At $400 to $500, Surface RT tablets won't overtake the iPad

Microsoft is betting the farm that its Windows RT tablets will help eat into the iPad's dominant market share. But an analyst estimates that Microsoft's Surface RT tablets will likely cost essentially the same as the iPad and upcoming iPad mini at $399 to $499. At that price, it's not likely they'll make many inroads.

Sameer Singh, an analyst with Finvista Advisors, based his estimates of the price by analyzing the tablet's bill of materials, called BOM. (Computerworld notes that Singh was analyzing the BOM without actually seeing the tablets themselves.)

On his personal, non-work-related blog, Tech-Thoughts blog, he runs down the price of every single component, and details how he arrived at thos prices. For example, he says that the processor, which Microsoft has said will be nVidia's Tegra 3, is used in the Nexus 7, and he bases his $21 cost on the cost of it for that tablet.

When he adds up all the BOM for every part of the device, and adds in a $10 cost for manufacturing, he arrives at a total cost of $309. At a retail price of $399, Microsoft would have a 23% profit margin, he notes, and with a $499 price, Microsoft would have a 38% profit margin.

He also takes into account that Microsoft needs to be careful not to harm its relationship with its tablet hardware partners, who will have to pay Microsoft an estimated fee of between $50 and $65 per device. So Microsoft will essentially match their retail prices, instead of undercutting them.

His numbers seem about right. And that's a serious problem for Microsoft. To beat the iPad, Microsoft needs to either significantly undercut its price, or else offer a dramatically better tablet. Current iPads sell for $499 and up. And the new iPad mini is expected to sell at a price between $250 and $299. So the Surface tablet won't dramatically undercut it. And although I'm a big fan of Windows 8 on tablets, I don't think Windows 8 is dramatically better than iOS, and so won't likely cut into its market share based on quality, either.

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