Microsoft Surface Pro Fire Sale Begins

Microsoft Surface ProMicrosoft is doing it again, dropping the price of its poor-selling tablet, this time the Microsoft Surface Pro.

Over the weekend, Microsoft announced the Surface Pro will sell for $100 on its two standard models, bringing the price of the 64GB to $799 and the 128GB to $899. Accessories still cost extra and the reduce price is only through the end of August, for now.

The price cut comes just a month after Microsoft dropped the price of its unpopular Surface RT tablets by $150. The lowest price version now costs as little as $349.

The Surface price cuts come following Microsoft writing off $900 million in unsold inventory and accessories related to the tablet.

Microsoft is under heavy criticism from the channel over its Surface strategy. Only recently has Microsoft allowed  a handful of channel partners – mostly direct market resellers – the right to resell Surface tablets. Microsoft executives say Surface will eventually make its way into the broader channel, but won’t give a timeline for when that will happen.

Some analysts and partners says Microsoft’s failure to engage its massive worldwide channel in supporting Surface is a large part of the reason behind the low sales numbers.

Microsoft isn’t releasing sales numbers, but analysts suspect that Microsoft has only sold 1.5 million of its tablets since they became available last October. Comparatively, Apple has sold 57.5 million iPads during the same period.

The larger question is whether the price cuts are a prelude to the release of the next generation of Surface, a means through which Microsoft is looking to buy market share or if this is simply a recognition that Microsoft can’t compete in the tablet market against the entrenched market leaders.

Microsoft says the price cuts are simply a stimulus for the busy back to school shopping season. Rather than having iPad Minis and Android-powered Samsung tablets in student backpacks, Microsoft wants Surface as the replacement of notebooks and popular tablets.

Despite Microsoft’s official rational, there may be larger problems looming. Microsoft may be trying to get into the tablet party when the club is closing.

Consider this: Apple set a record for iPad sales during the 2012 holiday quarter, when it sold a monster 23.5 million units. Most of those sales were of the iPad Mini, the popular smaller version of the iPad. Since then, iPad sales have fallen. In the most recent quarter (April to June), Apple reported iPad sales fell 20 percent to 14.5 million units. It was the second straight quarter of declining sales.

The picture beginning to materialize is Microsoft is trying to play the disruptor to a market that has already decided the winners and is steadily marching toward commoditization. In which case, the only way Microsoft can compete is through price cuts.

The other possibility is the Microsoft Surface simply isn’t a good machine. While Microsoft calls Windows 8 an innovative platform built for the touch-driven interface world, users have largely rejected the operating system. Traditional Windows users don’t like the limitations placed on how they operate and new users find the interface too clunky compared to iOS and Andriod.

If it’s a user preference issue impeding Microsoft Surface sales, the price cuts are more like what happened with the Hewlett-Packard TouchPad in 2011. After just six weeks on the market, the WebOS-powered TouchPad was declared a flop. No one was buying and retailers wanted it out of their warehouses. HP discontinued the tablet and reduced the price from $499 to $99 to clear the loading docks.

More ominous for Microsoft if the HP fiasco is repeating itself is the lingering impact. While HP was suffering from significant issues long before TouchPad, the abrupt change and the confidence shock rattled the company so bad that it’s still trying to recover.

While Microsoft is cutting Surface prices, it’s not saying how it will impact partner sales. As DMRs are just selling Surface, it’s unclear how the reduction will affect their margins and their motivation to sell the tablet.

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