On Black Friday, Microsoft cut the retail price on the original Surface RT tablet from $349 to $199 on its own website as well as at Best Buy, Staples and Wal Mart (as bundles with a touch keyboard). This drastic price cut comes on the heels of Microsoft taking a $900 million writedown on Surface RT inventory related to an initial price cut from $499 to $349. I personally found this latest price cut enough of an incentive to buy a Surface RT, which has been improved with the release of Windows 8.1 RT - and I have a sneaking suspicion that this is precisely Microsoft's strategy.
It is no secret that Apple owns significant market share of the tablet market, and equally as important - a large share of the increasingly popular app-development market. Microsoft has its own app store - which when I first powered on my Surface RT, realized that it is not nearly as developed as Apple's (I also own an iPhone). Microsoft does however have a competitive advantage, and that is native Microsoft Office apps (Word, Excel, PowerPoint) that Apple cannot match.
By slashing the price of the original Surface tablet, I believe that Microsoft is looking to quickly increase its user-base in an effort to lure app development to its store. Without demand on the user end, Microsoft lacks the leverage to entice app developers who would otherwise focus on Apple and potentially Android. If Microsoft had to write down $900 million on the initial price cut from $499 to $349, that would imply 6 million tablets were written down in inventory. If Microsoft could sell most of that inventory at $199, it would equip nearly 2% of the overall US population with Microsoft tablets - pushing towards a critical mass of users who could lure app development for a network of Microsoft Tablet PC's, Xbox Ones, smartphones and even next-gen desktop PC's.
Microsoft is lucky to have deep pockets to absorb such losses. Meanwhile, I'm enjoying my heavily discounted Surface RT - it's actually a nifty device.
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