that has been its mantra for several years and try to price high — a strategy that’s almost certainly doomed to failure if it relies on retail and mainstream consumers to understand the difference.
Price the Microsoft Surface (RT version) competitively to hit Google and Amazon head on and undercut Apple. The downside here is that it means alienating those already-alienated Android OEMs as well (on the ARM platform at least). Also, Microsoft has very little content or advertising revenue to make its money back on hardware subsidies. So as previously mentioned, the $199 Microsoft Surface RT seems unlikely.
Apple needs to adjust its medium-term strategy. The iPad, iPhone 5, and (probable) iPad Mini will naturally continue Apple’s policy of premium pricing: Why would it slash margins when the competition hasn’t really made an impact? But it’s more important for Apple now to look at what price its tablets will be in 12 to 18 months’ time — a time frame that allows for Amazon Fire, Google Nexus, and even Microsoft tablets to establish a decent market share and application ecosystem. In a market of similarly designed — lawsuits allowing! — well-built devices with active developer support, Apple will need to adjust its pricing accordingly; consumer ties to the iTunes ecosystem can only be stretched so far.
For consumers, it’s win/win (after six months of pain). The upshot of all of this for consumers is that there will be much more choice in the tablet space, more competitive pricing, and a wide variety of capabilities and ecosystems to choose from. This won’t happen overnight, though. To get to this tablet heaven, we’ll need to go through a glut of dismal Android tablets dumped on the market by those OEMs boxed in by Google/Amazon; Windows RT tablets arriving with their confusing “It’s a proper PC, but not really a proper PC” messaging; and endless discussions about poor battery life, built-in obsolescence, and app stores.
What’s next? Apple’s iPad Mini announcement will mix things up again in the next month, and we’re still waiting on pricing details for Windows tablets.
For once, IFA in Germany was quite interesting, with many OEMs taking the opportunity to unveil their next generation of tablets and smartphones – the majority of which ran versions of Windows 8.
Both Sony and Toshiba offered sliding-keyboard Windows tablets, with Sony also showing a 20-inch tablet. Dell had a good-looking update of its “flip-screen” Dell Duo device — the Dell XPS Duo 12 — along with a 10-inch Windows RT device. .
Samsung labelled its family of Windows 8 devices “ATIV” — announcing both ARM and Intel tablets as well as a smartphone.
Several OEMs also showed touchscreen ultrabooks — HP, Samsung, and Acer among them. Asus revealed a hybrid laptop (the Taichi) with two screens, effectively putting the tablet screen on the outer lid of the laptop. Samsung has a similar prototype. A bunch of all-in-ones also sported a Windows 8 update, which should be a shoe-in for one of the few PC categories that’s still shown growth over the past couple of years (admittedly from a tiny base).
Of course, while this is interesting to analysts and the kind of obsessive tech fans who read Engadget and Gizmodo, none of this will feel real to consumers until they see devices on sale in Best Buy or Carphone Warehouse.
Naturally, pricing details are still fairly thin on the ground. This is not too much of an issue normally; you can usually guess a price point based on existing products. But the spectrum of potential prices is particularly wide here, especially for the Windows RT tablets; we still don’t know if the Microsoft Surface RT tablet will really be priced at $199, and so the price of the rival RT tablets could be all over the place. Google’s Nexus 7 and Amazon’s Kindle Fire come in at $199 (should you manage to find stock of the latter), but these are just mid-level 7-inch devices. Will a 10-inch Windows RT tablet command a premium? Probably, but only $100 to $150 at most. Hopefully, manufacturers won’t make the “same price as an iPad” mistake again! It’s clearer where pricing will go for Intel-based tablets, both the low-power units and the true PC tablets; they are going to come in at around $600 to $800 for entry-level devices and will head up from there as they become hybrid ultrabooks.
Another reason that OEMs (and Microsoft) may be keeping their powder dry on pricing is the impending announcements from the rival camps. Amazon is expected to announce new Fire devices on September 6 — including a rumoured ad-supported tablet — and potentially a wider geographic reach than just the US. And, of course, Apple is on the verge (maybe) of announcing the ”iPad mini.” Nokia may even get in on the Windows tablet action when it announces new smartphones on September 5; after all, it did release a lovely looking premium netbook (albeit with sales as near to zero as worth measuring).
With the likes of Sony, Samsung, and Lenovo also showing new Android tablets and smartphones at IFA, the tablet war is finally kicking off!
The inter-web is awash with rumours that the Microsoft Surface tablet (ARM version) will launch in October at a price point of $199. This is less than half the price many people were expecting on the assumption that Microsoft was following the more usual “price it the same as an iPad and see if it sells” strategy (it won’t).
Is it plausible that this is the target price? If so, and I have no deeper insight into the validity of the rumour than anyone else, what does it tell us about Microsoft’s state of mind?
