For Microsoft, Surface success will come down to price, not features

When Microsoft announced its line of Surface tablets on June 18, there was one key area where it appeared the general tech community was let down: no pricing information was revealed. Microsoft revealed most important information regarding the tablets’ specifications as well as general release dates (Oct. 26 for the Windows RT version; the Windows 8 version will follow in about three months after), yet pricing was nowhere to be seen.

Since Microsoft’s announcement, however, Google announced and released the first Google-branded tablet, the Nexus 7 (built by Asus), and Amazon has announced new versions of its Kindle Fire tablet. While the fact these announcements were made wasn’t surprising, the pricing information for these new Android-powered tablets is extremely important.

Amazon has dropped the price of its original 7-inch Kindle Fire with improved components to start at just $159, while the 8.9-inch Kindle Fire HD begins at $299. The 7-inch Kindle Fire HD, meanwhile, starts at $199, the same price the original Kindle Fire used to sell for. Google’s Nexus 7 tablet also starts at $199.

Amazon's Kindle Fire HD pricing information left little room for error for Microsoft's Surface pricing.

By comparison, the most recent iPad model begins at $499. With the exception of a slightly larger screen, its specifications aren’t much different than the 8.9-inch Kindle Fire HD; in fact, the Kindle Fire HD bests the iPad in many areas, such as processor speed.

It’s clear Android manufacturers haven’t been able to elbow their way into the tablet space when compared to Apple’s iPad. The Kindle Fire is the most popular non-iPad tablet on the market, and even its market share pales in comparison to the iPad. Apple’s tablets maintain a 68.3 percent global share of the tablet market, according to statistics released July 25, followed by Android-powered tablets at 29.3 percent. At Thursday’s Kindle event, Amazon founder Jeff Bezos said the Kindle Fire accounts for about 22 of that 29.3 percent.

Windows-powered devices, meanwhile, account for less than two percent of the tablet market. Of course Microsoft hasn’t made much of an attempt to gain market share in the tablet space until it announced Windows 8 and Windows RT, however.

But if there’s one thing Google and Amazon’s announcements and pricing information revealed, it’s that they’re both willing to race to the bottom, in terms of pricing, to take on Apple. At the same time, Google and Amazon have also put Microsoft in a tough position.

Microsoft's Surface line faces tough competition in the tablet market, especially in terms of pricing.

When the Surface tablets were announced, Microsoft didn’t say anything about pricing beyond that they’d be “competitive.” Because of the Nexus 7 and Kindle Fire’s pricing, “competitive” just became very different than what it was when the Surface tablets were first announced.

That’s not to say Microsoft wasn’t acutely aware of the changing tablet landscape. Google had already announced it would be holding a press conference before the Surface tablets were announced, and rumors of Amazon making a Kindle Fire-related announcement were already swirling around the Internet.

While Microsoft may have made the tech community mad by not announcing pricing, it did leave itself some room for changes before the release of Surface on Oct. 26. The problem now is how competitive can Microsoft afford to be.

On one hand, the similarly sized iPad 2 begins at $399. But even though the Nexus 7 and Kindle Fire HD are smaller than Surface, they have very similar specifications – in some ways even outclassing Surface. Surface is powered by an NVIDIA Tegra system on a chip, although it’s not currently known what version of Tegra will power the tablet. The quad-core Tegra 3 is NVIDIA’s current version, which also powers the Nexus 7. It’s possible Microsoft’s partnered with NVIDIA to get a more powerful version in the Surface tablet, although that seems unlikely without an announcement from NVIDIA.

So where does Surface’s pricing come in at? That’s hard to say. Though the iPad 2 starts at $399, that’s for a 16GB version; Surface, by comparison, comes in 32GB and 64GB variants. The 32GB, 8.9-inch Kindle Fire HD begins at $369.

It’s unlikely Microsoft will release Surface at the absurdly low $199 price point that was previously rumored, but if Microsoft remains true to its word, it will be hard to release the 32GB Surface at a price point of more than $399. And if Microsoft really wants to make a dent, it’ll have to be competitive Google and Amazon’s recently announced smaller tablets as well.

Microsoft’s running out of time to announce pricing information before the Oct. 26 launch date. It’d be surprising if that information wasn’t released before the end of the month. But just how surprising will that pricing information be?

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