Microsoft will launch its first Windows RT tablet on October 26th. While the company hasn’t had much to say about the price, the company has insisted the first Microsoft Surface tablet would be “competitive” with similar devices with ARM-based processors.

Now Engadget reports that “competitive” could mean $199. I’d call that very competitive.

Update: Paul Thurrott, who has a pretty good track record with such things, suggests that he’s seen evidence a $499 starting price could be more realistic.

Microsoft Surface

In fact, looking at the hardware, it’s hard to believe that Microsoft could sell the Surface at that price unless Microsoft is willing to take a loss and sell the tablet for less than the cost it takes to build it.

Bear in mind, this is a rumor based on information from one “inside source” at this point, so the price isn’t certain yet. But as Amazon and Google have shown, $199 appears to be the sweet spot for non-iPad tablets.

On the one hand, the move could make the Windows Surface tablet competitive with the Google Nexus 7, an Android tablet that also sells for $199 and up. That’s half the price of the least expensive Apple iPad.

This could carve out a niche for Windows RT tablets as budget devices.

On the other hand, the move could also backfire, convincing consumers that Windows RT tablets aren’t worth very much. Part of the reason Samsung, Acer, Asus, Dell, HP, RIM, and other companies have had difficulty selling tablets with iPad-like price tags of $500 and higher is because people expect Apple products to cost more, and expect a discount when looking at alternatives.

With the Surface priced as low as $199, Microsoft runs the risk of undervaluing the platform. When the Surface 2 with Windows 9 (or whatever) comes out in a few years, will you be able to pick up a first-gen Surface tablet for $99?

Microsoft also plans to launch a Surface tablet with an Intel processor and Windows 8 operating system after the Windows RT model has been out for a while.

The Windows 8 version will be able to run apps designed for x86 processors, unlike the Windows RT model. That means that while it will likely be more expensive, it will also be much more of a full-fledged PC, capable of running most apps designed for older versions of Windows.

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21 replies on “Could the Microsoft Surface Windows RT tablet launch for $199?”

  1. Xbox,
    Who know Xbox can share market from PS2 ?

    But xbox did it with price low than cost.
    Microsoft have much money, how to use this advantage to win mobile game ?

    I think $199 is the answer.

  2. As long as it doesn’t affect quality it sounds good to me. It’s difficult to imagine Microsoft taking a loss on the Surface especially since other manufacturers probably can’t do the same unless Microsoft gives away WinRT for free. If I were a manufacturer I wouldn’t be happy about this. The only other way manufacturers would be able to compete is if the Surface is subpar in quality.

  3. An interesting tactic. If you pair this with the Android pricing it starts making inexpensive the norm for tablets. Low end disruption at it’s finest.

    If you check figure 3-3 of this link:
    Less money per tablet but evenly distributed as opposed to figure 3-2.

    This would put Apple in a tricky position, while they could sell the iPad mini at $200 and still make money it won’t make the huge margins Apple depends upon. OTOH if they can’t maintain a monopoly on tablets they loose out on content margins.

    The other option is to beef up the hardware, but after retina it pushes well into overshoot see figure 3-1

    Cut into the huge margins and virtual monopoly and Apple is in the same trajectory it was in in the early ’90s lowered margins cutting into development and economies of scale. Without huge margins the virtuous cycles turn vicious and Apple eats itself.

    1. What is this going to do that Android isn’t already doing except making MS spend hundreds of millions to get into a device market, piss of it’s OEMs, etc. If you think that MS throwing away hundreds of millions of dollars is a good long term strategy then more power to you.

      Apple already had to deal with this, and the answer was never sitting still. They were always going to loose if they sat still and did nothing to innovate. Virtual Monopoly or no.

      By focusing on the impact to Apple though I think you’re missing what this is going to mean for Microsoft itself, and whether that’s a positive or not. Apple has BILLIONS in the bank that Microsoft doesn’t. They could never sell anther product and be fine for the next decade. MS doesn’t have that luxury. So how does this make them more money without simply cratering their bottom line?

      How does loosing hundreds per device turn this from a vicious cycle for MS to a virtuous one? Someone needs to explain that before I buy this as some sort of grand strategy.

