Are Microsoft's Tablet Dreams Dying Already?

In the following video, Motley Fool senior technology analyst Eric Bleeker discusses Microsoft (NASDAQ: MSFT  ) and how its operating system licensing model may be driving costs of its tablets to an uncompetitive range.

Microsoft pinned its tablet hopes upon its release of the Surface tablet. However, largely thanks to its expensive price ($600 after a keyboard accessory), the Surface has failed to keep up with the momentum of either Apple or Google. The reason Microsoft priced the Surface higher was to leave room open for its partners to profit at cheaper levels. 

Yet, there's been little adoption of Microsoft tablets in lower price ranges as Android begins proliferating at the sub-$200 range. In the video below, Eric talks about Microsoft's recent price cut on Windows licensing on tablets. According to The Wall Street Journal, the company is now charging just $30 per tablet device to license Windows, significantly below its licensing of PCs. 

As Eric notes, this just proves how little of an advantage tablets are to Microsoft but it's a threat that disrupts their model. He discusses how the company is pressed between low-end Android models on one end and Apple on the other. Apple has less than 30% gross margins on the iPad mini, which means they're collecting less than $100 in gross margin on entry-level tablets. In a way, Apple has become the new Microsoft of the tablet world. It's charging no money for its hardware, but is instead charging consumers for the stability of its industry-leading operating system. 

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Read/Post Comments (8) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On March 07, 2013, at 12:36 AM, eremmell wrote:

    Yeah, blah blah blah

    It isn't all about price, you idjits.

    I bought my 13-year-old a MS Surface RT recently w/ the upgraded touch-type keyboard (so $600), it comes preloaded with MS-Office so he can do his school reports on it (and output it to PDF format to store on a USB thumb drive). It does have Wifi, so he can use it to watch movies with our Netflix subscription. He's pretty happy with it. The hardware is slick.

  • Report this Comment On March 07, 2013, at 5:25 AM, st0815 wrote:

    I agree with eremmell regarding the price being not that relevant. If MS had something really good to offer - the $600 price point wouldn't be a problem. Premium devices for Android and iOS are selling in the same range. Competing with premium devices wouldn't allow for market dominance, but it would allow a decent market share.

    That's not happening, however - the problem is therefore that the product itself is unattractive.

    It's possible that the Surface Pro would be a more interesting product since that could be a laptop replacement. But that sells at over $1000 (with the keyboard). At this point why not get an Ultrabook like e.g. a ThinkPad Twist with a larger screen, a better keyboard and a significantly lower price?

  • Report this Comment On March 07, 2013, at 7:41 AM, jimmy4040 wrote:

    This is a company where management simply doesn't pay attention. How do you lose 3/4 of a billion dollars because of a "mistake" and nobody gets fired? I'm out, and I'll never get back in until Ballmer is gone.

  • Report this Comment On March 07, 2013, at 9:17 AM, Secs27 wrote:

    I have been using the Surface Pro since it was released. It is a beautifully designed product that is built like the proverbial bank vault. While all the other tablets look and feel cheap, except for the iPad with is very high end, the Surface Pro is made from high end materials with a superior fit and finish. It rivals, if not exceeds the iPad.

    Wy shouldn't Microsoft charge more for it. It is a premium product that can actually replace a computer. Unlike android, the Surface Pro running Windows 8 is very very fast, fluid and powerful. It is the only device that has been able to not only replace my iPad, but my laptop as well. It can do serious work, yet it is smooth enough to lay on the couch with and mindlessly search the Internet. The Surface Pro is the best purchase I ever made and it has become my priority computing device. I no longer need to carry a laptop and an iPad, just the surface pro. The more I use it, the more it amazes me. It boots in seconds and work flawlessly. The screen is absolutely stunning. The Pro is simply in a class by itself. The iPad may be the king of tablets, but the pro is the finest device available today if you are looking for the beauty and portability of an iPad combined with the power of a full blown computer. You can certainly say goodbye to your laptop.

  • Report this Comment On March 07, 2013, at 1:59 PM, chilero wrote:

    This price reduction is aimed at getting OEMs to produce smaller tablets in that Nexus 7 and iPad mini size range not Surface size or larger tablets. They likely want competitively priced 7" tablets available when Blue comes out allowing for Windows 8 to run on those smaller tablets.

    The Surface is a premium product and carries a premium price like the iPad. The Android tablets are essentially the netbooks/chromebooks of the tablet space. There will be a lot of growth in that ultra cheap tablet space but profit is slim to none on the hardware side.

  • Report this Comment On March 07, 2013, at 3:32 PM, motleyfulz wrote:

    I know this is a somewhat topical subject but this is eerily similar to another article that came out a week before.

    http://www.hardcorevalue.com/2013/02/microsofts-shrinking-mo...

  • Report this Comment On March 08, 2013, at 4:22 AM, doawithlife wrote:

    Off tablet sales Apple made 77% of all profit made from all tablet sales in 2012. That is with only 44% of total sales.

    How can they make 77% of all tablet sales profit if they do not make any money off the product?

    Curious how much stock your boss owns in Apple. The only reason to be so pro Apple (and Apple stocks) is because your boss will lose his shirt if you don't report this stuff.

  • Report this Comment On March 08, 2013, at 10:44 AM, sfooll wrote:

    You know what Eric, you should be on a$$hole.com as well.

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