New Microsoft Surface 2 tablets are seen as too pricey

Panos Panay, Microsoft's VP of Surface, introduces a

Panos Panay, Microsoft's VP of Surface, introduces a second generation of Surface tablets in New York City. (Sept. 23, 2013) (Credit: Getty Images)

Microsoft launched its latest effort to gain a foothold in the tablet market -- and a key component of its strategy to turn into a "devices and services" company -- with the introduction of its newest generation of Surface tablets and accessories.

At a New York City event Spet. 23, the company announced the Surface 2 and the more powerful Surface Pro 2, which go on sale next month. Both boast longer battery life, increased processing power, better display and camera resolution, and more built-in kickstand positions than their predecessors, the Surface RT and the Surface Pro.

But some analysts questioned whether the prices are low enough to entice consumers who are increasingly turning to lower-priced, smaller tablets, as well as to attract consumers and businesses looking for the best value in a powerful, high-end device.

The new Surface devices show "Microsoft has addressed a lot of the previous product shortcomings," said analyst Tom Mainelli of research firm International Data Corporation, based in Framingham, Mass. "But they still don't seem to be willing to go where they need to go on pricing to help these platforms gain traction in the market."

Windows tablets -- including Microsoft's Surface, as well as those made by other manufacturers -- had only a 4.5 percent worldwide market share in the second quarter of this year, according to IDC.

And Surface accounted for only 0.8 percent of all the tablets sold that quarter.

The first generation, especially the Surface RT, sold far below company expectations, generating about $853 million in sales this past fiscal year. The company also took a $900 million writedown on the Surface RT after it cut the price on those devices by $150.

Microsoft's pricing on the new Surface devices place them slightly below comparable iPads and premium Android tablets, but above many other tablets in the market.

The Surface 2, which runs on a power-sipping ARM-based chip, starts at $449 for the 32GB version. There will also be a 64GB version to be sold at an undisclosed price.

The $449 price tag is a bit lower than the $500 the Surface RT sold for when it launched last October. It's also $150 cheaper than the 32GB iPad 4 and $50 cheaper than the 32GB Samsung Galaxy Note 10.1.

But it's more expensive than many other Android-based tablets, especially those smaller than 8 inches, which are gaining traction -- even if Surface is aimed at a somewhat different market: those who want to do work on their tablets as well as consume content.

And while the Surface 2 comes with a version of Office 2013 preloaded, it will not run apps built for Windows desktops. Instead, users will have to rely on apps from the Windows Store.

The Surface Pro 2, positioned as a competitor to the MacBook Air and other extremely thin-and-light laptops, starts at $899 for the 64GB version with 4GB of RAM. It runs on the powerful, long-battery-life Intel Haswell processor.

The new Surface devices and covers can be preordered starting Tuesday and will be available Oct. 22.

The devices and accessories "look great from a hardware perspective," said IDC analyst Mainelli.

But he said, "I would make the argument to sell the hardware for less and then make the money up on the services on the back end once you get some traction and people can see what the devices can do."

Analyst Wes Miller, of research firm Directions on Microsoft, agreed that "prices are a little high, especially with the Surface 2.

''Customers are much more sensitive to price, especially at the low end, with all the ARM-based tablets that they could compare," he said.

Microsoft also appears to be focusing on Office and the ability to multitask as key differentiators between the Surface 2 and the iPad, but Miller said, "I'm not sure that that's what consumers are missing on their iPads.

The Surface Pro 2, if combined with some of the accessories, can be a viable laptop or even desktop replacement, as well as a very powerful tablet.

Sarah Rotman Epps, an analyst with research firm Forrester, said via email that the Surface 2 is better positioned to compete with the iPad than its predecessor.

But the company still has a "long road ahead to win over consumers and businesses," she said. 

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