Is This Microsoft’s Greatest Mistake In The Tablet Wars?

by Trefis Team
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The word is that Microsoft (NASDAQ:MSFT) plans to charge OEMs $85 for shipping tablets running Windows RT, which is about the same cost it charges for complete version of Windows 8 according to an IDC anlayst. Since Apple‘s (NASDAQ:AAPL) iPad starts at $499, Microsoft’s Windows 8 tablets will need to be priced much lower in order to be competitive and move a lot of product. However, if the price of each Windows 8 RT license is $85, it’ll be hard for manufacturers to get the average tablet pricing down to the sub $500 level. [1]

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Apple is able to price its iPads so cheaply because it develops the software itself and because it has huge economies of scale and uses almost similar components for each of its iPad variants which have enabled it to create a streamlined production process, procure components in bulk at great prices, and outsource the entire production to its ODM partners in Taiwan and China.

None of the Windows 8 tablet manufacturers will have any of these advantages, and if Microsoft insists on charging such a high fee for each Windows 8 RT license, all of them will be forced to price their tablets much higher than $500, which would definitely limit sales.

Additionally, Microsoft may never be able to compete on price with Android tablets, as Google (NASDAQ:GOOG) gives away Android for free to manufacturers. For a tablet with the same specifications, an Android tablet would be much cheaper than a comparable Windows 8 tablet, which is another factor which would really hamper Windows tablet sales.

Windows 8 will already be at a disadvantage compared to Android and iOS as it will have much fewer apps. The only thing it can compete on right now is price, and if Microsoft plans to price it so high, it can’t even do that. This could be the greatest mistake Microsoft ever made and could actually kill Windows 8’s chances in the tablet market.

A tablet failure would be disastrous for Microsoft because Windows accounts for nearly 25% of Microsoft’s overall value and tablets are one of the biggest growth areas for PC sales. We currently have a $40 Trefis price estimate for Microsoft, which stands nearly 30% above its market price.

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  1. Microsoft Is About To Make An Epic, Greedy Mistake With Its Tablets, Business Insider []
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  • commented 5 years ago
  • AAPL makes money by selling (expensive) hardware, GOOG sells ads, but MSFT´s core business is selling SOFTWARE which windows RT is. if they give it away cheaply or free they´re killing themselves.
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  • commented 5 years ago
  • If windows RT comes with Office for the tablet, then the $85 will be well worth it. If you have to fork over more cash for Office, then it might be game over for Microsoft in the tablet space. Microsoft needs to get in the game, then look for other ways to make their money (like give the OS away for free and drive up bing usage to make more on advertising).