Windows Surface only 199 dollars?

[Keller]

Yeah I was watching The Wire the other day and they were using a Microsoft tablet and that show was from like 2003.

I'm pretty sure Microsoft never had a tablet of their own before, they just put the software support in winxp, the farthest back i can remember is HP's tablet and fujistu's stylistic.
This is going to be big, either a big failure or a big sucess, microsoft is all in, they ended the turn.

Exactly, it's like, what is this change I am giving for this device?

Buy me one too then!

---------- Post added 2012-09-10 at 12:16 AM ----------

Can't be worse than a touchscreen keyboard. I hate typing on my phone.

Swype actually fixed that for me.

[Deleted]

I'm pretty sure Microsoft never had a tablet of their own before, they just put the software support in winxp, the farthest back i can remember is HP's tablet and fujistu's stylistic.
This is going to be big, either a big failure or a big sucess, microsoft is all in, they ended the turn.



Buy me one too then!

---------- Post added 2012-09-10 at 12:16 AM ----------



Swype actually fixed that for me.

No, I am not that rich. :P

But I meant to say it is pretty damn cheap.

But if I was rich I would buy you one for real. :P

[vesseblah]

ARM version can be really cheap, even down to $199 or $299, and Microsoft could sell it for loss if they want to.

The "pro" version that runs on x64 processor will cost significantly more, well over $500 because it's competing against ultrabooks and iPad3, not chinese Android tablets.

[a21fa7c67f26f6d49a20c2c51]

Y....You mean it CAN be that price?

Google is saying the Nexus 7 at $250 is being sold at cost: no profit whatsoever. It seems unlikely that Microsoft's tablet, which is significantly better in several respect, would be produced and sold at a profit for anything less than that. If one mid-sized (not counting Apple) 'tiny touch screen portable computer' vendor can't turn a profit it seems like an upstart like Microsoft couldn't either. While Microsoft has the Office and Windows markets they've typically made fairly tepid profits in their other ventures.

The second question to ask is how reasonable is it that Microsoft can get better hardware deals than Apple? Apple buys up "all the things": the sell metric assloads of iPads and buy up supplies of memory, flash, cpus, screens, etc. for years at a time paying cash. Apple has economies of scale for their tablet business that nobody else comes close to.

Of course Apple is making ~35% margin on their hardware business - so that $600 iPad only costs $400 in parts, manufacturing, prototyping, software, r&d, marketing, shipping, support cost, etc. Even if we assume Apple iPad business is abnormally profitable (50%) that's still $300 in bits and pieces to make one - with discounts, knowledge, and efficiency that nobody comes close to having. It's doubtful Microsoft's tablets, which seem to be more in line with the iPad than the Kindle Fire, are going to be priced in kindle territory.

Mind you, this is why they pulled the locked UEFI bootloader shenanigans, they dont want people to use linux on these things, because it will be taking away from their profits, as they will profit from the software rather then the hardware.

The appstore claim is an interesting one. We know Apple (and also microsoft via their xbox store and the terms of the windows store), who take ~30% cut from the app sales. Apple operates the most popular store (by several orders of magnitude) has paid out ~4 billion dollars to developers since it started in 2010. To pay out 4 billion Apple took about 1.7 billion out of which the store needs to be run (given the scale of the store the costs are going to be measured in millions per month - lets round that out to 100m/year). So that leaves 1.5 billion in profit from running the biggest/best app store in the world for 2 years.

Those store numbers are from april of this year. In march Apple announced they'd sold 55m ipads. Simple division tells us profit per ipad from the store:
1.5b / 55m = $27 in app store profits per iPad. The numbers scale up or down as needed -- if apple were selling 500m ipads per year we'd expect the app store to be making them $15b / year, if they were selling 500 ipads we'd expect the store to be doing a few thousand dollars in profit. Of course that $27 also includes the hundreds of millions of iPhone owners - but let's just imagine they only got free apps and that iPad owners paid all the money.



