Microsoft (NASDAQ: MSFT) has found some success selling its Surface line of tablets and laptops, generating a bit more than $4 billion of revenue from the products in fiscal 2017. But the mainstream portion of the market has so far eluded the tech giant. The Surface Pro, its least expensive option until now, starts at $799 and goes much higher.
Microsoft's absence from the mainstream tablet market is not for lack of trying. The original Surface line of tablets, launched in 2012, started at just $499. But those cheaper devices were powered by ARM-based processors and ran a special version of Windows that didn't support standard desktop apps. They were simply too hobbled to compete against the Apple (NASDAQ: AAPL) iPad.
The new Surface Go tablet with Type Cover. Image source: Microsoft.
Microsoft hasn't offered an inexpensive Surface device since 2016, when the Surface 3 was put out to pasture. That changed on Tuesday when the company announced the Surface Go, a 10-inch Windows 10 tablet that's the most aggressively priced Surface device to date. The base version will go for $399, with an official release date of August 2. It features an Intel Pentium Gold 4415Y processor, 4GB of RAM, and 64GB of storage. For another $150, both the RAM and storage can be doubled.
The base model doesn't include an attachable keyboard. Microsoft's new Surface Go Signature Type Cover will add $130 to the price, while a Surface Pen will add another $100. So, if you opt for the more expensive configuration, the all-in price is a not-so-affordable $779.
Who is this for?
Microsoft doesn't seem to have a specific type of customer in mind for the Surface Go. In the blog post announcing the product, the company mentioned that its screen is designed to match to scale of most school textbooks in portrait mode, so the education market is certainly one target. But Microsoft seems to be hoping just about everyone will find the device suits their needs. "For a family at home or on the move, an expert on the front line of a business interacting with customers, or a school that wants to provide its students with the most versatile tools for learning, this device offers a premium experience with incredible value," reads its blog post.
The pricing of the Surface Go puts it in a weird spot. Apple's cheapest iPad goes for $329, with a $30 discount for schools. This doesn't include a keyboard or stylus, so the total cost for schools would be closer to $450 with both accessories. That's still way below the pricing of the fully decked out Surface Go, even with the education discount.
The Surface Go will also be competing with cheap Windows laptops from third-party OEMs, and Chromebooks powered by Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) Chrome OS. Devices of both types start below $200.
Outside of the education market, the Surface Go falls somewhere in between affordable and premium. It offers plenty of versatility, given that it's able to function as a tablet as well as a full-featured Windows laptop with the attachable keyboard. But with its slow processor and limited memory, performance could be a problem.
I'm not optimistic
The Surface Go is not an iPad killer. It's also not a Chromebook killer. I'm not sure what it is, really. If the $399 model included a keyboard, I think the story would be different. But adding a keyboard pushes the price significantly higher.
This lower priced device opens up the Surface family to a wider swath of potential customers. But I'm not convinced it will be popular enough to move the needle for Microsoft's Surface business.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.