At Computex 2014, there has been a flurry of interesting products based on Intel's (NASDAQ:INTC) Bay Trail and Microsoft's (NASDAQ:MSFT) Windows 8.1, spanning tablets all the way through 2-in-1 convertibles. One of the more interesting ones, however, is the recently announced Emdoor-I8080 tablet. This is a full Windows 8.1 device that sports a quad-core Intel Z3735E apps processor, 1 GB of RAM, 16 GB of internal storage, and a 1280x800 8-inch IPS display. Technical details aside, the point here is that Windows 8.1 tablets are now extremely affordable, which could drive upside for both Intel and Microsoft in this market.
What does Microsoft get out of this?
We know Microsoft doesn't get paid for a Windows 8.1 license for devices that have screens at or below the 9-inch mark, so the sales of these devices won't directly affect Microsoft's bottom line. However, from a strategic perspective, there are a number of wins that come from the broad adoption of Windows 8.1 as a tablet consumer platform.
First and foremost, a customer happy with a Windows tablet may also opt for a Windows notebook or desktop, as well as a Windows Phone device. Next, if consumers broadly adopt these platforms, developers will be much more eager to bring their development energies and dollars to Microsoft's platforms. Microsoft is surely working with developers to bring over key applications -- and many have made it -- and device ubiquity will surely speed up that process.
In short, Microsoft's OS wins in both tablets and phones are strategic, and success should be measured by developer attention and user base, rather than financial success in the near term.
How about Intel?
A couple of years ago, Microsoft announced Windows RT in an attempt to bring ARM Holdings (NASDAQ:ARMH)-based processors to Windows. Of course, Intel had the distinct advantage of having just about the entire Windows application ecosystem basically written to run only on Intel-compatible processors. Intel quickly rolled out a suite of competitive, low-power processors that offers strong performance per watt relative to what the ARM players were offering and quickly got all of the major tablet OEMs building Windows designs onboard.
Today, with Bay Trail-T, Intel's platform bill of materials is too rich for these cheap tablets by about $10 to $20 per unit. So, to allow these systems to happen while Intel fixes future generation products, Intel will be providing a "contra-revenue" offset to compensate for that bill of materials bloat. This should go away in subsequent product generations, and as a result, the incremental Windows 8.1 tablet demand should be all revenue and margin dollar upside for Intel in 2015 and beyond.
Foolish bottom line
While it's still unclear how customers are going to react to very low-cost Windows 8.1 devices, particularly given the ubiquity of Android and devices that run it, Microsoft now has a fighting chance to gain tablet share across the spectrum. Intel will probably power most, if not all, of these devices in the long run as the ARM-based Windows RT has more or less failed, and Advanced Micro Devices (NYSE: AMD) -- Intel's chief competitor on Intel architecture -- doesn't seem to be able to keep up with Intel's product roadmap.
Ashraf Eassa owns shares of ARM Holdings and Intel. The Motley Fool recommends Apple and Intel and owns shares of Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.