|Make me cheap!|
They first went wrong with their early attempt at creating a touchscreen standard. It gave us that excellent piece of software OneNote, but the hardware never took off. No one could see why anyone would want to buy a tablet when they could have a real computer. Then Apple showed the world exactly why they wanted one - and the world changed. So when Microsoft came back to the market with the Surface they should have had it easy. They had an excellent, touchscreen-oriented operating system that would run legacy programs (if you had the right version of the hardware). And a neat design. What could possibly go wrong?
At the time of writing the price of Surface tablets is being heavily discounted for the obvious reason that they simply aren't selling. We now all understand why we want a tablet - but we want it to be an iPad or and Android device, and we need a fair amount of persuading to go for something else. And the MS sell just isn't working. I think Microsoft has one hope, but I don't think they will see it. Certainly the usually spot-on industry website The Register didn't in this piece on the price cuts.
Simon Sharwood, the author of the piece, comments 'One small ray of sunshine is that the price cut may not be permanent.' But I'd say that's bad news, not a ray of sunshine. I think Microsoft's only hope for the Surface was not keep it premium priced, but to make it really cheap. It's the Polaroid strategy. Polaroid used to practically give away their cameras, because they made all their money from the film. You can still see this sales model operated today by printer manufacturers who sell printers ridiculously cheap considering what sophisticated devices they are, because they expect to make their money from the consumables. (I once had a colour laser printer where a set of cartridges was more expensive than buying the printer (with a set of cartridges) in the first place.)
Of course 'consumables' are a very different business with a tablet than with a printer or Polaroid camera. They are less essential, so you have to make sure that it's attractive and very, very easy to upgrade your software (something, let's face it, Microsoft knows all about with Office), to buy new apps and to buy little add-on hardware gadgets and widgets. But given that, there is no reason why Microsoft couldn't sell Surfaces mega-cheap for ever. That way, they'd have a chance of surviving against the might of the aluminium clad opposition.