Suddenly, it’s a two-platform strategy: Windows RT is for media consumption. One of the main concerns around both ARM and x86 tablets was the potential for consumer confusion – particularly if they are similarly priced. Putting the Windows RT surface device out at $199 does away with much of that confusion and puts the device squarely in the affordable “media consumption” tablet space (something for which Microsoft has continually derided the iPad and Android tablets). It could be the best device in this category – blowing away the Kindle Fire. Of course, this low-functionality positioning is a bigger risk if the breakeven model relies on the upsell of productivity apps (its unclear what version of Office will ship with the Surface) or a vibrant apps marketplace – you don’t need either of these to surf the Web or watch videos.
It’s a recognition that this is the only way Windows RT will gain traction. As I said when ARM-based Windows was announced back in early 2011, this seemed like a major coup. Since then, though, it has looked more and more like the Windows RT tablet would be DOA given its lack of backwards compatibility, improved x86 performance, and a price point similar to the iPad. But, $199 for a very compelling-looking device would mean that all bets are off; this is a sweet-spot price for impulse consumer electronics purchases and would guarantee very healthy sales (stock allowing). It would also have the added benefit (to Microsoft) of killing off the premium Android tablet market; then again, Google’s Nexus 7 is doing a pretty good job of this already.
It’s a massive internal shift in Microsoft’s strategy. If bringing out its own tablet and disenfranchising OEM partners wasn’t enough, a major Microsoft division is now looking at taking a bath on each unit sold. Bear in mind that this is one of the divisions that has always looked down on Xbox and the consumer businesses for haemorrhaging money. Sure, Microsoft sold Xbox hardware at a loss, but game consoles are recognized industry loss leaders and have shown that the razor/razor-blade model works. Selling enough software, content, or advertising (ha!) for a tablet that may cost you $100 more than the asking price to get out the door is a different matter altogether.
It’s an explicit statement of intent: OEMs will only be able to compete with x86 devices. OEMs are already hurting from a declining (traditional) PC business with razor-thin margins; they can’t afford to subsidize their own Windows RT tablets in the same way that Microsoft can. And nobody is going to pay a significant premium for an HP, Lenovo, or Dell device over Microsoft’s own Surface tablet. So if the price point is real, Microsoft is basically carving out the ARM tablet market for itself.
It’s an interesting time for Microsoft. It desperately needs a successful tablet launch to stay relevant — and for that reason, the first three points above are at least plausible. The final point though is more far-fetched. Kicking the OEMs when they are down is one thing; letting them announce Windows RT devices and then bringing your own to market at half the price is more akin to robbing them at knife point. For this reason, my opinion is the $199 price is bogus or contains contractual telco smallprint.
In what is turning out to be one of the most interesting quarterly earnings reporting seasons for some years, Apple, Zynga, Nintendo, Microsoft, and Intel have all “surprised” the market with their “low” numbers — but there are fundamental differences in why these firms have had a tough quarter. (I’m going to use calendar quarters rather than financial quarters to avoid things getting far too complicated).I can think of four main reasons (I’m sure there are more):
The tough product transition period, part 1: Apple. Apple had a pretty good Q2 2012 — far better than a year ago — but unfortunately it came on the back of a huge Q1 2012 (largely thanks to iPhone 4S). Citing poor demand in Europe among other factors, Tim Cook also made some interesting comments on the earnings call alluding to anticipation of iPhone 5 reducing demand for current products. Pent-up demand for the new phone seems unprecedented; once this device hits the market, Apple numbers should “improve.” It’s a testament to the financial markets’ belief that Apple can do no wrong that this shock miss of Wall Street’s inflated earnings estimates (albeit more in line with Apple’s own projections) shaved 5% off the share price overnight.
The tough product transition period, part 2: Nintendo. Another firm whose current products are looking tired but whose shiny new products aren’t quite ready is Nintendo. The Wii has dropped off console sales charts in the past year, and while the 3DS is doing good business in the portable space, the release of new Wii U consoles is still (probably) several months away. It’s going to be a tough 2012 for Nintendo; crucially, there isn’t that guaranteed pent-up demand for the new console that Apple enjoys with the iPhone 5.
Great business but bad investments coming home to roost: Microsoft. In many ways, Microsoft is also in a transition period — Windows 8 OS and accompanying Surface devices won’t arrive until October 26, 2012 — but luckily the rest of its products haven’t run out of steam. In fact, Q2 2012 was a good quarter with rising revenues; it’s just a shame that its on-going fruitless attempts to build a consumer media/advertising strategy led to a $6.2 billion writedown.
A changing market causing (hopefully) short-term pain: Intel, AMD, PC OEMs. As expected, a tough global economy and the on-going consumer (and business) infatuation with tablets is hitting traditional PC sales numbers. Ironically, the solution to the tablet challenge may also be causing consumers to delay PC replacements while they wait to see a proper tablet + Windows solution, which won’t happen until the end of October.
