Microsoft’s (MSFT) initial production run for its Surface tablet will yield more than 3 million units according to estimates by market research firm IDC. The software giant previously announced that its tablet will only be available in Microsoft Store locations in the U.S., and through select online stores, but IDC analyst Bob O’Donnell does not believe the company’s current plan is feasible. “If they build a few million units there’s no way they can sell it through Microsoft store only,” he said to CNET. “So I think that they’ll sell it through traditional retail also. You can’t build that many products without having a much wider distribution strategy. They just haven’t shared that [strategy] yet.”
While recent reports suggest that the company’s Surface tablet could launch for a mere $199, the analyst believes Microsoft only has two viable options. “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,” he said, adding that he has serious doubts about the $199 price. O’Donnell notes that because the Surface is a PC product, a subscription-based price would not be successful.
“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,” he said. “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 and minute, when I do the math on this monthly thing I’m paying way more than I want to.”
The analyst also believes that because Microsoft is mainly looking to sell the software, not the hardware, the company won’t be so quick to screw over its partners.
“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 else sells almost zero,” O’Donnell explained. “They (Microsoft) 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.”