Roll it all together: Let's imagine microsoft can produce a tablet in the same league as the ipad, samsung galaxy, etc. Let's imagine they are somehow able to buy parts cheaper than any of Apple's competitors and match the $300 bill for materials+r&d+marketing+manufacturing, etc. Let's imagine that Windows users are willing to pay twice as much for applications on an App store for their tablet despite evidence to the contrary (people who buy ipads/iphones/macs are demonstrably more likely to pay more for hardware/software than their windows/andriod using counterparts). Let's further imagine that somehow by pure magic Microsoft's appstore is as popular as Apple's is immediately: no ramp up time - just instant money, and that Windows tablet/phone owners buy 50% more apps as their ipad using counterparts.

Even with that pie in the sky set of conditions you're looking at $300 for parts - $199 sale price - (($27 worth of apps per tablet * 2 ) * 1.5 times as many apps) = $20 unaccounted for. Even in an impossibly charitable world they're still losing 10% of the sale price on every one they sell. If people are expect to upgrade these things every 3 years then Microsoft breaks even. If they last 2 years before people upgrade then they lose money. If they're supposed to be replaced every 4 years or more then Microsoft scrapes out a tiny profit (less than making no hardware at all and licensing Windows 8 to Dell or somebody else making their own tablets though). Once you start talking about 5+years for hardware…well 5 years ago you couldn't actually buy an iPhone because it had just launched and sold out everywhere. It seems unlikely hardware will last that long.




Microsoft has proved their willing to piss away money to buy marketshare in the past: Bing to date is a net loss - the billions they spent to get to 33% market share hasn't been made up in advertising revenue. The entire xbox product line might be a loss too. We know the cost to develop 2 generations worth of xboxes has been $15+ billion dollars and we know profitable quarters are usually in the $1b range (and they're rare enough that you can count them on your fingers). For a company like Microsoft it's fair to describe the xbox line as break-even because it's profits, if they exist, are rounding errors compared to office.

They could be willing to play the zune/xbox/bing/etc game one more time but many shareholders see that as a bad game. Launching a product without a clear idea of how to actually make money with it seems like a bad way to go. I think Microsoft executives realize that smaller and more personal computers are a long-term trend that they can't afford to hand over to apple/samsung but I also think they're smart enough to realize the tablet market is well enough established that straight buying marketshare by giving away hardware isn't a viable strategy.

If I were going to bet then I'd take odds on Microsoft shipping a tablet in the 'iPad price range' (±$50) at the low end. If it's going to retail for less then it'll be through some sort of subsidized plan like the iPhone on AT&T only costing the customer $300 up fromt (+$2500 in 2 year contracts). I can't be any more specific than that, but I think the pricing will be similar enough that if you compared the two side-by-side in store then you'd be swayed more by software or hardware features than by saving 10% by getting an iPad instead (or vice versa).

[vesseblah]

Even with that pie in the sky set of conditions you're looking at $300 for parts - $199 sale price - (($27 worth of apps per tablet * 2 ) * 1.5 times as many apps) = $20 unaccounted for. Even in an impossibly charitable world they're still losing 10% of the sale price on every one they sell. If people are expect to upgrade these things every 3 years then Microsoft breaks even.

If I were going to bet then I'd take odds on Microsoft shipping a tablet in the 'iPad price range' (±$50) at the low end. If it's going to retail for less then it'll be through some sort of subsidized plan like the iPhone on AT&T only costing the customer $300 up fromt (+$2500 in 2 year contracts).

You aren't thinking big enough. Playstation 3 lost Sony about 2 billion USD on the first year alone because they had to sell it at $200-300 loss per unit to be even close to competitive with Xbox360. It took Sony over three years to start actually making money from the PS3 console sales.

Microsoft can and will do the same if they want to compete in the tablet market with Apple and Android. They can easily afford losing that much money selling hardware at loss to gain significant market share.

[Keller]

You aren't thinking big enough. Playstation 3 lost Sony about 2 billion USD on the first year alone because they had to sell it at $200-300 loss per unit to be even close to competitive with Xbox360. It took Sony over three years to start actually making money from the PS3 console sales.

Microsoft can and will do the same if they want to compete in the tablet market with Apple and Android. They can easily afford losing that much money selling hardware at loss to gain significant market share.

IT has to be done if they want any marketshare. HP went bankrupt this way, and ended up fireselling old stock, microsoft is also going all in, and if they play their cards right they will establish themselves as a tablet computing leader.

