Microsoft Surface RT Tablet for $199? Let’s Be Realistic

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Reuters

New Surface tablet computers with keyboards are displayed at an unveiling by Microsoft in Los Angeles.

When I read Engadget’s report that Microsoft may sell its Surface Windows RT tablet for just $199, my first reaction was to write a silly tweet about it, then move on. No disrespect to Engadget, but the story seemed far-fetched.

That didn’t stop some news outlets from recirculating the rumor without much skepticism. A few sites, like Wired and Ars Technica, approached the news with a sharper eye, but overall the buzz reminds me of last month’s rumor that the very same Surface RT tablet would cost about $1,000. (That story turned out to be made up.)

So now I feel compelled to take a realistic look at the chances. Engadget’s reliable, after all, so when it reports that an anonymous source heard about Surface tablet pricing at Microsoft’s TechReady15 conference in July, there may be a kernel of truth involved. I just have a hard time believing it’s the whole story.

Doing the Math

Tablets priced at $200 aren’t unheard of. That’s the selling price for Google’s Nexus 7, Amazon’s Kindle Fire and Barnes & Noble’s Nook Tablet. Instead of making money on the hardware, they all hope to profit on sales of apps and content. Maybe Microsoft could pursue a similar strategy with the Surface RT tablet, which is its first true answer to the iPad and runs a new, tablet-friendly version of Windows.

The problem is that the Surface RT will be a lot more expensive to build than any of those 7-inch tablets. It has a larger screen (10.6 inches) at a higher resolution (specifics unknown, but at least 1366-by-768), which will cost more in itself but also require a larger battery. The Surface RT comes with a minimum 32 GB of storage, compared to 8 GB for the Kindle Fire and its closest competitors. It also has front- and rear-facing cameras, while the Nexus 7 only has a camera up front.

How will these souped up specs affect the build cost of the Surface RT? We can take an educated guess using iSuppli’s bill of materials estimates for the Nexus 7 and the iPad:

  • $21 for the Tegra 3 processor
  • $33 for 32 GB of storage
  • $97 for the display and touchscreen (assuming the cost is similar to the second-generation iPad)
  • $23 for the battery (same assumption as above)
  • $5 for the cameras
  • $40 for various other parts, like the box and sensors (assuming the same as the Nexus 7; the iPad’s parts are pricier)
  • $7 for manufacturing costs

That would bring the total cost to at least $226, not counting other costs such as distribution, marketing, licensing, royalties and tech support. Google’s 8 GB Nexus 7, by comparison, costs about $160 to build, and the company admits that it basically breaks even in the end. The cost difference between the Nexus 7 and Surface is probably even greater, because Surface will use magnesium instead of cheap plastic for its casing, and includes HDMI, microSD and USB slots.

Short version: Microsoft would lose at least $50 on $199 every Surface RT tablet sold. And that’s a conservative estimate.

Is Microsoft Crazy Enough?

Even though Microsoft would lose a lot of money by selling the Surface RT tablet for $199, you could argue that the company is desperate enough to do it. The iPad, after all, was a home run for Apple, and it’s already uprooting the PC market as we know it. Windows is still a workhorse, but for casual uses, such as web browsing, reading, gaming and videos, the iPad is a better option for a lot of people. Microsoft needs to win those people back. What better lure than a low price?

At $200, however, Microsoft would be playing with fire. Not only would Microsoft lose money, it would also wipe out third-party hardware makers and all the licensing revenue they provide. It also sets a dangerous precedent: Once consumers start to expect large-screen Windows tablets for $200, they’ll never want to go back. Microsoft would have to give up making money on sales of Windows. And for what? The odd chance to make a few bucks back on apps and accessories?

Subsidy Is Key

Earlier, I said there may be a kernel of truth to Engadget’s report. What if, instead of selling the Surface for $199 with no strings attached, Microsoft subsidizes that price with a subscription service? As Ars Technica points out, Microsoft already has a similar offer for the Xbox 360, which is available for $99 up front, plus $15 per month for 24 months of Xbox Live service. With this package, the Xbox Live service is more expensive than it would be normally, so Microsoft actually gains in the long run when people take the subsidy.

With Surface, the subscription possibilities are already in place: There’s SkyDrive, the cloud storage service that’s thoroughly entwined with Windows 8; there’s Xbox Music, which looks to be a Spotify competitor; and given the rumors that the free version of Office 2013 on Windows RT devices will be just a preview, Microsoft could also tie in the new subscription-based version of Office. Right now, there’s a battle brewing over online services. It makes perfect sense for Microsoft to get people on board with its services while jump-starting the new version of Windows. Two birds with one stone, and all that.