      1. By taking a loss on each device they make it cheaper so that more people will buy it. If they can get a lot of people to buy up Windows 8 tablets then developers will start making apps for WinRT. If I’m not mistaken Microsoft gets 20%-30% of apps sold through the Windows store. That’s just like how it is with iOS, Android and Windows phone. The big difference here is that Windows is still the largest selling OS. They may be trying to seed their userbase in order to get more apps into the Windows Store and make money that way. It’s similar to game consoles and cell phones. The hardware is sold at a lost but made up with software and subscription fees.

        That does not explain how this will affect OEMs as it sounds like OEMs are getting pushed into a corner. However I have read that Microsoft decides which OEMs are allowed to create WinRT tablets. For all we know they will supply those OEMs with free copies or other benefits in order to keep them as partners.

        1. Apple gets 30% of all apps, they can price match. They have a huge install base and more cash. Android further errodes the market out from both, now no one can make a profit in the space ever again. Whole thing rapidly descends to who is willing to loose the most longest…

          As to the OEM observation and MS subsidizing them, maybe. I think that will run them into legal issues real quick, but maybe.

          The question is why bother?

          They have another version of the OS able to run legacy apps. They don’t need to enter this market AT ALL. They have a MUCH more compelling product that doesn’t involve them loosing lots and lots of money. If all they’re worried about is Apple then they can take the top of the market from Apple, and let Android take the bottom, boom no more Apple competition, in trying to do both, it seems like they’re just competing with themselves to see how much money they can loose and remove any value still left in the Windows brand… On all platforms.

          Hopefully I’m wrong, but this whole rumor just doesn’t make sense. If the only player in the market were Apple, I could see it. But Apple was already being disrupted on the bottom end. This move has to be at Google, but the only way that makes sense is to then somehow keep Google off the platform entirely, because if they don’t they’ll have to continuously undersell free with their own hardware, or hardware made by others they then have to subsidize instead of capitalize on.

  4. Last comment. This is the kind of rumor I’d put in the channel to screw MS over if I was one of their competitors. This is a move that’s great for consumers but bad for everyone supporting MS except developers, which means it’s horrid for MS’s current business model. If they want to burn all their ships upon landing on the new coast of tablet land, then so be it. They will have to say good buy to all their partners when they do which means competing head to head with Apple AND their former OEM partners who will almost certainly run to Google or Android…

    Good luck with that. I just sold my stock.

    1. >They will have to say good buy to all their partners

      And where will those partners go? Out of business? Because they’ve tried with Android, and they’ve tried with Linux. And Apple isn’t accepting new applications.

      1. Yes. Basically.

        Their OS vendor will be selling a competing product AT A LOSS. How do they stay in that market? Do they put products into the channel that they know won’t sell? Best case scenario for them is to simply not sell anything and find something else to do, or pray MS stops, but at that point the market expectation will already be set.

        So if this is true, the question becomes can MS live without them. Can they become completely integrated instead of a modular component vendor.

        As to the where will the OEMs go question if that argument was completely valid, you’d have to assume that Apple has a 3% market share, and MS is selling at a a loss for the fun of it. Things change, and if this is the motivation things need to switch, they will. What you can’t assume is that if this happens things will be as they have traditionally been.

        1. Yes, they completely screw their OEMs and if they piss them off sufficiently, they will leave.

          MS can live without them no question about it (Apple can). MS will only keep their OEMs until they become ready for volume shipments.

          OEMs will likely intensify their Android and Linux efforts while keeping Windows as long as Microsoft shuts down OEM Windows sales.

      2. They ARE trying with Android and some of them have success (e.g.: Samsung).

        They haven’t seriously tried with desktop Linux, only half-assed attempts (on extremely limited set of products). I am not saying it would be easy for them to go with Linux but they don’t really have much choice if MS switches to Apple’s style and locks down Windows.

  5. $299 is a nice price point. $199 for 7″ and $299 for 10″
    Then they make some money off the accessories (especially the keyboard)

  6. If they do this they will become the sole provider of WinRT devices. No one else could take the loss on hardware and pay for the OS license. That kills their partnerships and will ultimately cost them any OEM support for mainstream Windows as well as the tablet market.