[Twoddle]

Cleartype is the worst thing ever. They keep using superlatives like it greatly improves readability and they try to tell you that the eye can't tell the difference between pixels at 17 inches so characters look smoother. Well let me tell you something Microsoft, I can count individual pixels on my hi res monitor at 3 feet away and cleartype looks absolutely awful, I can see the blurriness like it's slightly out of focus and you can't adjust it and that is not just my opinion. You google "how to turn off cleartype in ie9" and you will find that so many people hate it.

If you have bad eyesight to begin with you probably don't complain but if there's nothing wrong with your eyesight then cleartype is just so bad and you can't even turn it off without hacking.

[ati87]

Microsoft has enough money to sell the Surface with a small lose plus for Microsoft it wouldn't even mater if they don't make a profit of it.

Tablets are a new market, it is more important to become a major player (terms of OS) then to make a profit.
Surface isn't meant to be a alternative to other W8 tablets, see it as a Nexus phone and I wouldn't be surprised if Microsoft killed the tablet of in some way (not enough places selling them for example)

However it could be that the tablet is designed in such a way that it is just cheap to make. I've seen enough chinese tablets that are sold for 100 or 150 euro's.

[a21fa7c67f26f6d49a20c2c51]

You aren't thinking big enough.

I already assumed Microsoft can get hardware deals it can't. That they can ship software in volumes that would make the established market leader look like an also ran and profit rates twice as high as the most profitable company on earth. How much more forgiving can I be?

Playstation 3 lost Sony about 2 billion USD on the first year alone because they had to sell it at $200-300 loss per unit to be even close to competitive with Xbox360. It took Sony over three years to start actually making money from the PS3 console sales.

And even longer to pay back the development costs of the PS3. Microsoft is in an even worse situation with the xbox which may still not be profitable after ~15 years on the market.

Sony/Microsoft strategy for selling consoles at a loss (at first) works because these devices are expected to have very long life spans over which to amortize the development costs. Further, they can subsidize the initial hardware by taking advantage of arbitage opportunities as manufacturing processes improve. If you expect the average cost of making an xbox over 10 years to be $200 you can afford to sell the first 1m at at a $100 loss provided the last 3m are sold at $33.33 (repeating of course) profit.

That strategy doesn't work for tablets for two reasons. Frst, we've already assumed that they're getting the absolute best rates for parts in the industry for hardware on par with the iPad / Galaxy / etc. I think you'll agree that (not counting display) the Surface looks like it's in the same 'class' of device as the iPad or Galaxy. If this product is intended to have some legs it'll need to keep pace with them - that means at most a 2 year run before a new and improved edition needs to come out the door. That continue treadmill of faster/better/stronger means you need to make the money on your hardware quickly and get out. Look at the iPad - would you want to buy the original iPad today (it's 2.2 years old) with all the new competitors (including the new iPad) on the market? Of course not. Even if you wanted to, Apple doesn't sell them any more - the current 'low end discount model' is 18 months old. That's very different from the xBox market where it's still possible for Microsoft to be making money from hardware purchased in 2005. George bush was still in office then, the iPhone didn't even exist then, hell Windows Vista wasn't even a thing yet. Apple is able to make some money by extending the production run of last years product for an extra year and selling it as the entry level device but that's just not a long term strategy for this class of product.

The second problem with your argument is that we've already assumed an impossibly successful store. Are you prepared to pay twice as much for Applications on a Microsoft surface as you are for applications on an iPad? Given that iPhone/iPad users are prodigious users (compare web market share for android vs ios) it seems unreasonable to think that Surface owners would be buying more applications than all of the iPhone+iPad users combined. We're assuming that Microsoft run an application store that is twice as profitable and that a surface owner buys 6x more applications (1.5 times more per year x 4 years of hardware) and they're still not turning a profit.

I get the appeal of saying "the money is in the app store" but our best examples to date have show that isn't the case. There's some money to made (about $500m/year in Apple's case running the biggest and most successful one) but that's not enough to sell rapidly obsoleted hardware at a steap loss.

Microsoft can and will do the same if they want to compete in the tablet market with Apple and Android. They can easily afford losing that much money selling hardware at loss to gain significant market share.

What good is 100% market share when you generate -10% profit on every unit sold?

There comes a point where you actually have to make money to stay in business and I think Microsoft executives are probably at the point where they won't accept Balmer and co. pissing money down the drain to buy market share they can't convert into profit.

