By Alexandra Burlacu | Aug 19, 2012 09:24 AM EDT
Microsoft, the software giant now plunging into the hardware business, is expected to build more than 3 million Surface tablets, market research company IDC told CNET. An IDC analyst also discussed the likelihood of a $199 price tag for the basic version of the tablet.
"If they build a few million units there's no way they can sell it through Microsoft store only," O'Donnell told CNET, referring to Microsoft's current plan. "So I think that they'll sell it through traditional retail also. You can't build that many products without saving a much wider distribution strategy. They just haven't shared that [strategy] yet."
Microsoft's Surface RT tablet is built on ARM processors, and will not support older "legacy" software running on Windows 7. Meanwhile, the Intel-based version of Surface will run Windows 8 Pro, which does support legacy software.
When it comes to the likelihood of an inexpensive Surface RT slate, rumored to launch at $199, O'Donnell said there are two possibilities. "There could be two ways to get Surface. Buy it outright for, let's say, $599. Or $199 for a two-year subscription and you can get X, Y, and Z - which, oh, by the way, works out to more than $599."
Former Microsoft Manager Hal Berenson also explained the subscription theory in a recent blog post. "It is completely within expectations, and in fact the $99 Xbox deal is just telegraphing it for all who are willing to listen, that Microsoft is going to offer the Surface for $199 when you sign up for a TBD (to be determined) subscription of some sort," wrote Berenson.
Meanwhile, O'Donnell is rather reluctant about a $199 price tag for the Surface. According to him, that pricing model would likely not be successful on a PC product, and it wouldn't even work with a subscription. "MS Office subscription? Any Windows RT product comes with Office. So, that knocks out that theory."
"They do have a video store and music store. Theoretically they could give you a Netflix type or Pandora type deal with free access to music and video. But remember what happened to Netbooks and 3G, where you had to pay a monthly fee? That was a disaster. It took off initially but then nosedived. The point is, people catch on and say wait a minute, when I do the math on this monthly thing I'm paying way more than I want to," added O'Donnell.
Meanwhile, the other theory is that Microsoft actually wants to sell the software rather than the hardware, hence the discount. "Let's say there are four competitors. In a fair world the price is about the same and they each sell 25 percent. But at $199 Microsoft sells 100 percent and everyone sells almost zero. They have a truly symbiotic relationship with [PC makers]. If you undercut their prices then all of those licenses you would have sold through [PC makers] don't get sold."
In early July Microsoft said it plans to sell "a few million Surface PCs" in the coming year, so O'Donnell's estimations don't seem far off. Microsoft will be launching its Surface RT tablet on Oct. 26, but the Windows 8-based Surface will arrive three months later.
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