Microsoft wants to make a big splash with its Windows 8 and Windows RT surface tablets; it has to in order to show its partners that the devices are capable of competing against the big boys in the tablet market. Research from IDC suggests that Microsoft is building 3 million tablets for launch this year. In an interview with CNET, IDC analyst Bob O'Donnell explained his thoughts on how much IDC thinks the tablet will cost and why Microsoft needs to be careful about its price point. As a reminder, earlier rumors suggested the Windows RT tablets could launch for as little as $199.
O'Donnell said he thinks Microsoft is building "a little over 3 million" x86 and ARM powered tablets for launch in 2012. "If they build a few million units there's no way they can sell it through Microsoft store only," O'Donnell told CNET, which suggests that Microsoft will line up other retail partners and, possibly, carriers. "So I think that they'll sell it through traditional retail also. You can't build that many products without having a much wider distribution strategy. They just haven't shared that yet."
As for the $199 price rumor, O'Donnell seems to suggest that will only be possible through a carrier subsidy or with special deals. Oddly enough, however, AT&T stopped subsidizing its tablets yesterday, so it's likely we won't see the subsidy from them. "There could be two ways to get Surface. Buy it outright for, let's say, $599. Or $199 for a two-year subscription and you can get X,Y, and Z — which, oh, by the way, works out to more than $599," O'Donnell explained. He also said that the possibility of consumers having to pay a monthly fee for the tablet could turn out to be a "nightmare" and pointed to the failure of that model when netbooks launched.
As we argued, the $199 price point could be dangerous for Microsoft, especially because it would undercut Microsoft's other partners, which have already expressed frustration with the company's move to build its own hardware. "Let's say there are four competitors," O'Donell suggested to CNET. "In a fair world the price is about the same and they each sell 25 percent. But at $199 Microsoft sells 100 percent and everyone else sells almost zero. If you undercut their prices then all of those licenses you would have sold through [partners] don't get sold."