Why a $200 Surface tablet makes sense for Microsoft

microsoft surface tablet

When Engadget broke the news that the Microsoft Surface would be sold for $200, it caused quite a stir. Can it possibly be true? Microsoft is refusing to comment. An anonymous source kicked off the fuss by saying that the Microsoft Surface for Windows RT tablet would be going on sale on Oct. 26. That’s believable enough because it’s also the launch date for Windows 8. What’s harder to swallow is the idea that even Microsoft can afford to sell it for $200. (By the way, in case you are wondering, Windows RT is a version of Windows 8 for ARM devices such as tablets.)

Competition is good for consumers

This kind of pricing is the sort of thing that capitalism fans always argued should come about because of fierce competition in the market. In theory, companies vying for our affections will drive prices ever lower. In practice, it rarely happens for a variety of reasons, or it happens until the competition goes out of business and the survivor can charge whatever it wants.

In any case, if it is true, then it’s great for consumers currently considering buying a tablet. Stats from IHS recently suggested that Apple’s share of the tablet market is heading toward 70 percent with a range of Android manufacturers accounting for the bulk of the rest. Of course, that was before Google launched the Nexus 7. If you were to buy a tablet right now and you wanted the best value for your money, it might be tough to see past the Nexus 7. If you want the best tablet and price is of no concern, then the iPad is the obvious choice.

Microsoft would really stir things up by releasing a 10.6-inch tablet at a $200 price point. Unfortunately, beyond the inclusion of Windows 8, we don’t know much about the Microsoft Surface right now when it comes to specs. However, the 10.6-inch display and the choice of 32GB or 64GB storage is enough to suggest a higher price. So, how could Microsoft afford to sell it at $200?

samsung readying 11 8 inch tablet with retina display say court documents tablets

Could it be a loss leader?

It would not be unheard of for a company to sell a product at a loss in order to stimulate sales of other products or services. It might be a practice that’s more common in major supermarkets, but tech companies do it too. Sometimes, they can afford to lose money on something to gain market share. Microsoft poured cash into establishing the Xbox brand, building a user base for Xbox Live services. Once it was established, it began selling hardware that did turn a profit. The Xbox 360 made money and there was room to sell it below cost because it could be subsidized by a subscription to Xbox Live. Clearly it’s a high risk strategy, but Microsoft knows it can pay off.

Techland at Time conservatively estimated the build cost of the Surface and suggested that Microsoft would lose at least $50 on each one, if it sold for $200. As it turns out, Microsoft lost more than that on the original Xbox. VentureBeat suggests a loss of $168 on each machine sold.

That still doesn’t make it likely, but it is a possibility.

Bundle it with a contract or subscription

This is one of the most popular theories floating around. You get the tablet for $200, but to use it, you also have to sign up for a two-year contract or a subscription to a service. The fact that carriers are backing away from subsidizing tablet costs suggests that it won’t be a 4G contract scenario. Microsoft also won’t want to limit sales channels.

Maybe it’s a subscription to Office 365, as the Guardian blog suggests? A subscription bundle could also involve Sky Drive, Xbox Live, or the newly branded Xbox Music (previously Zune Music). A monthly subscription that bundles all of Microsoft’s offerings and maybe even ties in a deal with a third-party service could be in the cards, as well. Some kind of tie-in with a subscription to services seems far more likely than a straight grab for market share that Microsoft will look to capitalize on later.

microsoft surface side windows 8 tablet

Partner problems

There are some compelling arguments against the suggested price point. As our own Geoff Duncan points out, Microsoft has to keep its RT partners onboard. It is expecting Dell, Lenovo, and Samsung to make Windows RT devices, so a loss-leading Surface tablet wouldn’t help, especially when you consider Microsoft’s licensing fee on top of manufacturing costs and marketing. A $200 Surface could make it impossible for them to compete.

Does Microsoft have to do this?

Amazon might be losing a small amount of money on each Kindle Fire in order to build a market share and sell content, but they aren’t taking a huge risk. Google makes a modest profit or breaks even on the Nexus 7, but once again, the profit comes from elsewhere. Google makes its money on content and advertising. Apple makes a huge profit on every iPad sold and then makes more from selling content. Microsoft does have to work hard to break in here, but there’s room to maneuver.

