Last week, Microsoft (NASDAQ:MSFT) launched the Surface 3 tablet. Meanwhile, an avalanche of affordable, Windows-powered netbooks puts pressure on the lower end of the portable computing market. But Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and its partners are fighting back with a brand new slate of Chromebook systems.
Chromebooks have become a serious threat to Microsoft's tight grip on the low-end laptop market. Microsoft obviously wants to stem the tide of Chromebook defectors with this one-two punch of decent and affordable systems.
Is the latest wave of even cheaper Chromebooks what the doctor ordered to keep Google's ambitions alive?
What's going on?
Not to be confused with the high-end Surface Pro 3, Microsoft has priced the Surface 3 to move. It is, however, a capable machine that could replace a laptop. Microsoft is also happy to compare it to the Apple (NASDAQ:AAPL) iPad Air 2. Apple most definitely thinks of its best iPad as a premium product, yet Redmond is not shy about positioning the Surface 3 as an affordable alternative to the iPad Air 2.
With pre-orders starting at $499, the Surface 3 matches the iPad Air 2 dollar for dollar. At that level, the Microsoft system beats the iPad's hardware offerings, though. The $499 iPad Air 2 comes with a measly 16 gigabytes of storage versus the Surface 3's 64 gigabytes. Matching up the hardware stats as closely as possible, the Apple product tends to run about $100 higher.
So Microsoft kinda, sorta delivers better bang for the buck than Apple here, at least on paper. This battle for consumer bucks takes place in the lower stratosphere above the Chromebook market -- far enough to address a different target audience, but close enough that some customers will bleed over from one level to another.
What about Chromebooks?
The Chromebook Pixel, starting at $999 and competing with full-featured notebooks, is the odd man out in Google's Chromebook portfolio. Otherwise, these network-addicted little systems generally run from $200-$350, depending on the screen size and processor power you want.
These devices nibble at the underbelly of the market for netbooks, lightweight notebooks, and large-screen tablets. Their two biggest selling points have been cloud-powered flexibility and bottom-dollar pricing.
The systems announced last week underscore the pricing advantage. Google's online store often presents other entry-level Chromebooks as serious computing solutions. The popular Samsung Chromebook 2 is said to be "Fast, Light, Portable," for example. The Acer Chromebook 15 comes with a wider screen, so you can "see everything at once."
Not so with the ultra-affordable systems that hit the store last week. The Haier Chromebook 11 is "light and portable," and mum's the word on performance. The Hisense Chromebook is shown in an even more utilitarian light: "Sturdy and easy to grip."
These Chromebooks play a mean game of pricing limbo, dipping all the way down to $150 apiece. And here's the crazy part: The Haier and Hisense boxes are no worse than the $200 systems they're pushing aside.
Sure, both systems are built around no-name components like the Rockchip RK3288 core processor. Systems like the entry-level Samsung Chromebooks come with processors otherwise found in flagship smartphones or decent laptops, not no-name Chinese alternatives.
But the machines still deliver a surprisingly pleasant user experience, despite their lightweight hardware choices. That's the word from the tech experts at Ars Technica, who gave the Hisense Chromebook a hands-on review and walked away un-disappointed.
If that sounds like a backhanded compliment, that's exactly what I mean. The reviewer expected a creaky, gnarly experience with low production values and the occasional hiccup. That's exactly what happened, but Hisense didn't cut any corners that weren't already slashed in a $200 Chromebook.
"The Hisense Chromebook isn't going to win any awards, but at a certain point you have to ask yourself what you could possibly expect for $149," said reviewer Andrew Cunningham. You get what you pay for, and you're not paying much.
The road to mass-market El Dorado
These machines can steal market share from the Surface 3 and iPad Air 2 only when the customer just wants a working computer at the lowest possible price point. But that's a rather large market opportunity, including a lot of systems bought by schools. That's a particularly attractive sales opportunity, because it can make children comfortable with the Chromebook environment at an early age and set them up for some lovely Google brand loyalty down the road.
Cynical? Sure. But it's also a road well traveled by Apple and Microsoft. Whatever desktop/notebook computer you use today was very likely foreshadowed by the systems you saw in school or at work. It's a prime marketing strategy.
To combat $150 Chromebooks at the school-system level, Microsoft needs something more affordable than the Surface 3. Moreover, it needs something more palatable than the unpopular Windows 8 operating system. Three years into the supposed Windows 8 era, the latest and greatest Microsoft platform is still eclipsed in terms of market share by graybeard Windows XP, now in its 14th year of existence and second year of going without security patches.
That's where Windows 10 comes into play.
The next Windows version brings back some features that were sorely missed in the Windows 8 series, including the familiar Start menu. Bringing that down-home familiarity into an otherwise modern and secure operating system should be enough to convert millions of users clinging to Windows 7 or XP today. Many potential Microsoft buyers are holding back on picking up new hardware until Windows 8 is dead and gone -- and its replacement is proven to work as expected.
Moreover, Microsoft CEO Satya Nadella has tied the new Windows version to a very different licensing policy. Windows 10 will be free in many instances, especially when sold as part of a small-screen system. That alone reduces the final cost to consumers, IT directors, and school system purchasers by a significant amount.
You can pick up Windows 8-powered netbooks for about $200 today. With Windows 10 aboard, you should expect a flurry of systems at the $150 price point, matching the low-cost appeal of Chromebooks.
The battle at the higher end will certainly get more column inches in the press. But low-margin sales on a massive scale, which is what you'll see in the cheaper price range, are more likely to cement consumer preferences for years to come.
Sure, keep an eye on the Surface 3 versus iPad Air 2 and Chromebook Pixel, because these systems all promise a lot more fun and functionality. Just don't forget about the cut-rate tablets and notebooks changing hands for far less than $200 apiece. It's where the trend-setting rubber really hits the road, and where Google faces off against Microsoft most intensely.
Anders Bylund owns shares of Google (A shares). The Motley Fool recommends Apple and Google (A and C shares). The Motley Fool also owns shares of Apple and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days.