The $399 Surface That Isn't
Marco Arment:
Apple’s been selling midrange and high-end products at midrange and high-end prices for years, trying to get people to compare (sorry) apples-to-apples, but it just doesn’t sink in: Apple still has an “expensive” reputation, mostly because they don’t address the unprofitable low end of any market.
That’s exactly right. It’s not that Apple can’t go after the low-end of the market — of course they could, and they’d likely dominate from a market share perspective. But they choose not to time and time again because the low-end of the market is unprofitable. Apple prefers to work in the profitable end of the spectrum. Crazy, I know.
And when you see that the $499 Surface has double the memory of the iPad at the same price, it’s not because Microsoft is super nice, or better at manufacturing. It’s essentially a mind trick. They’re eating a roughly $15 cost to make it seem like the Surface is a much better deal.
There’s no question that it’s a better deal from the storage perspective — 32 GB is double 16 GB — it’s just not that much better of a deal (not that the consumer has an option to get the extra storage at cost). It’s a smart trick for the new guy in the space to play.
And it does work the other way, as Arment notes:
But the bigger reason is that the storage-price upgrade trick works against them in the other direction. Customers would expect a 16 GB Surface to cost $100 less, and Microsoft might only save $16 on the component costs. A 16 GB Surface would be about $84 less profitable. In this business, especially for a new, low-volume player, that can easily push the device far into the red.
Why isn’t Microsoft selling a 16 GB Surface at $399? That’s why.
Update: And yes, as Arment himself notes in his post, another reason not to do a 16 GB Surface is that Windows RT itself takes up a lot (7-8 GB) of space. But given the cloud storage options they’re offering, they could make it work if the economics worked for them — they simply don’t.