    So yeah they could do it, but the politics of it are just off. Samsung, Lenovo, and Asus just announced support despite being stabbed in the back. If they get the shaft again all bets are off.

    1. >If they do this they will become the sole provider of WinRT devices. No one else could take the loss on hardware and pay for the OS license.

      Think of it this way: Good OEM relationship won’t matter if WinRT is dead. None of the WinRT OEM tablets have a chance against iPad. If the Surface RT can’t make headway, WinRT itself is dead.

      The OS licensing cost can be worked around. MS can provide this initial version for free to OEMs, as a promotional effort to get WinRT off the ground. It can charge for subsequent versions. Heck, Google did it for Android, surely MS can do it for one version.

      1. OEMs will not take a “promotional” offer. They plan their strategy ahead for several years and they won’t invest in a platform which has no revenue in the future.

  7. Jumping in front of the “too good to be true” crowd, I’d remind that MS has done this sort of thing before.

    A few years back, MS had the infamous Bing Cashback in promotion of its Bing services. The cashback was for 33%. This gradually tapered off, but it went on for MONTHS (almost a year IIRC). There were people who got THOUSANDS of dollars in cashback from MS. I myself had gotten a few hundred. And this was just for Bing, which is a mere sideshow compared to the well-being of Windows and Office.

    Put another way, this is MS’ very survival at stake. It can’t afford to let WinRT flop. If Google can have a best-seller in the $199 N7, then MS will certainly have the same with a $199 Surface RT. Yes, it will lose $100+ per unit, but if you think about it, it is small potatoes compared to the death of WinRT. Big picture time.

    1. Do you honestly expect MS to release a product that effectively caps the market for the entire OS BELOW the cost of manufacture?

      Seriously think it through. They will be direct competitors of the OEMs they are expecting to carry the platform forward for them, then on top of that they’ll be undercutting them. Not good.

      So big picture time. If they do this they kill WinRT. Buyers will hesitate to buy any product more expensive than this unless it has a LOT more features because they’ll know that MS sold the product at that price at release. This effectively caps the market and relegates them to selling at a loss until the BOM costs go through the floor. It also signals the market that you think your OS is so horrible that you’ll buy market share rather than earn it.

      Really think through the long term merits of the position before thinking it’s likely. I expect to see their stock drop just because of the rumor. This isn’t a good plan.

      1. >Do you honestly expect MS to release a product that effectively caps the market for the entire OS BELOW the cost of manufacture?

        It’s called a loss leader.

        And it’s not for the entire OS. Just for Win RT, and not for every device of Win RT, but one model.

        >They will be direct competitors of the OEMs

        As of now, there is now market for Win RT. There can be no competitors if there is no market. MS needs to establish one, and it’s the only one that’s capable of doing so.

        And as already said, where are the OEMs going to go? Home?

        >If they do this they kill WinRT.

        If MS doesn’t do this, Win RT is probably dead already. Say it again: v1.0, full of bugs, no apps, against a popular and entrenched competitor with an established ecosystem.

        What else can MS do except doing the same thing that Google is doing with the N7? Go cheap.

        >Buyers will hesitate to buy any product more expensive than this unless it has a LOT more features because they’ll know that MS sold the product at that price at release

        Buyers will buy based on whatever makes sense to them at the time. Only a fool would expect a promo offer to last in perpetuity. If this is the pricing for Surface RT, that would be abundantly clear.

  8. If this really happens, then I predict Google will cut the price of the starter Nexus 7 to $179 or even $169.

    At $199, I would buy a Surface — and I hate Windows 8. But eventually this would blunt motivation on my part (and I imagine also those who are not as tech savvy as myself and colleagues) to buy an Intel-running Windows 8 tablet later. I realized recently I’ve hardly used my Windows 7 notebook since the year began, thanks to my Android tablet and smartphone. (Most of my computing needs lately for either work or personal use rarely require me using Windows-specific applications.)

    A lot of interesting things are happening in the consumer tech world by Halloween.

    1. They are not going to be in competition that much with 7″ tablets like the nexus. I predict google will do nothing.

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