At the $200 price point, both Amazon and Google are taking a loss their 7-inch tablets, the Kindle Fire and Nexus 7. But it’s not so much of a loss that they can’t make up some ground with profits from apps and content in their respective app stores.
Microsoft would be taking a much bigger loss on a tablet that is more expensive to build with its bigger screen, higher resolution, larger battery, more storage (32GB), front and rear cameras, magnesium casing, and HDMI slots.
The 8GB versions of the Google Nexus 7 tablet and the Amazon Kindle Fire both go for $200. The Nexus 7 has a manufacturing cost of $159.25 to build and the 8GB Kindle costs $139.80, according to estimates based on product teardowns by the research firm IHS iSuppli, cited in a Wired article.
With additional costs such as distribution, marketing and tech support, it’s clear that neither Google or Amazon are making money on the hardware at a $200 selling price.
$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
By these measures, Microsoft is $26 over selling price just counting hardware costs and not factoring in distribution, marketing, support, etc.
If the Surface did sell for $200 it would be an amazing deal for consumers, and would give competitors both large (iPad) and small (Nexus 7 and Kindle Fire) reason to lose sleep. And if Microsoft is willing to take a big loss to generate quick buys and excitement for the Surface, then more power to them.
But even if a $199 Surface tablet sells well, it will make Windows 8 and Windows RT tablets made by OEMs such as Lenovo, Acer and Asus look overpriced and could ultimately hurt Microsoft broad Windows 8 tablet/ultrabook attack on the marketplace. It would also create further tension between Microsoft and these hardware partners, who could never match that $200 selling price with the license fees they have to pay Microsoft.
For all you are getting with the Windows RT Surface tablet, $200 just seems too good to be true. You start to ask, what’s the catch?
The $350 – $400 price point seems more reasonable given the Surface specs. And hey, as long as the Surface is cheaper than the base version of the iPad ($500), Microsoft will be able to hit the ground running.