Will Low Prices Save Surface RT?

Image representing Microsoft as depicted in Cr...

Image via CrunchBase

Following the continued collapse in the PC industry, Microsoft (NASDAQ: MSFT) launched its own tablet, the Surface RT powered by an ARM processor. Over the years, Microsoft had relied on the success of the PC industry as it sold various software and applications. However, the mobile wave has cannibalized on the PC industry, and consequently, one of Microsoft’s core business units.

 

In a bid to counter this, Microsoft took upon itself to come up with a computer tablet that could help it sell its operating software and various office applications. However, with the likes of Google’s (NASDAQ: GOOG) Android and Apple’s (NASDAQ: AAPL) iPads out there, this venture has proved to be more of a challenge than initially expected.

 

Microsoft has struggled to penetrate the tablet market with its 32GB and 64GB Surface RT tablets. The devices have been trading at $499 and $649 respectively, well below Apple’s iPads and Google Nexus 10 tablets. Meanwhile A

 

pple, the market leader in tablet sales continues to romp despite the threat from Samsung. It is reported that Microsoft has been holding a huge inventory of the Surface RT tablets, which presumably led to the company’s latest decision.

 

Microsoft cuts Surface RT prices by $150 in U.S, other countries follow

 

On June 15, Microsoft announced that it was cutting the prices of Surface RT tablets by $150. The 32 Gigabyte (GB) Surface RT now trades at $349, while the 64 GB unit is priced at $499. To many this was seen as an attempt to sell off the building inventory, as the device continues to struggle to make a significant impact in the market. Soon after the same price cut was replicated in Australia and Europe. The 32 GB Surface RT now trades at AU$389 in Australia down from AU$599. The 64 GB  trades at AU$699 from AU$789.

 

In Europe, the device’s price cuts varied from one country to another depending on whether the country is a member of the Eurozone. In most of the countries, the 32 GB Surface RT now goes for EUR 329, down from EUR 479, while the 64 GB device trades at EUR 429, down from EUR 579. It seems as though the Eurozone  used an exchange rate of 1:1 for the USD to EUR. In Britain, the devices attracted a price cut of GBP 120.

 

Will the price cuts save Surface RT?

 

Apple’s market share in the tablets shipments business stands at about 43%. On the other hand, Google’s Android OS powers a majority of the tablets in the market. Android became the leading tablet OS in 2013 with 48.8% market share, compared to Apple’s iOS, which now has 46%. Windows’ share stood at 2.8% with Windows RT accounting for just 1.9%. According to estimates, Windows RT is expected to account for about 2.7% of tablets OS in market share by 2017.

 

Last week Microsoft announced the reorganization of its business in a plan dubbed “One Microsoft”.Terry Myerson will lead a new operating systems engineering group that will span across console, mobile device, and PC. I am not sure whether the decision to cut down the Surface RT came up as a result of the reorganization but, whichever the case, Myerson will definitely have to do something for this unit in his new role.

 

To some extent, the price cuts give Surface RT leeway to compete with other competitively priced devices in the market. For instance, the new price is below the range of Google Nexus 10 tablets, which trade at $399 for the 16 GB device and $499 for the 32 GB device. The 32 GB version offers the best comparative assessment for the two brands.

 

This pricing could give Microsoft Surface RT an edge over Google Nexus 10, as the device is yet to build strong brand recognition in the market. However, it could still struggle to gain anything from Apple’s market share. Nonetheless, there are several Android OS tablets out there big and small in screen sizes that serve the consumers to satisfaction.

 

Perhaps, if Microsoft wishes to make any significant impact in the tablets market, it may have to come up with its own mini tablet, perhaps a 7-8” tablet to rival Google’s Nexus 7 and Amazon.com’s Kindle Fire HD tablets among others.

 

The bottom line

 

Microsoft’s Surface RT tablets business unit will struggle to make any impact in the market. However, the unit accounts for insignificant revenues to the company’s current revenue model. Nonetheless, this unit could yet prove important going forward if the company wishes to compensate against the declining PC market.

 

Therefore, will the price cuts help Surface RT make an impact in the tablets market? It is a big ask for now, but certainly could boost current sales, albeit at the cost of healthy margins.

 

Advertisements

One Response to Will Low Prices Save Surface RT?

  1. Pingback: Windows Phone, Not Surface Tablets, Is Microsoft’s Perfect Avenue to Mobile | Market Pitch

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: