Even Apple Might Feel the Heat From $199 Surface Tablets
If Surface sales are hot enough that Apple feels compelled to lower prices, then Microsoft also lowers prices, incrementally at first until it finds a sweet spot. Once the market is being flooded with Windows RT devices the tablet market will be in chaos. Sales of more expensive tablets will drop to near zero unless there's some really compelling reason for people to buy them. If Surface sales aren't hot enough to force Apple to lower prices, then Microsoft can lower prices to $199 as a way to heat things up. One way or the other the price slides down to around $200 during the critical holiday shopping period.So think of a package of incentives that will help Microsoft's Windows RT OEM partners keep prices down for their devices. Perhaps Microsoft will lower license fees to help Windows RT get off the ground. Or perhaps Microsoft will offer significant rebates on every new Windows RT device sold, such as coupons good for accessories or software. Or perhaps Microsoft will take a page from the auto manufacturing world and offer a direct cash rebate to buyers as well as rebates behind the scenes to partners. Now, suddenly the partner, in this case Lenovo, can keep the price of its mythical Yoga tablet at $299, but be able to sell it for far less and the ultimate customer sees an even lower price.Let's use Lenovo and its secret Yoga tablet for example. Let's suppose that Lenovo would normally sell the Yoga for $299, but Microsoft has knocked $50 off the price of the Windows RT license and has created a $50 incentive rebate on top of that. Meanwhile, Microsoft is including a $100 coupon good for accessories and applications. Could Microsoft do this? Yes, the company has the cash to do this until the sun cools to a white dwarf. Will Microsoft do this? That's unclear, but it has done something like this in the past, so it might. Will this throw the Android tablet market into chaos? Darn tootin' and it'll drive Apple nuts as well, so Microsoft gets a twofer there. Ultimately, the real winner is the tablet buying public who is already paying more for tablets than they need to be. But that's competition for you; sell stuff and drive your competitors crazy in one fell swoop. Who could ask for more?
But remember, there are partners that Microsoft has to treat well enough that they'll keep selling Windows RT and Windows 8. Since messing around with pricing isn't the best way to endear you with partners, Microsoft has to do something to keep those partners on board.