Following rumors that Microsoft (NASDAQ: MSFT ) would be the latest tablet vendor to join in on cutting tablet prices, the software giant has done exactly that. Over the weekend, Microsoft officially dropped the entry-level price of the 32GB Surface RT, which is now $349. The 64 GB got a similar $150 reduction and can now be had for $449.
That's within spitting distance above Apple's (NASDAQ: AAPL ) iPad Mini, which is priced at $329, and below the $499 that Apple charges for its full-sized tablet. Can the Surface compete with the smaller iPad Mini?
Including the full-featured Surface Pro, Microsoft has shipped an estimated 1.8 million tablet units in the first two quarters of availability. Investors may get an updated estimate once the market researchers release their Q2 estimates, since Microsoft doesn't disclose unit volumes directly.
The Surface RT's biggest challenge at launch was its $499 price tag. Microsoft was hoping to enter the growing tablet market, but instead of competitively going for a lower price point, the company chose to challenge Apple head-on. Reducing the price to $349 helps convey more value, but in general Microsoft hasn't adequately conveyed the value proposition of the Windows RT platform at large.
The Surface RT also leans heavily on using a Touch Cover for input, which costs an extra $100. The Touch Cover bill of materials was originally estimated at $16 to $18, meaning that at $100 (which is down from the original $120), Microsoft is very much looking to profit off these attachable keyboards. Microsoft would have been smart to discount these accessories further as well to complement sales, as it could easily afford to in the hopes of boosting unit sales.
It's been about a year since the Surface RT was initially unveiled ahead of an October launch. That means the second-generation model is probably incoming, so Microsoft wants to clear out inventory. Qualcomm is expected to power the new models with its newest Snapdragon processors. If the company sticks to an annual product cycle, the second-generation Surface RT would launch in October.
That's about the same time that Apple is expected to update its iPad lineup, which could reinvigorate its lead in the tablet market. The Surface RT may now be priced closer to the iPad Mini, but Apple's device still comes out on top.