Back in January 2013, we wrote an analysis of Microsoft's marketing and pricing strategies, which we labeled at the time as being "damnably dumb." No need to mince words, as damnably dumb caught it perfectly then. And today it catches it just as well.
The gist of our earlier analysis, which, in fact, dates back to October 2012, was that Microsoft needed to find a way to create a truly frictionless environment for getting both the Surface RT and Surface Pro tablets quickly into the hands of millions of users. The means for doing so was exceedingly simple: create price points that completely eliminated pricing as an issue. For us, that meant taking prices all the way down to, relatively speaking, Kindle levels.
With a brand new touch-centric operating system in hand and hardware that was an unknown though clearly enticing design, Microsoft needed to forget about breaking even or making a dollar. Microsoft needed to ensure that it set up a means to seed the market with large amounts of hardware that no one could possibly fault, even if buyers ultimately decided they didn’t really like the design of the hardware or the operating system. And Microsoft needed to give away its one really well thought out differentiator -- the keyboard.
Alas, Microsoft did neither. It failed to do so when the Surface RT appeared and it failed even worse with the Surface Pro when the company opted to attach a premium price to it. When faced with a battlefield already saturated with 150+ million of the enemy's highly loved hardware devices, a company needs numbers -- huge numbers -- and frictionless price points in order to do battle. Think of it as pricing innovation (more specifically, pricing innovation within a stalwart old-school Microsoft).
Not very many companies can do such a thing, but certainly Microsoft is one of the rare companies that can. Had Microsoft priced its first Surface tablets to eliminate price as a consideration and had it included the keyboard, it would have endeared itself to a huge collection of both consumers and enterprise users. It would have engendered enormous goodwill. It would have created momentum heading into the next cycle of products and OS.
It was the sort of pricing and bundling scheme that Microsoft CEO Steve Ballmer could never have conceived of delivering. We've noted Ballmer's many innovation failings over the last several years, which extend even now to Microsoft's very recently announced re-org. Ballmer's utter failure to entertain an innovative bundling and pricing model for the Surface tablets should drive anyone who still hopes to see an innovative Microsoft emerge completely crazy.
Dumb Strategies, Part Two
Microsoft is now looking to discount Surface prices heavily! It's much too little and way too late, however. The bloom is already off the rose, and the company failed to endear anyone to its hardware. Sure, there are some folks out there who love the Surface. But that number is a meaningless one. There are not enough people who like the Surface to generate momentum or desire. There are no early adopter coattails, and there certainly aren't any relevant champions.
The new discounts come across as a purely defensive move; Ballmer now has no choice but to cut prices, but the effect is to underscore what is now a heavily flawed product from a marketing perspective. "Price cuts" -- especially as they are now being engineered for the existing Surface tablets mean that a product can't be moved -- underscore that the Surface tablets are now perceived to be flawed.
We've been very bullish on the Surface devices -- both the RT and the Pro. We've been so since they were first announced. It has been maddening to watch Microsoft blow its chances with the public so completely. For those of us who would rather see a successful, innovative Microsoft rather than the slow and steady value company Microsoft now is -- and we certainly count ourselves in this category -- it has been an infuriating lapse in judgment.
For those who point out that Microsoft has now moved up $8 a share, to roughly $35 from its long standing, decade long $27 per share, congratulations …that is exactly what one anticipates from a value company.
For us however it is yet another Microsoft innovation failure.
Edited by Rich Steeves