'Tis the season for tablet price cuts. First, Barnes & Noble made its Nook discounts permanent ahead of surrendering in the tablet market altogether. Next, Amazon.com followed suit with its recent round of Kindle Fire price cuts to fend off the Nook and pave the way for new models. Now, Microsoft (NASDAQ:MSFT) is about to drop the price of its Surface RT devices.
The Verge's well-placed tipsters say that the software giant is reducing the price of each model by $150, which will bring the entry-level 32 GB model down to $350 and the 64 GB model to $450. Adding a Touch Cover will tack on $100 to the price tag. Like its rivals, Microsoft is likely preparing to launch a new generation of Surface devices, so the discount will help spur sales and clear out inventory.
In March, Bloomberg had reported that Microsoft had sold 1.5 million Surface units since the October launch, which was shy of expectations. Of these, 400,000 were Surface Pro tablets, which launched in February. IDC estimated that Microsoft shipped 900,000 in each of the fourth and first quarters, totaling 1.8 million in channel shipments. The company has also been hoping for Surface to gain traction in the education market, offering the device for as little as $199.
At $350, Surface RT will be the most affordable large-sized tablet among the major tech players. Google sells the Samsung-built Nexus 10 for $400, but Big G has resisted cutting the price of the Nexus 7 even with new models imminent. Apple has always stood pat at $500 for its flagship iPad with Retina display. Samsung's new Galaxy Tab 3 10.1 is also priced at $400.
Microsoft is putting a whole lot of weight behind its future as a devices-and-services company. To that end, it will be interesting to see whether or not the company discontinues the first-generation model once Surface RT 2 launches, moving them down to lower price points to expand the product lineup, or if it discontinues it. Both Amazon and Apple use the strategy of offering older models at lower prices.
Perhaps the company is retreating from the $500 price point altogether, as no tablet rival has challenged Apple directly at $500 thus far with even remote success. Pricing Surface RT at $400 or lower in the long term is a much better bet.
Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.