So here’s my prediction: $200 for a Microsoft Surface RT tablet with a mandatory 24 months of SkyDrive and/or Office 2013 and maybe some kind of Xbox entertainment; $400 for the non-subsidized Surface RT, just to undercut the iPad.

Right or wrong, bogus or not, I had fun thinking about the whole thing. And come October, if Microsoft does set the Surface RT price at $199 with no strings attached, I promise to come back to this post and admit how dumb I was.

MORE: 23 Questions About Microsoft’s ‘Surface’ Windows 8 Tablet

27 comments
cauzion
cauzion

I definitely don't agree with the strategy, if it is going to really happen. But I've heart that this price is for some very specific segment, like Education. It's sad how the press, since the very beginning (so, with just no time to do a real review), wrote so many bad reviews and many of the headlines seems to show the idea is "lets destroy MS tablets reputation, it sells clickthroughts..." Almost ALL of reviews were just speculations, with so few or no foundation. Well, by the way, after using my Surface RT for 7 months, on an average of 7-8 hours/day, and hundreds of apps downloaded and tested, I decided to start a Blog with REAL REVIEW about Surface RT. Check http://SurfaceRtReview.BlogSpot.com

Kristian Nikolov
Kristian Nikolov

It will be reasonable to sell it in the 200$ price range even if the lose 50$ for each surface cause to be realistic this is the first microsoft tablet and the goal is more sells and bigger market share than thinking for the profit. With high price tag it won't sell that good and considering the advantage of the iPad and the other competitors it's one hell of a logical decission to sell it for 199$. One thing more, when now that the people know there is a chance of selling it for that price, if it's higher when they release it people will think twice before they buy, reducing sells and popularity. 

Blake James
Blake James

The 'Is microsoft crazy enough?' part on this article i have a disagreement, firstly, 3rd party retails will still want to make these tablet pc's with microsoft, microsoft just wanted to make their strategy like google, where they have the nexus, but samsung and htc and others still make tablets for them, microsoft just wanted to do that kind of situation, and it looks like its working out, because asus and samsung have already announced tablets for windows 8

Ishaan Pearson Santlal
Ishaan Pearson Santlal

surface rt is not bad but the real deal is the pro version which is x86 based. Lots of people want to run x86 apps on mobile devices but x86 is an expensive platform.

Marcharino
Marcharino

You're not dumb, but realistic!  "Reliable, but anonymous sources" quoting a $199 purchase price throws-up many red flags, but we know from history that MS has never taken a loss-leader approach to any marketing strategy.  So, the strategy with the Surface, in my opinion, will be the subsidies derived from the Pro version--with the corporate buyers buying the services.  The Surface for Windows 8 Pro will follow a few months later with mobile connectivity and an added expense.

Josh Painter
Josh Painter

Maybe you have just been living under a rock. MS took a loss on each Xbox and Xbox 360 initially, making up the loss with sales of games and accessories. As noted here ... 

http://www.businessweek.com/st... Coming from an IT professional who has had Windows 8 release preview on his home computer, and now Windows 8 Full version release on my corporate issued Dell Latitude ST tablet and the touch interface is amazing. Even on this terrible piece of Dell hardware which barely functioned, or powered on for that matter, using Windows 7 this thing feels perfect with Windows 8 on it. Using the "not so metro" interface on the computer takes a little getting used to, but tie that in with the new hot keys and it's really nice. Most Win 8 pro users aren't seeing the new interface for what it really is, your new and improved start button. Open the desktop and you are on your familiar Windows 7 interface, slide the charms window out just like having your task bar hidden and hit your start button from there. Personally I believe MS has the ability to sell the Surface in the $200 range, and they should. Getting more users comfortable with the new interface will make them more comfortable with upgrading their PC and maybe even their phone for that matter. Developers follow the people, apps follow the developers, and people LOVE a great deal. I know I am buying a Surface, if it turns out to be $200 instead of $400-600 I'll just have to get my wife a new tablet as well.

marcharino
marcharino

So who's living under the rock?  With a pice of $500 to $700, and much than less favorable reviews of it being kludgey, slow, and expensive, $199 for the MS Surface was nothing more than just another a nameless, "anonymous," person starting a baseless rumor after having a wishful, but non-substantive digital pipe dream! 

trustpay
trustpay

Can you imagine this?

