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Microsoft's Surface to face market challenges

Posted: 27 Jun 2012 ?? ?Print Version ?Bookmark and Share

Keywords:Windows 8? Surface? tablet PC?

While the PC industry was concentrating efforts into developing Windows 8 tablets, Microsoft chose to take the lead by announcing its Surface tablet PC, showing purpose in supporting its new operating system (OS) while also increasing prominence of Windows 8 tablet PCs. WitsView, research division of TrendForce, has indicated that the introduction of Surface making a stir in the tablet PC market and is projected to dominate the market outlook with its veiled pricing.

Higher price and its implications
Eric Chiou, WitsView's research director, noted that Surface adopts a 10.6-inch HD (1366 x 768) and Full HD (1920 x 1080) panel, while the built-in storage capacity of its entry-level model is directly upgraded from mainstream 16GB to 32GB, posting a higher specification in both size and hardware compared to a mainstream 10.1-inch Android tablet PC, making the reasonable pricing of Surface to start at $599 at least in response to the higher cost.

Inevitably, a higher price may hold back interested buyers while also overlapping with the price of ultrabook, Microsoft and Intel's hit of this year. Surface is designed to mirror notebook functions, which could cannibalize ultrabook sales. Microsoft may not be pleased to see a competition between its own products.

Possibility of low price strategy
On the other hand, low-pricing strategies could be also practical. Chiou points out that Microsoft's significant capital is indisputable. In the past, Microsoft decreased product prices through subsidy programs and successfully secured the dominance of Xbox 360 in the home entertainment market in a short time. Duplicating this marketing strategy and applying it on Surface by dropping its price to $499 is possible. With its prominent specification and modest price, Surface is expected to entice consumers, shortening the time to popularize Windows 8 tablets and further leading brand partners to have better performance in selling and promoting Windows 8 tablet PCs.

On the downside, WitsView believes that a strong subsidy program may simultaneously shorten the time required to expand the market share while bringing about the risk of misleading consumers to incorrect price. Due to higher authorization fees for the operating system, cost gap between Windows 8 and Android tablet PC exists to a certain extent. Surface may stand out in the market by sacrificing profits or getting subsidies from Microsoft, while the remaining brands are unlikely to possess the ability and will to do so.

More obstacles ahead
Undoubtedly, customers are expected to take the price of Surface as a benchmark for every single prospective Windows 8 tablets; that is, Microsoft's Surface with an intentionally lowered price may decrease the price flexibility that affects its brand partners' earning capacity, and even further impact their desire to launch new products. Thus, Microsoft may be facing more obstacles when duplicating its successful experience in the PC market to the tablet PC market once it loses support from its powerful partners.

In terms of the impact of Surface on 2012 tablet PC market, WitsView concludes that while Windows 8 models' joining the tablet market was well expected, the introduction of a single model is temporarily unlikely to change the estimated market size before Surface pricing is determined. WitsView restates that tablet PC market is expected to reach 94 million units in 2012, among which Windows 8 OS is projected to achieve 4.3% penetration rate, equal to shipments of 4 million units.

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