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.