! I have just received a Windows 8 key with

only $50 at Silicomshop.com – world of software. At the moment, Silicomshop.com still has many offers for Windows 8 customer. A long side with buying a

cheapest key on the market, you also have the opportunity to receive discount

couppon up to 30% to buy many items such as key for Microsoft Office 2011 for Mac, Adobe Photoshop

CS6, Windows 7 Ultimate and so on

Toronto corporate Photos
Toronto corporate Photos

Well 199 is a unbeatable price point ..if they can keep their Architecture an open one meaning We can use memory cards to expand and install any software ....Unlike some tablets ... I would pick a one for sure..

abhishek.n N
abhishek.n N

I would assume that They would Sell this at a PROFIT ! not many business tend to run on loses for long ! so if they still sell it for a loss of breaking even then they would expect to make profit form the sales of the WHOLE WINDOWS 8 ECO SYSTEM . eventually making a profit ...... Otherwise It does'nt make sense to make a LOSS or gain nothing in a business ... . 

Sam Trutna
Sam Trutna

 A great many businesses sell hardware at a loss. Phone companies have been doing this for years, video game console makers have as well, and there are plenty more. The idea being that you sell more by selling at a loss, then make that money back in software sales through the marketplace. Too easy.

Starshiprarity
Starshiprarity

Microsoft operated on a loss with the Xbox 360 too. For years!

But hell- if that price estimate is even close, they could sell the tablet for $300 and still undercut the market, while maintaing a 30% profit margin.

cooldoods
cooldoods

No, Microsoft won't do this. They have to think of what such pricing would do to their OEMs' own efforts. It's not like the original Xbox which Microsoft sold at a loss in order to enter a new market. Here, it's actually in Microsoft's favor that they sell less than their OEMs because it will show the robustness of the Windows 8 platform.

Jeff Laing
Jeff Laing

No-one seems to consider that Microsoft might sell the HARDWARE-ONLY for $200 - a lump of unusable plastic, but if you are an enterprise you get an enterprise deal on the operating system making it both attractive, and (more importantly) compatible with the way that they currently do business.

Consumers need to shell out an extra $xxx for the actual operating system, but that's ok, it doesn't show up till the third or fourth form in the online order system so no-one notices till it's too late.

Ismael Almonte
Ismael Almonte

don't underestimate Microsoft desperation, they need to get their windows 8 platform into the mobile competition. the surface could help sell the operating system on other platforms, will get developer doing apps (that will work on desktop, tablet and cellphones). That been said, i might pay 400 for one but if it's 199 i'll be really impress.

Mickey Crow
Mickey Crow

A well argued article - the best I've read on this news story. I'm hopeful the surface will be competitively priced, but clearly Microsoft can't afford to destroy the OEMs completely - it just intends to give them a little kick up the backside.

I'm hoping the pro version will also be competitively priced, as I can see this as being the device I've been waiting for. It promises to deliver a truly mobile content creation device, beyond anything we've yet seen.

Sam Trutna
Sam Trutna

It'll be priced to compete with similarly sized offerings. Somewhere in the range of $300-400. The x86 version might scratch at $500. This puts their best offering maxing out where Apple's worst starts. If they're feeling ballsy they could try to step into the iPad price range, but I can't imagine that would be a good idea.

Alane Mombo
Alane Mombo

where and when can i get one! tired of the ipad. i just hope games will be cool on this tablet

ReDQLulz
ReDQLulz

What?

An affordable tablet from an American company that is more concerned with acing their SATs than acing Ken Kesey's 'acid test?'

Sean Patterson
Sean Patterson

I could see Microsoft launching this tablet for $249-$299 just to undercut the iPad. If they did I would be all over this in a heartbeat, but I think Microsoft will wait until we see if a iPad Mini is announced and priced, before pricing the surface tablet.

Sam Trutna
Sam Trutna

 The surface is due to release in October, with no sign of an iPad mini in sight (indeed past knowledge suggests that it will never exist), how long do you think they'll be waiting?

Chris
Chris

I don't think an iPad Mini will provide any real competition for the Surface.

The  Surface is more of a power tablet (like iPad) than a media tablet  (7in tablets). I have a kindle fire (rooted with Jelly Bean), I love the form factor, but I don't see myself ever doing any real work on it.

I would love to see a cheap Surface because then it would be a instant buy even tho I am more  interested in the Surface Pro.

herbsthewerd
herbsthewerd

Ha, I've been saying this for over a month now. The Xbox 360 subscription plan is an obvious option to get the Surface out there in numbers.

Dave McCall
Dave McCall

Maybe Surface RT will be tied to XBOX Live and they'll make their money on the Microsoft subscription service you have to have in order to access the internet (not counting your ISP).