Microsoft Surface RT Price Cut Reminiscent of HP TouchPad Fire Sale

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Microsoft slashed prices of its Surface RT tablets by $150, perhaps to stimulate sales in advance of a new release or clear excess inventory. The price cut is a flashback to when Hewlett-Packard reset its doomed TouchPad to fire-sale prices.

Surface RT Price CutThe Microsoft Surface RT tablet is getting a little more affordable after a not-so-surprising price cut that adjusted the sticker by as much as 30 percent for the two primary versions.

The new prices direct from Microsoft and current authorized resellers -- retailers Best Buy and Staples -- bring the 32 GB version without a type cover to $349 from the original $499, and the 64 GB version to $449 from $599.

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The price cut is seen by analysts and partners as a way to stimulate sales and clear excess inventory. Surface RT, which runs on an ARM processor, doesn’t run legacy versions of Windows applications, which has made it less popular with users.

According to IDC, Microsoft sold just 900,000 Surface RT tablets in the first two quarters since its release in October 2012. While not an insignificant number, it pales in comparison to the 23.5 million iPads that Apple sold in the first quarter of Surface’s availability.

The discounted prices started at recent Microsoft partner and development conferences, such as last week’s Worldwide Partner Conference in Houston, where solution providers were able to buy versions of Surface RT for as low as $99 and Surface Pro -- the version that runs the regular version of Windows 8 -- for $399.

Microsoft slashing Surface RT prices is reminiscent of when Hewlett-Packard Co. slashed the price of its doomed TouchPad tablet in the summer of 2011. The TouchPad, which ran a modified version of Palm’s WebOS, failed to ignite interest among consumers and businesses. HP abruptly discontinued TouchPad, leaving partners -- particularly big-box retailers -- with hundreds of thousands of unsold units.

HP ended up slashing the TouchPad price to as low as $99 from its one-time street price of $499 to clear inventory. While few were happy with the WebOS operating system, the price drop was enough to get enthusiasts and collectors to buy TouchPads in droves; many were re-imaged with Google’s Android operating system.

The initial enthusiasm for the TouchPad fire sale briefly led HP to reconsider its decision to discontinue the tablet. It placed an additional order from its Asian manufacturers in what many suspect was to fulfill a contractual obligation. In the end, TouchPad was no more by the end of 2011, and HP continues to deal with the aftermath of the failed experiment.

Just what is Microsoft trying to accomplish with the Surface RT price cut? Microsoft is mum. On its Web site, it simply states, “a great tablet, now at an even better price.”

Some suspect Microsoft is gearing up for the release of its second-generation Surface tablets, including smaller versions. Others suspect the price is a prelude to refocusing on Surface Pro, which will run Windows 8.1, itself an updated version of the operating system that brings new features and better performance. The RT version will get a similar update to its OS.

The Surface RT price cut is not good news for the Microsoft tablet. Apple Inc. has never cut the price of its iPad until a successive generation had already hit the market. Microsoft is fighting an uphill battle in the tablet market; it holds just 3.7 percent tablet market share, compared to 56.5 percent for Google’s Android and 39.6 percent for Apple’s iOS operating systems.

Where Microsoft and HP’s tablet experiments differ is in their channel strategies. HP launched the TouchPad in the B2B channel simultaneously with its consumer launch. HP urged channel partners to take the TouchPad into businesses, believing it could become a part of a broader enterprise strategy. Microsoft, on the other hand, has been coy about bringing Surface to the channel.

Earlier this month, Microsoft expanded channel sales to include a handful of direct market resellers, including CDW, CompuCom Systems Inc., En Pointe Technologies, Insight Enterprises, Inc., PC Connection Inc., PCM Inc., Softchoice, Softmart, SHI International Corp. and Zones Inc. Microsoft said it would continue to expand its Surface channel sales in markets around the world in similar fashion.

Microsoft hoped the release of Surface to DMRs would show progress toward making the tablets available to all resellers. However, solution providers at last week’s Worldwide Partner Conference in Houston were underwhelmed by the approach and lack of information of when the devices would be generally available in the channel.

While the Surface RT price cut can be spun in any number of ways, this tablet experiment is looking more and more like another black mark on Microsoft’s go-to-market record.

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