Microsoft's Surface tablet reported to sell for a low $199

Price is well below materials cost, and would anger other Windows RT tablet makers

Microsoft's Surface for Windows RT tablet will sell for $199 when it ships on Oct. 26, according to an unnamed source in an Engadget report.

At that price, Microsoft would surely be selling below its costs, analysts said. However, Microsoft could take the loss in hopes of making up revenues on apps and media sales for the device.

Also, Microsoft would be trying to make an impact against the Nexus 7 and Kindle Fire sold at the same $199 price, since Microsoft arrived arrived late to the tablet game.

Engadget said it learned the price from an inside source at Microsoft's recent TechReady15 conference, where launch details for Surface were announced.

Microsoft said the Surface tablet would be priced in-line with Windows RT tablets from other makers such as Asus, which hasn't announced a price. However, given the components in the Surface and other Windows RT tablets, analysts have suggested it could cost more than $600.

Microsoft said Tuesday it had no comment on pricing.

A $199 price for Surface RT "seems pretty unlikely," given the cost of materials, said IDC analyst Tom Mainelli. "We're hearing the price is more likely in the $599 range," he added.

Mainelli agreed with the consensus of analysts that a $199 price would "dramatically" help Microsoft gain traction in a crowded tablet market.

However, he noted that such a low price would put Microsoft's OEM (original equipment manufacturer) partners "in a very difficult position, as there's no way [they] could hit that price point." Those partners -- Asus, Dell, Lenovo and Samsung -- were named by Microsoft on Monday as making Windows RT tablets. Toshiba and Acer had earlier announced Windows RT plans, but Toshiba, on Tuesday, canceled those plans.

Those hardware makers have to pay Microsoft for the operating system and would not have the same ability to make up the loss with the sales of apps, as Microsoft would, Mainelli added.

Acer, which has said it will provide a Windows RT tablet in early 2013, has been especially concerned about competing against Microsoft on a tablet. Microsoft confirmed in late July that it risks alienating the hardware makers that are its partners.

"The mere existence of Surface made those [tablet partners] mad, so a $199 price would probably cause some heads to explode," Mainelli said.

Jack Gold, an analyst at J. Gold Associates, said he'd be "amazed" if the $199 price is correct. "That said, Microsoft could certainly sell a lot of them at that price, effectively seeding the market and gaining market share quickly, which would be good for the ecosystem of developers," Gold added.

But Gold agreed that $199 would undercut Microsoft's OEMs. "I'd think Microsoft would leave it to their OEMs to fight the low-cost price wars with Amazon and others, rather than doing it themselves," he said. "I don't think Microsoft would be good at it."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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