Wow, we did not expect that! Zynga. Cracks started to appear in Zynga’s “grinding games without the fun game bit” business model some time ago; its valuation at IPO (in November 2011) was based on the continuing stratospheric growth of user numbers (and the accompany microtransaction revenues) seen with early hits like Farmville and Mafia Wars. Unsurprisingly, like every other videogaming market, social games have turned out to be a hits-driven industry, with relatively low barriers to entry and a fickle audience. It also highlights the danger of relying on someone else’s platform (Facebook) over which you have no control. And the strategy of buying a rival “star” product/ firm (Draw Something by OMGPOP) for top dollar just as it became a “dog”(entirely bypassing the “cash-cow” phase) didn’t help . . . see this if that last sentence didn’t mean much to you.
Of course it’s not all doom and gloom: ARM and Samsung have reported excellent results of late — and even Facebook did moderately OK, even if that didn’t stop the markets from punishing its share price for not doing better, probably due to the fact that the firm still hasn’t worked out how to really ramp up revenues.
So, while Q3 is typically a quiet period for consumer firms, Q4 is shaping up to be a litmus test for firms like Apple, Nintendo and Microsoft – new products that will need to succeed (and fast), landing at a time when consumers still seem unwilling to recommence their profligate spending ways.
Yesterday, in a much-hyped announcement, Microsoft unveiled its future tablet offerings — both an ARM and an Intel-based 10.6-inch tablet running their respective flavours of Windows 8.
While no pricing details have been announced, these aren’t budget devices: they are likely to be on par with premium Android tablets ($500) and the iPad ($650) for the ARM-based device and approaching Ultrabook prices ($700 to $1000) for the Intel-based tablet. I’ve written previously about how the tablet war wouldn’t really kick off until Microsoft arrived, so what can we draw from these initial announcements?
The Intel tablet will clearly be targeted at business, at least initially. Microsoft has been running interference over the past two years around businesses adopting iPads as core employee devices. When the Intel-based Surface ships (probably early 2013), it will at last have a proper solution for its big enterprise customers — and one that it can supply directly rather than relying on the vagaries of OEM support. Given a reasonable price point, proven compatibility with legacy Windows applications, and robust security and remote management abilities, I would envisage high levels of interest in the product.
Ouch! Talk about kicking OEMs when they are down. Dell, HP, and Acer are all reporting poor financials, mainly thanks to the lacklustre PC market (Lenovo is an exception here, doing rather well, thank you very much). Imagine you are in their position; suddenly, the biggest software supplier you work with has decided to build hardware — and not just any hardware, but the new premium form factor you were planning to use to relaunch your business. Sure, this might “prime the pump” for Windows 8 tablets from other OEMs (as Ballmer hopes) or it could be like partnering with Nokia on phones — instantly alienating other manufacturers like HTC, Samsung, etc.
The Windows RT Surface — hmm. Windows RT on ARM seemed like a great idea when announced last year, but in the subsequent months, Intel has pulled a rabbit out of its hat and got x86 architectures performing almost as well as ARM while not being power hogs. So, you’ll now have the choice of a premium ARM tablet running Windows RT (admittedly with free MS Office) but doing little else that people would recognize as Windows — or an x86 tablet running “proper” Windows 8 with full (or nearly full) backward compatibility for more or less the same price. This is not a difficult choice. Admittedly, given that Microsoft is targeting businesses initially with the x86 tablet, its version will be more expensive, but expect one of the OEMs to have a cost-comparable 10-inch tablet running full Windows 8 at or just after launch.
It’s time for Android to step up. Android tablets have represented the only really viable alternative to the iPad to date, and yet most have failed to make a mark with buyers. We’re finally getting some good devices (like the ASUS Transformer and Samsung Galaxy Tab), and the Google Nexus tablet is — allegedly — just around the corner. If manufacturers (and Google, of course) want to stay in competition, they need to up their game and produce more stable, aggressively priced devices that can either undercut the Windows/iOS devices (like the Amazon Fire) or offer something better.
Are apps the be all and end all? Much discussion is already centring on whether the Surface tablets will have a sufficiently developed apps marketplace to thrive. Certainly, the iPad has been driven by the legacy success of the iPhone apps marketplace; certain categories of applications, such as games, social media clients, and photo manipulation, figure highly in terms of what people use their tablets for. Given that this is effectively a new platform, the ARM Surface will need apps to survive, but the x86 Surface may be able to flourish (at least initially) without this. Why? Windows 8 (on x86) will be the first OS designed for a tablet with backward compatibility (and no — backward compatibility with a phone doesn’t count); on day one, it will already have access to more apps than all the other platforms (although, admittedly, many of these won’t work well with the Metro UI out of the gate).
Overall, while we’re still awaiting vital details, the Surface announcements do at least show that Microsoft is prepared to make a major strategic shift into hardware to protect its position. I have high hopes for the x86 Surface (and the competing OEM that it might spur), but I see the ARM Surface device as falling between multiple stools — a tiny apps market, not as polished as an iPad, not as cheap as an Android device, and not as practical as its own stablemate.