If you can run some quick and dirty math to show how this is a viable strategy I'm all for it. I pulled my numbers just by googling the press releases for quarterly profits and skimming wikipedia. I think I've spelled out my assumptions pretty well:

• Apple's manufacturing efficiency is something Microsoft can match despite no where near the purchasing power to negotiate the supply of components.
• Microsoft plans to produce an ipad-quality device
• Microsoft plan to turn at least some small profit over the life of each device
• Surface owners are going to be pretty similar to ipad owners in terms of purchasing habits
• That Microsoft's hardware life cycle is going to be pretty similar to the rest of the industry - including those tablets running Windows 8 produced by other vendors
• That Microsoft is capable of building an application store that does sales numbers 50% higher than Apple
• Somehow Microsoft is able to get 60% of the profit from each application sold on their store instead of the typical 30%.

If you can show me where I've been too pessimistic then I'd like to hear it. The assertion that "there's money in them there apps" is great and all - but it's not enough to subsidize a product like this as a long term strategy.

Microsoft has enough money to sell the Surface with a small lose plus for Microsoft it wouldn't even mater if they don't make a profit of it.

Microsoft's cash in hand is $60 billion give-or-take. Apple seams to be selling around 50m iPads a year. If Microsoft can Match that pace, and they're only taking a $200 loss to sell a Surface at the $199 price point of the OP then that means they have no money left in 6 years -- they still have the Windows/Office business to float the company but if you were a share holder would you really want to hear the CEO say "we're planning to spend up all our money before the end of obama's second term without any plan for converting that into long term profit"?

I suppose you could define success as something less than iPad levels of sales (and by that I don't mean 70%+ market share, but rather 35% with the assumption that the market it still growing) but I have to wonder if it's worth the expense. What good is market share without profit?

And then the second question: why does Microsoft need to make the surface anyway? I can grant you that the whole of computing will be tablets in 10 years. I can also agree that all of the money to be made is from the software and that hardware is a suckers game. I can further grant that Microsoft really should be in the tablet computing game if they want to remain a major player in the industry. In that case why not just let Asus or Dell make tablets that run Windows 8/9/10 and Microsoft can get all that delicous appstore profit plus a profit of $30-80 per device by licensing the OS without taking any risk making the hardware? Why does the surface need to exist if not to generate Microsoft at least break-even profit?

However it could be that the tablet is designed in such a way that it is just cheap to make. I've seen enough chinese tablets that are sold for 100 or 150 euro's.

I think the only reason anybody is remotely interested in the surface is because it looks like it's got more in common with an iPad or Galaxy than a Kindle Fire. If it's just another $150 discount Chinese-brand tablet then nobody is going to care - just like nobody cares about those cheap android tablets.

Further, it makes the case for buying one all the harder because we know that other companies are already really good at getting cheap crap out the door. The draw is 'really great hardware at an impossible price' not 'cheap crumby hardware at the price you'd expect for a cheap crumby device.'

[Revak]

You aren't thinking big enough. Playstation 3 lost Sony about 2 billion USD on the first year alone because they had to sell it at $200-300 loss per unit to be even close to competitive with Xbox360. It took Sony over three years to start actually making money from the PS3 console sales.

Microsoft can and will do the same if they want to compete in the tablet market with Apple and Android. They can easily afford losing that much money selling hardware at loss to gain significant market share.

Except someone will keep a PS3 longer b/c there are no upgrades to be had for years. Tablets are being updated yearly or even more often than that in some cases.

[Keller]

Except someone will keep a PS3 longer b/c there are no upgrades to be had for years. Tablets are being updated yearly or even more often than that in some cases.

The surface will not be an anual thing, it'll release an iteration with the newest hardware with every new windows.
Having high marketshare, even if you do lose on hardware units, can get you alot of software-based profit, since it's basically what the platform holder is fighting for.

[Deleted]

Microsoft WANTED to sell at that price point, but the other companies issued a statement that selling it at that price would completely destroy the market and thus microsoft seems to be going to release it at prices similar to what the market is already going to avoid "legal problems"...

Something like trying to monopolize the market and such... international economic laws, yada yada yada...

[Deleted]

im going for the pro

I'm going for an android tablet.