There’s some middle ground between the bargain basement $200 price and the premium $500 plus price. The competition outside of the iPad is not unmanageably intimidating. A lower price could help Microsoft establish a foothold with the Surface. Selling a big tablet with decent specs at a break-even price or a slight loss is probably necessary if Microsoft expects to catch up with the competition.

Microsoft doesn’t have to be as aggressive as $200, but if they go with that price point, the Surface would fly off the shelves. Maybe it ultimately comes down to this: How desperate is Microsoft to catch up?

News

Photography News of the Week: Fujifilm creates A.I. for use in designing albums

Spending too much time culling photos and designing albums? Fujifilm is developing artificial intelligence that could help. The A.I., new camera bags, and extreme weather camera protection are in Photography News of the Week.
Deals

Cyber Monday 2018: When it takes place and where to find the best deals

Cyber Monday is still a ways off, but it's never too early to start planning ahead. With so many different deals to choose from during one of the biggest shopping holidays of the year, going in with a little know-how makes all the…
Mobile

Code found in iOS 12.1 beta suggests we will see a new iPad this fall

The new iPhone XS, iPhone XR, and Apple Watch aren't the last devices we'll see from Apple in 2018. There are plenty of rumors about a new iPad coming this year too, and it may share some design similarities with the new phones.
Computing

Microsoft may go back to black with 2018 Surface Pro and Surface Laptop

Microsoft may be adding black as a color option to its refreshed Surface Laptop and Surface Pro models on October 2nd. Rumors of the new color along with an image of the black Surface Laptop popped up over the weekend.
Mobile

Huawei is not-so-subtly trolling Friday’s iPhone launch

Apple launches the iPhone XS range to the public on Friday, but Huawei is out in force to remind the public what they could be missing out on (Hint: It's the Mate 20 Pro) by choosing Apple's latest smartphone.
Mobile

How to buy the iPhone XS, iPhone XS Max, and iPhone XR in the U.K.

The new iPhone range is here, and it consists of three models: The iPhone XS, the iPhone XS Max, and the iPhone XR. You can buy the iPhone XS and XS Max in the United Kingdom now, so here's our guide on where to buy one.
Mobile

Audio company Bragi is suing OnePlus over the word 'dash'

Despite taking steps to change to "Warp Charge," OnePlus is being sued by audio company Bragi over the phone manufacturer's continued use of the word "dash" in the Dash Charging used in OnePlus phones.
Mobile

Need a do-over? Here's how to factory reset an iPhone, from XS on down

Resetting an iPhone can alleviate all sorts of software woes, and wipe away personal data should you sell your device or give it to someone else. Here's how to factory reset an iPhone from within iOS or iTunes.
Mobile

The best weather apps for Android will keep you dry no matter where you go

You may not be able to change the weather, but you can at least be prepared for it. Check out our guide to the best weather apps for Android, so you'll always know what to expect when you step out the front door.
Mobile

Android 9.0 Pie is finally rolling out to the OnePlus 6

Android 9.0 Pie has been released. But is your phone getting Android 9.0 Pie, and if so, when? We've done the hard work and asked every device manufacturer to see when their devices would be getting the update.
Mobile

Keep the iPhone XS display crack-free with these screen protectors

Apple might have proclaimed the iPhone XS's glass as being its most durable ever, but that's not going to stop you from wincing if you drop your phone. Stay protected with the best iPhone XS screen protectors.
Mobile

Apple iPhone XS Max vs. Huawei P20 Pro: Clash of the titans

Anyone seeking a great new smartphone with plenty of money to spend has two amazing options, but which is better for you? We pit the Apple iPhone XS Max vs. Huawei P20 Pro in various categories to help you choose.
Product Review

Don't let the bigger iPhones woo you away: The XS is still a masterpiece

Apple’s next smartphone is here -- the iPhone XS. We think it’s the perfect size for an iPhone, and it manages to impress with astounding performance, and sizable camera improvements.
Product Review

With its epic screen, Apple's iPhone XS Max is a phone you can live inside

The iPhone XS Max is here. Should you get the massive 6.5-inch iPhone from Apple? Or should you pick the smaller iPhone XS? We’ve been putting the Max through its paces to find out in our review.