Honestly, I'm skipping windows 8 as a whole. it's not an improvement over windows 7, even though they claim it is. I've been using it for say 6 months on my old laptop, and I'm getting more and more annoyed by the 1080p crayon drawing that the interface is... They can make the surface as awesome as they want hardware wise, if the software can't keep up it's a no-go for me.

[vesseblah]

<snip>

Two pages of ranting forgetting the most important things... You still aren't thinking big enough.

Microsoft is not interested in entering tablet market, they are interested in creating whole ecosystem around Windows 8 platform on desktop, tablet and mobile phones. Their goal is to get where Apple is controlling the whole walled garder of iPhones/iPads/AppleTVs/iTunes store and basically controlling the lives of millions of people to a degree that Microsoft never managed to do despite all the antitrust trials. They can easily afford losing whole lot of money by giving out tables if that ensures enough people will pay for Win8 desktop, W8 phone and move their lives to MS SkyDrive because of it.

I'm going for an android tablet.

Android 4 is horribly bloated and buggy mess on tablets. Basically the only real reason to get Android tablet is if you want to root it and pirate all possible apps, otherwise it's second grade OS. This comes from personal experience owning an Asus Transformer pad(+dock) and using it with 3.2 and 4.0.3 versions of Android OS.

Honestly, I'm skipping windows 8 as a whole. it's not an improvement over windows 7, even though they claim it is. I've been using it for say 6 months on my old laptop,

Faster boot times alone makes it better than Win7 for laptops.

[ccckkk]

As I remember the talk of $199 was with a view to signing up to some sort of 24(?) month contract - a bit like a mobile. I believe figures of $10-15 per month were mentioned?...

There was never any talk of the surface just being a flat $199.

I may be mistaken but a good rule in life is that something seems too good to be true it is...

[Deleted]

Android 4 is horribly bloated and buggy mess on tablets. Basically the only real reason to get Android tablet is if you want to root it and pirate all possible apps, otherwise it's second grade OS. This comes from personal experience owning an Asus Transformer pad(+dock) and using it with 3.2 and 4.0.3 versions of Android OS.

Opinion is not fact. I know you didn't say it was fact buy you state it like that.

I happen to enjoy Ice Cream Sandwich a LOT.

[a21fa7c67f26f6d49a20c2c51]

[QUOTE=vesseblah;18366755]Two pages of ranting forgetting the most important things... You still aren't thinking big enough.
That may be true but you've yet to explain how your how your idea is in any way grounded in reality. How exactly does giving away billions of dollars with no realistic way of turning that into profit help Microsoft achieve the goal of being just like apple? I understand what Microsoft is after (making money by controlling important parts of an emerging market) but I have no idea how your strategy gets them their. Can you explain your idea or is it just "market share. ??? Money"?

Hell, I'm sure enough I'm right about the $200 price point that I'll buy you a curse premium account if I'm wrong. Are you sure enough in your reasoning to make the same offer? If they shipped a tablet at that price (not including cellphone style subsides) I'll make a small fortune with get options in six months when earnings tank.

[mafao]

If they sell it at $199, they will be selling it at a loss, which is ok given the the main money is done with software purchases. Its similar with the gaming consoles. Amazon also sells their new Kindle Fire for 'too' cheap. I am looking forward to see how things turn out!

[vesseblah]

Opinion is not fact. I know you didn't say it was fact buy you state it like that.

I happen to enjoy Ice Cream Sandwich a LOT.

First two things that comes to mind, my biggest but not the only problems with it:

Compared to previous versions the app/widget browser is shit. That's not an opinion but a fact. You can google up hundreds of pages of people cursing Google for breaking something that works.

Web browser takes about ten times longer rendering average webpages like MMOC frontpage on ICS than first gen iPad or a ten year old PC. And my Android tablet has dualcore processor and Tegra2 GPU so it's not exactly slow.

[Deleted]

First two things that comes to mind, my biggest but not the only problems with it:

Compared to previous versions the app/widget browser is shit. That's not an opinion but a fact. You can google up hundreds of pages of people cursing Google for breaking something that works.

Web browser takes about ten times longer rendering average webpages like MMOC frontpage on ICS than first gen iPad or a ten year old PC. And my Android tablet has dualcore processor and Tegra2 GPU so it's not exactly slow.

Idk, this is my first smartphone so I don't know any better. I like it either way.